Norway Backs Its Ethics With Cash
by Mark Landler
This article is originally from the New York Times: http://query.nytimes.com/gst/fullpage.html?res=9E01E1DB113EF937A35756C0A9619C8B63&sec=&spon=&pagewanted=3
For a people whose deep national pride is in bestowing the Nobel Peace Prize, Norwegians are developing a reputation for throwing some sharp elbows.
And they are doing so in an unexpected way: by pulling investments out of Wal-Mart and other big companies like Boeing and Lockheed Martin for what they say are ethical failings.
Norway has amassed a fortune of more than $300 billion over the last decade, thanks to its profits from oil exports. Yet few countries are more ambivalent about their vast wealth than this modest, socially conscious society of less than five million people.
So rather than managing their monstrous nest egg simply for the best returns, the reluctant billionaires of Norway are using the money to advance an ambitious ethical code they established in 2004 for their oil reserve, known as the Government Pension Fund.
Norway's investment choices have become a focus of attention in the last nine months over the exclusion of Wal-Mart, the American retailer whose big-box stores do not exist in this pristine country.
Public pension funds on both sides of the Atlantic commonly avoid investing in certain companies on social or ethical grounds. But it is rare for a sovereign state to make such judgments, and rarer still for one to do it in the pointed, public way that Norway has.
Among the first companies to run afoul of Norway's standards were makers of cluster bombs and nuclear weapons or related components -- a list that includes General Dynamics and Northrop Grumman, in addition to Boeing and Lockheed Martin.
Then last June, Norway added Wal-Mart Stores to its blacklist, alleging that the retailer was guilty of tolerating child-labor violations by its suppliers in the developing world and obstructing unions at home. The fund sold off more than $400 million worth of Wal-Mart shares.
That drew a sharp protest from the American ambassador to Norway, Benson K. Whitney, who accused the government of a sloppy screening process that unfairly singled out American companies.
''An accusation of bad ethics is not an abstract thing,'' Mr. Whitney said. ''They're alleging serious misconduct. It is essentially a national judgment of the ethics of these companies.''
Mr. Whitney, a venture capitalist from Minnesota with ties to the Bush administration, said Norway has taken aim at companies arbitrarily, based on unreliable third-party reports and, in the case of Wal-Mart, on a cottage industry of Wal-Mart bashers.
A spokeswoman for Wal-Mart, Beth Keck, disputed Norway's allegations, saying they were based on inaccurate and outdated information. After initially disregarding Norway's allegations, Wal-Mart late last year sent two senior executives to plead its case with Norwegian officials, and the two sides continue discussions.
Twelve of the 21 companies on Norway's excluded list are American. But the problem is not just that the blacklist has a red, white and blue tinge, Mr. Whitney said. Norway, he said, has not created a consistent policy for separating the good from the bad.
''I'm not sure the Norway government understands the power of being one of the largest investors in the world,'' he said.
Norwegian officials reject the criticism, saying they have devised a policy that compares well with major funds in Europe and the United States that practice so-called socially responsible investing.
''We've managed to combine professional fund management with an ethical approach,'' said Kristin Halverson, the Norwegian finance minister. ''We see them as two sides of the same coin.''
Socially responsible investing, she said, has not hindered the fund's performance. In 2006, it generated a return of 7.9 percent, a shade higher than the government's target.
Ms. Halverson is an unlikely choice to oversee one of the world's richest funds. She is the leader of the Socialist Left Party, which draws support from students, teachers and left-leaning intellectuals.
Since entering the government in late 2005, she has made it clear that she would like to expand Norway's social agenda. Among the next companies that could be scrutinized are those that contribute to global warming.
''In a global economy, ownership of companies is the most important way to have influence,'' Ms. Halverson said.
Norwegians have long viewed themselves more as humanitarians than oil barons. The country played a central role in pushing a United Nations treaty banning land mines, and it was host for the Oslo peace talks between Israel and the Palestinians.
Still, as the world's No. 3 oil exporter after Saudi Arabia and Russia, Norway's wealth has become harder to ignore.
The government began salting away its oil proceeds in a special reserve in 1996. Known until last year as the Petroleum Fund, it was renamed the Pension Fund, which is supposed to make Norwegians aware that the fund's purpose is to provide for future generations.
With the spike in oil prices, it has become the biggest public fund in Europe. At the rate it is growing, experts say it will be worth $800 billion to $900 billion in a decade. That translates into $180,000 for every man, woman and child in Norway.
''Inevitably, Norwegians feel bad about having all this money,'' said Gro Nystuen, a human rights lawyer who is chairman of an ethics council that screens investments. ''Our job is to make the Norwegian people feel less guilty.''
Even before the ethics code was adopted, Norway placed restrictions on where the fund could put its money. To avoid overheating the economy, it can invest only in companies outside Norway. Half its holdings are in Europe; about 30 percent are in the United States.
''We basically own a slice of the world,'' said Henrik Syse, who runs the fund's corporate governance department at the Norwegian central bank.
A moral philosopher by training, Mr. Syse said he drew on the likes of Aristotle, Kant, and Mill in his efforts to influence the behavior of companies. While he tries to redeem companies, the ethics council decides which ones are destined to fall short.
The grounds for exclusion fall into five categories: serious or systematic human rights violations; serious violations of individual rights in war and conflict; severe environmental damage; gross corruption; and other serious violations of fundamental ethical norms.
The decision to ban makers of land mines and cluster bombs was widely accepted here, though when Norway added companies involved in nuclear weapons production, a few critics noted that the country had willingly taken shelter under NATO's nuclear umbrella. The fund sold off nearly $1 billion worth of stock in all these companies.
Representatives of Boeing and Lockheed Martin declined to comment on Norway's decision.
Among other companies on the list is the American mining company Freeport-McMoRan, which Norway accuses of severe environmental damage at its copper and gold mine in Indonesia.
Freeport responded to the allegations with a 25-page, point-by-point rebuttal. Norway's report, it said, ''is utterly false and bears no resemblance to our company and its operations.''
Branching out from companies to countries, Norway recently said that it would not invest in Myanmar, formerly known as Burma, which has jailed the democracy activist Aung San Suu Kyi.
Critics see a slippery slope. There is already a move to add tobacco companies to the excluded list. If Myanmar is banned, than why not also shun Saudi Arabia, with its record on women's rights? Then again, Norway's state oil company, Statoil, is active in Islamic countries.
''There is a double standard,'' said Christian Tybring-Gjedde, a memberof the opposition Progress Party.
Ms. Halverson acknowledged the dilemma. Blacklisting companies that worsen climate change, she said, would put Norway in an awkward spot as its national fortune rests on fossil fuels.
Wal-Mart was the first company singled out for human rights violations. In its report, Norway alleged evidence of child labor and dismal working conditions at factories owned by Wal-Mart suppliers in Bangladesh, China and elsewhere.
The report cites news articles, legal complaints and findings from labor organizations, much of which Wal-Mart says are inaccurate or outdated. Yet when Norway submitted its report to Wal-Mart last March, the company ignored it.
That was a mistake, Ambassador Whitney said, and Wal-Mart is not disputing him. ''It has been a learning experience for us,'' Ms. Keck said.
Now that Wal-Mart is in touch with the government, Norway said it would be open to reviewing its status. Ms. Keck declined to say whether Wal-Mart was seeking to be reinstated.
For Mr. Whitney, Wal-Mart illustrates a weakness in Norway's screening process: with few resources and thousands of companies to cover, it will choose to screen those from countries with freer flows of information. Many of these happen to be American, he said.
While Mr. Whitney stopped short of saying there was a political motive behind the selection, he said, ''the process invites the accusation because of its lack of rigor.''
While Norway and the United States have had warm relations, Americans here point out that in its manifesto, the Socialist Left Party describes the United States as ''the greatest threat to world peace.''
Ms. Halverson waves away suggestions of anti-Americanism. ''Of course it is easier to investigate American companies,'' she said. ''But Wal-Mart had the chance to answer.''
Why are so many of the companies American? ''It is your dominance of the world economy,'' Ms. Halverson said, smiling and shrugging her shoulders.
Photos: Kristin Halverson, the finance minister, said the Pension Fund ''managed to combine professional fund management with an ethical approach.''; The American ambassador to Norway, Benson K. Whitney, said a sloppy screening process unfairly excluded United States companies. (Photographs by Cornelius Poppe/Scanpix)(pg. C4); (pg. C1)
Chart: ''Norway's Government Pension Fund cites the following ethical concerns for not investing in these companies:''
CLUSTER WEAPONS OR RELATED PRODUCTION
Alliant Techsystems U.S.
General Dynamics U.S.
L-3 Communications Holdings U.S.
Lockheed Martin U.S.
Poongsan Corp. South Korea
Freeport McMoRan Copper and Gold U.S.
DRD Gold South Africa
Wal-Mart Stores, Wal-Mart de Mexico U.S.
NUCLEAR WEAPONS OR RELATED PRODUCTION
BAE Systems Britain
EADS, EADS Finance
Honeywell International U.S.
Northrop Grumman U.S.
United Technologies U.S.