Responsible investments SRI Report June 2010 Content 2 About KLP 4 Dear reader 6 How to be a responsible investor 8 KLP as an environmentally responsible developer 10 Finalist in environment prize 11 Active management and sustainable growth 12 Impressions from China 13 Focus on oil sand 15 Vote for the majority of our holdings 16 Voting 18 Dialogue, observation and exclusion 19 Observation 21 Improved labour relations 24 Excluded companies
Companies excluded for: 25 Human rights 28 Labour rights 29 Environment 30 Corruption 31 Weapons production 35 Good performance of ethical investments About KLP
KLP as a fi nancial Asset classes Assets under Both active KLP Obligasjon I funds. These investments are services company The KLP Group manages management and passive KLP Obligasjon Global I long-term commitments. KLP’s Kommunal Landspensjons- 258.1 Billion Norwegian KLP Kapitalforvaltning and management KLP Obligasjon Global II private equity program is still kasse (KLP) is one of Norway’s kroner, divided between KLP Fondsforvaltning, both KLP Statsobligasjon in an early stage of develop- largest life insurance compa- several asset classes. subsidiaries of KLP, manage wKLP Fondsforvaltning is ment. As one of the larger nies. The company provides around 175 Billion Nor- Norway’s leading index fund Norwegian investors, KLP is pension, fi nancing and KLP Kapitalforvaltning and wegian kroner in fi nancial provider. We off er global and KLP AksjeNorge often represented in these insurance services to the local KLP Fondsforvaltning are instruments for KLP (March regional index funds in the KLP AksjeNorge Indeks I-II funds’ investor committees. government sector and state responsible for all of KLP’s 31, 2010), and its subsidiar- US, Europe and Asia within KLP AksjeNorden These committees function as health enterprises, as well as internal asset manage- ies, as well as other institu- the MSCI World Developed KLP AksjeEuropa Indeks I-II a link between the funds and other businesses both in public ment, while KLP’s Finance tional and private customers. Universe. We also have a KLP AksjeGlobal Indeks I-IV its investors. and private sectors. Department controls asset In total, we have 3.600 Norwegian index fund which KLP AksjeUSA Indeks I-II allocation in the common customer relationships in our tracks the Oslo Børs Bench- KLP AksjeAsia Indeks I-II External management KLP’s main product is portfolio. funds. KLP Fondsforvaltning mark Index. In addition to private equity, occupational pensions and is Norway’s third largest fund Please read more about our KLP has also invested in pension fund services. More management company. Our index management takes funds on www.klp.no. other external equity and 11.3% 13.1% than one in eight Norwegians Property Equities advantage of a secure and fi xed income funds, which have their pensions with KLP. 14.1% automatic system. Our are mainly used in areas The company also provides Lending 23.4% eff ective management and where KLP does not have Short- insurance services both to in- term economies of scale, allow us internal expertise. dividuals and the public sector. bonds to provide low-cost asset KLP Eiendom is one of the management. Annual Microfi nance largest property managers in management fees are as low KLP has made a commitment Norway. KLP provides a wide 34.3% 3.7% as 0.10 percent. to invest 75 Million Nor- Long-term Liquidity, 72% 23% range of lending services and bonds money World Norway wegian kroner in the Norwe- has established its own bank market gian Microfi nance Initiative Regional distribution of KLP’s equity in 2009, KLP Banken. investments by market value (NMI) over the coming years. Investments in the main portfolio (March 31, 2010). 5% The mutual ownership model (the common portfolio) by asset class Nordic All of KLP’s investments are (March 31, 2010). region of the parent company, in subject to KLP’s Policy for which a customer is also an The KLP Other Responsible Investments. owner, means that KLP must always supply products and mutual funds management solutions in consultation Fixed income funds: Private equity with its customers. KLP was KLP Aktiv Rente KLP invests in private equity founded in 1949 and has a KLP Rentefond II (including venture capital), total of 700 employees. KLP Pensjon I-II mainly through private equity
2 SRI REPORT 2010 PAGE 3 Dear reader, For During the past six months, we have travelled to China and to the oil sand areas in Canada to learn more about the challenges and opportunities faced by Norwegian companies in China and about the extraction of oil from the tar sands. This report includes travel logs the days from these trips.
During the spring, we have also focused We were extremely proud to hear in April on strategy development. We work in an this year that KLP is one of six fi nalists to come. relatively new fi eld – responsible investments nominated for the Nordic Council’s Nature – for which there are very few established and Environment Prize. The reason for KLP’s standards, research or traditions which clearly nomination is our initiative to develop the defi ne what has to be done, how to do it, Sustainable Value Creation project. The how much to do and what performance to decision as to who will win this prestigious expect. Consequently, KLP and like-minded prize is being made at the time of writing. organisations are constantly striving to develop this fi eld and we are to a large The fundamental concept behind Sustainable extent playing a role in setting the standard Value Creation is a collaboration between for responsible investments. investors in order to achieve the initiative’s goal. As such, if KLP were to win the prize, it One result of this work is the introduction would be shared with numerous Norwegian of a new criterion for exclusion and dialogue and Swedish investors who have supported which we have defi ned as breaches of and played a part in developing Sustainable business ethics. The new criterion is based Value Creation (Bærekraftig verdiskaping in on the fact that we often face expectations Norwegian and Hållbart värdeskapande in as shareholders to react to actions or Swedish). behaviour which are considered censurable, irresponsible or immoral. This issue does not In conclusion, we would like to thank all our involve the environment or social problems business colleagues for their eff orts and hope however, but shareholder discrimination, you keep on reading! insider trading, unacceptable competition restriction etc.
With this new criterion, our aim is not to exclude more companies, but to enter into discussions with companies, hoping to encourage them to change their behaviour Jeanett Bergan and prevent similar situations in the future. Head of Responsible Investments
4 How to be a responsible investor 3 tools Our fi rst and foremost responsibility is to meet our fi nancial obligations. KLP manages 258 Billion Norwegian kroner and more KLP’s responsible investment strategy than a half of a million Norwegians have their pensions with KLP. Active ownership and engagement It is our responsibility to enhance long-term value. However, we are Exclusions not indiff erent as to how we achieve this goal. Sustainable investments
There are two rationales for KLP having a The rights of individuals in situations of > Sustainable Value Creation Sustainable investments strategy for responsible investments. First, war or confl ict > Controversial Countries Engagement KLP believes in combining profi t with other we do not want to contribute to violations Other fundamental ethical norms > Carbon Disclosure Project (CDP) gains. By considering the environment, of international norms. We want companies people and communities, investment risk to comply with the minimum standards that KLP engages in dialogue with companies in Also read about: can be reduced and/or a higher profi t can the international community has agreed breach of these conduct based criteria. > Dialogue, observation and exclusion be created. upon. (page 18) > Norwegian Microfi nance Initiative KLP also have product based exclusion > Active management and sustainable Second, we assert that sustainable busi- criteria. KLP do not invest in companies A direct way for a shareholder to infl uence growth (page 11) ness practices will reap long-term rewards. producing: a company is voting at annual general Pension fund providers, such as KLP, are Weapons violating humanitarian principles meetings. International norms long-term investors, and as such, we gain (e.g., nuclear weapons, landmines and > KLP’s and the KLP mutual funds’ voting Our strategy is based on internationally little from companies’ short-term returns, cluster bombs) activities (page 15–17) recognized principles. KLP is a member of if they damage long-term performance. To Tobacco the UN Global Compact and our exclusions operate responsibly and sustainably is also To sell the stocks – the last resort will primarily be due to complicity with UN an eff ective risk management strategy. We use three tools for infl uencing com- KLP will not compromise ethics for profi ts. conventions or the OECD’s Guidelines for panies and society towards sustainable In 2002, KLP was the fi rst Norwegian life Multinational Enterprises. Conduct based development. These are active ownership insurance company to establish a compre- and product based criteria and engagement, exclusion, and sustainable hensive ethical investment policy which KLP is also a signatory of the UN Principles Our engagement and exclusions address investments. encompasses its entire fi nancial investment for Responsible Investments (UNPRI) and a sustainable business conduct in line with universe. has made the commitment to incorporate international norms and conventions in the Active ownership and engagement environmental, social and governance following areas: In addition to dialogue on the areas men- Divestment will be a last resort when issues into our investment decision-making Human rights tioned above, we are working with a number violations are severe or systematic, and processes and ownership practices. Our Labour rights of initiatives in which KLP engages with com panies seem unwilling to change or implementation of the PRI is rated every Environmental degradation companies. The purpose of these initiatives improve their behaviour. year. The rating results are published at Corruption is to promote a responsible business con- > Reasons for exclusion (page 25) www.klp.no. Business ethics duct that is sustainable in the long-term.
6 SRI REPORT 2010 PAGE 7 RESPONSIBLE PROPERTY MANAGEMENT NORWAY’S MOST EFFICIENT OFFICE BUILDING KLP as an KLP Eiendom’s “Miljøbygget” in Trondheim was named Building of the Year 2009. The jury’s conclusion included the following statement: “The jury believes that the capacity of this project to involve all parties, including builders, has been a signifi cant factor in achieving the extremely high environmental qualities and low energy requirement for the building. With an estimated annual requirement for energy purchases of 83 kW/hour m2 per year, the building is today Norway’s most environmentally energy eff icient off ice building.” responsible developer CERTIFICATION KLP Eiendom achieved an ISO 14001 certifi cate from Det norske Veritas in 2009. This involves a commitment to make continuous improvements to environmental factors and to fulfi l all requirements A model project for collaboration and the environment, was the from the authorities and in-house requirements. jury’s conclusion as they named KLP Eiendom’s “Miljøbygget” in Our parent company KLP (Kommunal Landspensjonskasse) was granted an Eco-Lighthouse certifi cate in Trondheim Building of the Year 2009. 2009.
Competing with over 100 completed building confi rms Director of Quality and Environment natural part of our activities and is fully inte- which can reduce environmental impact and projects, KLP Eiendom’s 16,400 square metres in KLP Eiendom, Knut Helge Sandli. “The grated in daily operations,” states Mr. Sandli. CO2 emissions. building came out top of the class. This takes high-tech centre or Teknobyen in Trondheim KLP a step closer to achieving their vision now covers almost 40,000 square metres of The company has prepared an vivid environ- “We enter into collaboration projects to help of creating a techno-city; a main hub for environmentally friendly buildings. We have mental policy with which to help reduce motivate our lessees and other partners to research, education and business development additional plans for around 35,000 square its impact on the environment and climate reduce their impact on the environment and connected to the Norwegian University of metres more,” explains Mr. Sandli. and to promote new behavioural patterns, climate,” concludes Mr. Sandli. Science and Technology (NTNU), the National products , services and technical systems Institute of Standards and Technology, Sintef Building for the future and St. Olavs Hospital, focusing on the fi elds “KLP Eiendom’s aim is to build environ- of medicine, health and technology. mentally friendly off ice buildings for the HELP US FIGHT CORRUPTION! future. This is an important element of KLP’s Innovation corporate responsibility. We constantly The NGO Publish What You Pay (PWYP) with relevant and useful information taken KLP Eiendom has traditionally been a com- assess potential improvements and enhance has managed to convince the International from a risk, value assessment and opportunity pany founded on safe and proven quality our positive contribution to society via our Accounting Standards Board (IASB) to discuss perspective. Moreover, the reports will have buildings, but decided in the winter of 2006 business activities,” confi rms Eli Bleie Munke- their proposal in a consultative document positive repercussions such as fi ghting to enter into cooperation with Enova. lien, Vice President CR. regarding the new international accounting corruption, ensuring fair competition, making standard (IFRS) for the extractive industries. the fl ow of money and values to and from
The goal is to ensure that they report payments authorities transparent, and combating tax “Our target when entering into this coope- Environmental concerns is a key aspect in to authorities, reserves, production volumes, havens. ration was to develop fi rst class projects property development. production income, costs and assets on a in terms of energy-saving initiatives. This country-by-country basis. This reporting In 2008, KLP sent a letter to the IASB, required us to change our approach to “Our responsibility towards the external standard may help counteract corruption and expressing our support for the PWYP proposal. our projects, becoming more innovative,” environment and climate has now become a promote responsible business conduct and We intend to send a similar letter during this responsible management of resources in poor phase of the process and encourage other countries which often have bountiful resources. investors and relevant organisations and KLP EIENDOM companies to do the same. We would be happy KLP remains involved in this process. As an to help in the wording or format of your letter, KLP Eiendom is one of the largest property management companies in Norway, with over 1,300,000 investor, KLP is of the opinion that this will or to answer any questions. Please contact us at square metres of property, comprising off ice and commercial premises, shopping centres, hotels, homes provide investors and users of fi nancial reports [email protected]. Send your letter now! and leased land.
8 SRI REPORT 2010 PAGE 9 Finalist in Active management environment prize and sustainable growth Sustainable business management goes hand in hand with KLP’s long-term KLP is nominated to the Nordic Council’s Nature and Environment investment philosophy, according to Niklas Hallberg, the Head of KLP’s Prize 2010. The prize will be awarded to an institution which has actively managed mandates.
made an impact on the fi nancial markets and encouraged them to KLP’s commitment to infl uence companies relation to its potential and the risks we integrate sustainability into their asset management. towards responsible and sustainable business identify. Our job is to detect potential areas management is in perfect harmony with our for growth which have not been recognised “We are delighted of course for the sustainable development and long-term long-term investment philosophy. by other players in the market and which are nomination, it is a great acknowledgement. value creation. For more information on this therefore not considered in the market price. We have invested considerable resources initiative and the results of the study, go to – We are constantly seeking companies with Environmental issues can have an impact on over the past decade towards ensuring www.svcinitiative.com. business models which are viable over time. both risk and return projections and are a that the ownership and asset management This is based on the realisation that up to perfect example of this type of “undetected” represented by KLP can be utilised to make KLP’s investments in other companies are 80-90 percent of the price of a company is market element. the world a better place,” confi rms CEO of governed by ethical minimum requirements determined by its earnings generated after KLP, Sverre Thornes. based on central UN conventions. In practice, the “estimate period”, which is most often Recently, we have increased our focus on this implies that KLP, for example, may the next couple of years after investment. the correlation between a company’s CO2 “With our pension funds, we manage exclude companies in breach of international With this time-frame in mind, we expect the emissions and its share prices. We have more than NOK 200 billion. We want environmental conventions. One important companies in which we invest to assume an analysed external studies and carried out our our customers, municipal employees and element in this strategy is to maintain active active attitude to all signifi cant factors which own internal study within the boundaries health sector employees to feel safe in the discussions with the excluded companies in may have an impact on future value creation, of our Nordic investments. The resulting knowledge that their pension funds are order to help them improve their practices. says Niklas Hallberg. picture is somewhat mixed. We did fi nd a managed in an ethical and environmentally correlation however in certain industries and safe manner,” he adds. KLP’s partnership in the Carbon Disclosure As active managers, we will also constantly this is information we intend to apply to our Project (CDP) is yet another factor in consider the pricing of the company in business management. According to the Nordic Council secretariat, KLP’s eff orts to increase awareness of the prize will be awarded to an individual, environmental and climate-related problems SPEAKING ON BEHALF OF OUR SHARES company, organisation or medium, which has within the investment industry and among made an impact on the fi nancial markets, companies. CDP is a project workinng for the KLP and KLP’s mutual funds vote at practically all general meetings in the the asset management industry, banks or improvement of reporting and understanding Norwegian publicy listed companies in which we are shareholders. This consultants, and encouraged them to adopt of risks related to greenhouse gases among year, we have summarized our corporate governance policy in a new a long-term perspective and integrate the world’s largest listed companies. document: KLP’s and the KLP mutual funds’ voting guidelines. In sustainability into their asset management. this document we outline, among other things, how we think that The original 15 nominations for the prize remuneration programs should be structured. The background for KLP’s nomination is have been whittled down to six for the fi nal During the fi rst half of 2010 we have sent letters to almost their initiative Sustainable Value Creation, a round. Three of the fi nalists are from Norway 60 companies to give the grounds for out voting decisions at their collaboration project between a group of the (KLP, Storebrand and Cultura Sparbank), general meetings, and to inform about out voting guidelines. largest institutional investors in Norway and two from Sweden (Ekobanken and GES Sweden. The aim is to infl uence companies Investment Services) and one from Denmark The guidelines are published at www.klp.no. You can also check which general meetings we have voted at and, in the cases where we have voted against a resolution, read our reasoning. listed on the stock exchange towards a (Merkur Andelskasse).
10 SRI REPORT 2010 PAGE 11 Impressions Focus on from China oil sand In February this year, we took a trip to Beijing and Shanghai to Numerous oil companies have chosen to invest in Canada’s oil sand. visit Norwegian companies operating in these two cities. Norwegian Concerns relating to the projects have been discussed at several companies are proud of their foreign business and are more than general meetings this year. The projects are associated with high willing to show Norwegian investors around. risk fi nancially and in terms of the environment.
We paid a visit to the Norwegian embassy in addition to health, safety and the working KLP visited Alberta in Canada to meet with in both Canada and abroad, the report states in Beijing, Det norske Veritas and Stolt environment. The attitudes in China towards companies, authorities, researchers and other that oil sand extraction will most probably Nielsen’s terminal on the outskirts of Beijing. some of the above-mentioned areas diff er experts in addition to representatives from only be profi table if oil prices exceed USD In Shanghai, we visited the Orkla company from those in Norway. On the environmental the indigenous populations. 65 per barrel, and maybe as high as 95. The Sapa and their aluminium production front, China has at times had a poor report states however that an excessive price plant, DnB NOR and Aker Solution’s rig reputation. However, they are in the process The main concerns regarding oil sand are – USD 120 to 150 per barrel – will prob ably construction activity at one of China’s major of developing their environmental legislation centred on the environmental impact. Extrac- result in movement in the market and make shipyards. and the companies we visited reported an tion is connected with emissions to air, water other forms of energy more profi table. increase in requirements and expectations. and ground along with a high consumption The China we visited is a country with The country is aware of the challenges faced of water and energy. The oil extracted from BP and Shell enormous growth and vast potential. by climate change, and its development oil sand is very energy-intensive and causes The oil sand projects have been on the It is diff icult to comprehend the size towards a more sustainable society is higher CO2 emissions than extraction of most agenda of several annual general meetings. of the country, and the challenges and moving at a rapid pace. other types of oil. Criticism also relates to the KLP voted in favour of the proposal made opportunities presented by its geography eff ects of oil sand extraction on biological during the AGM for BP, Shell, Conoco Phillips and size. The Chinese government is strong The authorities’ reactions to unsatisfactory diversity, potential health-related conse- and Exxon Mobil. The proposals stated that and plays a dominant role. This also applies behaviour can be crucial, creating a quences and the indigenous people’s rights the companies should submit reports on the to business and commerce, where the disciplinary eff ect. One example of this to the land. risks related to oil sand investments. government is recognized as an ambitious is corruption which, in the most severe business partner. cases, has incurred the death penalty. The At the same time, the oil companies have Statoil scandal created by the dairy products identifi ed vast opportunities in the extraction A shareholder proposal that Statoil should China appears to be strictly governed but being contaminated with melamine (see of what are today the world’s second largest withdraw from its oil sand project has also at the same time unpredictable and not reasons for exclusion of China Mengniu oil reserves. The companies also rely on been fi led. KLP and the KLP mutual funds always convincing in all aspects. It appears Dairy) resulted in death sentences for those improvements to technology which reduce have chosen not to support it. We will that success is not attainable without a responsible. water consumption, environmental impact continue to apply pressure on the company local representation and knowledge of the and CO2 emissions. and have stated our expectation that the country and culture. However, China is a country of vast company does its utmost to extract the oil diff erences, a fact that clearly marks also A report from Ceres and RiskMetrics con- in a responsible manner, in line with inter- As we travelled in China, we focused on the the areas of corporate responsibility. cludes that the risk related to soil sands is national standards for the environment. We challenges and opportunities faced by the extremely high and that the potential for have communicated our position in meetings companies in relation to employee rights, fi nancial return is on the decline. In line with with the company and in a statement to the human rights, environment and corruption the increase in environmental requirements general meeting in 2009.
12 SRI REPORT 2010 PAGE 13 Vote for the majority Responsible of our holdings The general meeting is an important arena for dialogue between corporate management and shareholders. As owner in many listed companies, KLP investments and KLP’s mutual funds use their voting rights actively - both in Norway and abroad.
KLP and KLP’s mutual funds have established Out voting activity shall protect our their own guidelines for voting at general interests as owners – not only with regards meetings. These guidelines are published to traditional corporate governance and from a low- on the homepage, and are based on the fi nancial issues, but also with regards Norwegian Code of Practice for Corporate to companies’ environmental and social Governance. impacts. We vote in favour of resolutions that are considered to enhance a long-term, The voting decisions in Norwegian companies sustainable value creation for shareholders cost leader. are discussed internally, meeting for meeting. and other stakeholders. For our shares abroad, we vote by proxy through our service provider RiskMetrics As of today, KLP votes in the following 17 Group. The international voting is based upon markets: Australia, Canada, Denmark, Finland, international best practice for corporate France, Germany, Hong Kong, Ireland, Japan, governance. This way, we ensure that we the Netherlands, New Zealand, Norway, vote consistently and in consensus with other Portugal, Singapore, Switzerland, the UK and international investors. the USA.
THE NORWEGIAN CODE OF PRACTICE FOR CORPORATE GOVERNANCE
Adherence to the Code of Practice is based on the “comply or explain” principle whereby companies must either explain how they comply with each of the recommendations or explain why they have chosen an alternative approach. The Code of Practice in detail is available on www.nues.no. The code addresses the following issues:
1. Implementation of the Code of Practice for 8. Corporate assembly and board of Corporate Governance directors: composition and independence 2. Business 9. The work of the board of directors 3. Equity and dividends 10. Risk management and internal control 4. Equal treatment of shareholders and 11. Remuneration of the board of directors transactions with close associates 12. Remuneration of the executive 5. Freely negotiable shares management 6. General meetings 13. Information and communications 7. Nomination commit tee 14. Take-overs 15. Auditor
SRI REPORT 2010 PAGE 15 Voting internationally Voting in Norway As of April 30, 2010 2009 2008 As of April 30, 2010 2009 2008 Number of general meetings 40 123 29 Number of general meetings 544 1 803 1 792 Number of items 312 1 004 274 Number of items 4 591 19 851 19 748 Percent of items KLP and KLP’s mutual funds voted against management 7% 13% 1% Percent of items KLP and KLP’s mutual funds voted against management 11% 21% 21% Percent of items KLP and KLP’s mutual funds abstained 0% 2% –
Management resolutions Resolution
Themes No. of items Against the board No. of items Against the board Themes No. of items Against the board No. of items Against the board as of April 30, 2010 or abstain 2009 or abstain as of April 30, 2010 or abstain 2009 or abstain Directors related 2 617 8% 11 862 14% Routine/business 175 1% 499 2%% Routine/business 966 4% 3 491 26% Director related 61 5% 207 11% Capitalization 364 5% 1 798 28% Capitalization 40 18% 158 18% Non-salary compensation 309 24% 1 243 29% Non-salary compensation 29 35% 118 62% Mergers and re-organizations 66 2% 585 17% Mergers and reorganizations 5 20% 8 25% Preferred/bondholder meetings 18 0% 30 3% Shareholder resolution 2 0% 13 23% Anti-takeover related 67 16% 116 45% Anti-takeover related 0 0 10% Total 4 407 8% 19 125 19% Total 312 7% 1004 15%
Shareholder resolutions
Themes No. of items Against the board No. of items Against the board as of April 30, 2010 or abstain 2009 or abstain 7% Non voted Directors related 73 75% 297 70% KLP and KLP’s mutual funds have voted at approximately Compensation 46 91% 156 79% 93 percent of the Norwegian general meetings they have Routine/business 16 81% 50 78% 93% had voting rights at January 1 - April 30, 2010. Corporate governance 17 82% 43 60% Voted Health and environment 19 95% 72 75% General economic issues 1 100% 4 75% Human rights 1 100% 17 94% Anti-social proposals 2 50% 5 20% Other 9 100% 82 66% Total 184 84% 726 73%
Check which general meetings KLP and the KLP mutual funds have voted at on our web-site www.klp.no. Here you can also read our argument when voting against a resolution.
16 SRI REPORT 2010 PAGE 17 Our goal is always to infl uence companies Dialogue, observation towards responsible and sustainable value creation. YES No exclusion
Dialogue Research Satisfactory and exclusion Incident and and analysis engagement results? KLP engages in dialogue both with excluded companies and companies that are under observation. The goal in both cases is improvement in policies and practices. NO Exclusion
KLP’s experience is that the synergy between Sources and analyses dialogue and exclusion is an eff ective way The almost 2,000 companies in KLP’s invest- of infl uencing companies. Exclusion will ment universe are continuously monitored. Observation always be a last resort, but adds credibility to KLP’s primarily utilizes the GES Investment our engagement activities. The dialogue will Services’ analysis as the foundation for our Companies under observation are companies that KLP seeks to infl uence continue also after we have divested from a engagement and exclusions. In addition, through dialogue. Divestment can be a last resort if we are not confi dent in company, with the goal to be able to invest in we also rely on decisions of the Norwegian the company in the future. Government Pension Fund – Global (NGPF). the progress.
KLP also has companies under observation. GES screens 9,000 news sources. If a DNO International Exxon Mobil We hope to infl uence these companies in company is associated with unacceptable The company is under observation due to its The company has been under observation order to avoid exclusions and to prevent business conduct, the incident is investigated sale of stocks from the company to Kurdish since May 2009. KLP has established a similar situations in the future. and the company is contacted. If the authorities in Iraq. Oslo Stock Exchange dialogue and met with the company in company does not show suff icient willingness has fi ned the company over the action 2009. KLP will continue the dialogue. The In all engagement processes, with excluded to improve their practices, KLP will divest. and the company is under investigation reason for observation is the Western Grey companies and with companies under All accusations require an off icial source, for by The Norwegian National Authority for whale, listed as a critically endangered observation, we have four criteria for instance the UN or a government, or must be Investigation and Prosecution of Economic species, which has its feeding ground improvement (see page 20). confi rmed by the company involved. and Environmental Crime (ØKOKRIM). outside Sakhalin Island where Exxon is KLP has established a dialogue with the operating oil and gas projects. company and is actively following it up in order to avoid similar situations in the Jardine Matheson Company dialogue future. DNO have been very responsive and PT Astra Agro Lestari TBK is associated to 15.11.2009–31.5.2010 is working continuously to improve and the destruction of the rainforest habitat implement measures. Read more on of the critically endangered orangutans in COMPANY STATUS TOPIC page 20. the Tripa peat swamp forest in the Aceh AES Excluded Human rights Province, Indonesia. The UNEP/UNESCO Barrick Gold Excluded Environment Eutelsat Communications Great Ape Survival Programme lists Tripa DNO International Observation Business ethics In June 2008 Eutelsat discontinued the as a priority site for the endangered Eutelsat Observation Human rights broadcast of NTDTV, a regime independent orangutans and the area belongs to Exxon Mobil Observation Environment Chinese TV channel to China. Critics claim the Leuser Ecosystem, renowned for G4S Reinstated June 2010 Labour rights that there is evidence that the real reason its biodiversity value. Jardine Matheson Songa Off shore Observation Business ethics is to gratify the Chinese regime in order to Group is the parent company of PT Astra Toyota Excluded Labour rights enter the Chinese market. The European International TBK, which in turn is the Vedanta Excluded Environment and human rights Parliament has urged the company to parent company of PT Astra Agro Lestari resume the transmission. TBK.
18 SRI REPORT 2010 PAGE 19 TWO COMPANIES REINSTATED 1 The violation has ceased. 2 The company has adopted a responsible course of action. 3 The company has taken a proactive and precautionary Improved approach to improve routines and prevent future violations. 4 The company’s action points (point 1-3) are verifi able. 4 requirements labour relations Companies under observation, continue Since G4S was excluded it has demonstrated substantial Songa Off shore Songa Off shore established a new incentive voting policy. KLP have met with the compa- improve ments in its management of labour relations. G4S is program in 2009. The program is in KLP’s ny and is following up on the issue in order now reinstated in our portfolios. opinion in breach of the AGM’s decision. In to avoid similar situations in the future. The addition, it is not in line with the Norwegian company has acted responsive and KLP will Code of Practice for Corporate Governance observe the company until a new incentive Being one of the world’s largest employers GROUP 4 SECURICOR Progress: with more than 595,000 employees Excluded since: June 2008 and KLP’s and the KLP Mutual Funds’ own program is in place. 1 2009 operating worldwide in more than 110 Source: GES countries, it is clear that labour issues are Country: UK 2 2009 DNO ABOUT ITS WORK ON CORPORATE RESPONSIBILITY at the core of G4S’ business. KLP chose Industri: Security and Alarm to divest because our concerns about Services 3 2010 DNO has continued its focus and development The program has lead DNO to a revision and G4S’ frequent association to labour rights Index: MSCI 4 2010 of CR Management in line with industry and update of the company’s CR-policy (February disputes. The accusations included e.g. stakeholder expectations. During 2009 we 2010), a revision and update of the Code of denial of freedom of association, unlawful improved signifi cantly in the way we manage Conduct (February 2010), discussions with dismissal of workers, breaches of collective risk and govern our business as we continued and training of management and business agreements and harassment of trade our implementation strategy. DNO have further units on important CR-issues, and started unionists. issues responsibly, including global training to this developed consistent CR documentation the process of working with EITI in Norway, programs and mechanisms for monitoring and plans from the corporate level throughout Yemen, Mozambique and Kurdistan. DNO will The last two years, G4S has demonstrated compliance. G4S has established a board our Business Units. This plan refl ects important commence a road-show during this spring in substantial improvements in its global committee for corporate responsibility learning infl uenced by the KLP initiatives order to secure implementation of our CR plans management of employee relations and and released its fi rst-ever corporate and screenings. During 2009 the company by July this year. The program has a specifi c labour rights. The company has signed responsibility report. The company has also established important relationships to focus on anti-corruption as this is of relevance a global agreement with the labour also demonstrated an excellent approach Transparency International and EITI. to the countries we operate in. organization UNI, and has presented a to investor dialogue with KLP and other structured approach to handle labour investors during the process. Learning points established during 2009, DNO has continued to develop the relationship lead us to develop a separate CR competence to local stakeholders whilst applying company development program, which has been approved standards with sensitivity to the local United Technologies was excluded because UNITED TECHNOLOGIES GROUP by the CEO. This program has a focus on: environment. of its involvement in nuclear weapons Excluded since: January 2006 Anti-corruption and integrity production. The company upgraded and Source: SPU Legal framework Success is to us fully dependant on recognition, tested engines for the US’ MX ICBM system. Country: USA Industry standards and framework internally as well as externally and our plans Following disarmament of the US nuclear Industry: Aerospace and Defence Management of third parties will this year be verifi ed by a third party. As the arsenal, this weapons system has been Index: MSCI, FTSE Transparency and reporting industry framework and we evolve, we continue dismantled and upgrades of the system no Dilemma training to consider developing an annual sustainability longer take place. The grounds for exclusion Corporate governance and code of conduct report. are therefore no longer valid.
20 SRI REPORT 2010 PAGE 21 Our goal Four requirements is to infl uence for reinstatement 1 The reported incident has ceased. 2 The company has adopted a responsible course of action. companies The company has taken 3 a proactive and pre- cautionary approach to improve routines and prevent future violations. towards 4 The company’s action points able. (point 1–3) are verifi responsible and sustainable value creation. Excluded companies Human rights Human rights AES USA Power Producers and Energy Traders Alstom France Electrical Equipment The Universal Declaration of Human Rights is an important pillar of China Mengniu Dairy China Food Products Dongfeng Motor Group Hongkong Automobile Manufacturer worldwide human values. It is our responsibility as an investor and owner Elbit Systems Israel Aerospace and Defence FMC Corp USA Diversifi ed Chemicals NEW to support and promote adherence to this important declaration. As a Incitec Pivot Australia Fertilizers and Agricultural Chemicals L-3 Communications* USA Aerospace and Defence consequence, 13 companies associated with human rights violations have Potash Corp Saskatchewan Canada Fertilizers and Agricultural Chemicals NEW Sterlite Industries* India Metals and Mining been excluded from our investment universe. Vedanta Resources* UK Metals and Mining Wesfarmers Australia Hypermarkets and Super Centers Yahoo! USA Internet (Software and Services) Progress: AES AES operates the hydroelectric dam Chan 75 in Panama, Labour rights Excluded since: December 2008 which according to several UN Special Rapporteurs has Bridgestone Japan Tires and Rubber 1 Source: GES been associated with violations of the human rights of the Toyota Motor Japan Automobile Manufacturer Country: USA indigenous Ngöbe people. During the summer of 2008, Wal-Mart Stores USA Hypermarkets and Super Centers 2 Industry: Power Producer urgent appeals were sent to the State of Panama from the UN, Environment Index: MSCI-WI, FTSE expressing concern over the arbitrary displacements, loss of 3 Barrick Gold Canada Metals and Mining housing, destruction of agricultural crops and the excessive Chevron USA Oil and Gas use of force and detaining of members of the community that 4 Duke Energy USA Electric Utilities opposed to project. The construction of the dam can result in Freeport McMoRan USA Materials Norilsk Nickel Russia Metals and Mining the fl ooding of the indigenous Charco la Pava community, but Rio Tinto UK, Australia Metals and Mining the community has not been consulted. Sterlite Industries* India Metals and Mining Vedanta Resources* UK Metals and Mining Corruption Progress: ALSTOM Alstom is associated with complicity in human rights violations in a hydro-electric project in Sudan. In August 2007, a UN No excluded company Excluded since: December 2007 1 Source: GES Special Rapporteur from the Human Rights Council called Weapons production Country: France upon companies involved in the Merowe Dam project to halt Alliant Techsystems USA Aerospace and Defence 2 Industry: Electrical Equipment the operations due to concerns over human rights violations in BAE Systems UK Aerospace and Defence Index: MSCI-WI, FTSE connection with large resettlements involving 50,000 people. Boeing USA Aerospace and Defence 3 EADS Netherlands Aerospace and Defence Among the companies is Alstom, which is the main supplier Finmeccanica Italy Aerospace and Defence of electrical equipment to the project. None of the companies GenCorp USA Aerospace and Defence 4 has followed the recommendation from the UN Special General Dynamics USA Aerospace and Defence Rapporteur. Hanwha Corporation South Korea Commodity Chemicals Honeywell USA Aerospace and Defence Jacobs Engineering Group USA Construction and Engineering NEW L-3 Communications* USA Aerospace and Defence Progress: CHINA MENGNIU DAIRY In September 2008, Chinese off icials announced that infant Lockheed Martin USA Aerospace and Defence Excluded since: December 2008 milk powder produced in the country had been contaminated McDermott International USA Industrial Conglomerates NEW 1 Northrop Grumman USA Aerospace and Defence Source: GES with the non-alimentary chemical melamine. The contamination Poongsan Corporation South Korea Metals and Mining Country: China led to the death of four infants and approximately 94,000 Poongsan Holdings Corporation South Korea Metals and Mining 2 Industry: Food Products sickened with symptoms such as kidney stones and kidney Raytheon USA Aerospace and Defence Index: Not included in KLP’s failure. At the heart of the scandal stand some of the largest Safran France Aerospace and Defence 3 Serco Group UK Environmental and Facilities Services benchmark index dairy companies in China, one of them being China Mengniu Singapore Technologies Engineering Singapore Aerospace and Defence Dairy. Subcontractors have watered down the milk to increase 4 Textron USA Industrial Conglomerate the quantity, and in order to increase the protein level melamine Tobacco production has been added as it boosts nitrogen levels. Alliance One International USA Tobacco NEW Altria Group USA Tobacco British American Tobacco UK Tobacco Gudang Garam Indonesia Tobacco NEW Progress: DONGFENG MOTOR GROUP Dongfeng Motor Group sells military equipment to the Imperial Tobacco UK Tobacco Excluded since: June 2009 government of Burma. The current sanctions of both the EU ITC Ltd India Tobacco NEW 1 Source: NGPF and the US towards Burma make sale, supply, transfer or export Japan Tobacco Japan Tobacco KT&G Corp South Korea Tobacco NEW Country: Hong Kong of armes and related materiel to Burma illegal. The exclusion of Lorillard USA Tobacco 2 Industry: Automobile manufacturer the company from our investment universe, is a consequence Philip Morris USA Tobacco Index: Not included in KLP’s of the ethical guidelines of the Norwegian Government Pension Reynolds American USA Tobacco 3 Fund - Global, saying that investments in companies selling arms Souza Cruz SA Brazil Tobacco NEW benchmark index or military equipment to states which are on the list of countries Swedish Match Sweden Tobacco 4 Universal Corp VA USA Tobacco NEW whose government bonds are not investable, are to be avoided Vector Group USA Tobacco NEW for the fund. * The company is excluded for several reasons.
24 SRI REPORT 2010 PAGE 25 Progress: ELBIT SYSTEMS Elbit supplies a surveillance system that is part of the Progress: STERLITE INDUSTRIES Sterlite Industries is a signifi cant joint venture-partner in the Excluded since: December 2009 separation barrier being built by the Israeli government in Excluded since: June 2010 Vedanta Resources controlled aluminium production complex 1 Source: GES, SPU the West Bank. The construction of parts of the barrier is 1 Source: GES, NGPF currently being established in Orissa in India. See reason for Country: Israel considered to constitute violations of international law, and Country: India exclusion for Vedanta. 2 Industry: Aerospace and defense Elbit, through its supply contract, is thus helping to sustain 2 Industry: Metals and Mining Index: Not included in KLP’s these violations. Index: Not included in KLP’s 3 benchmark index 3 benchmark index 4 4
Progress: FMC CORPORATION FMC Corporation has confi rmed to GES that its subsidiary Progress: VEDANTA RESOURCES Vedanta Resources is in the process of establishing an Excluded since: June 2010 FMC Foret is importing phosphate from Western Sahara. Excluded since: December 2008 aluminium production complex consisting of a bauxite mine 1 Source: GES The company is thus indirectly funding Morocco’s illegal 1 Source: GES, NGPF and alumina refi nery in Orissa in India. In establishing its Country: USA occupation of the territory. In an opinion, issued in 2002, Country: UK operation the company has reportedly contributed to human 2 Industry: Chemicals by the UN Under-Secretary General for Legal Aff airs, the 2 Industry: Metals and Mining rights abuses, including forced relocations, and violence Index: MSCI-WI exploitation of natural resources in colonized territories, Index: MSCI-WI, FTSE and intimidation against local residents. For instance, the 3 Western Sahara in particular, was declared illegal if it is not to 3 proposed hilltop mine is one of the local tribe’s most sacred the benefi t of the people of the territory. sites. Furthermore the company has in this process, according 4 NEW 4 to the local authorities, breached Indian environmental laws, mislead authorities, and caused environmental degradation. Other accusations include illegal production expansions, Progress: INCITEC PIVOT The company is importing phosphate rock from Wester irresponsible handling of hazardous waste, violations against Excluded since: June 2009 Sahara. The region is occupied by Morocco and the tribal peoples, deplorable wages, and dangerous working 1 Source: GES International Court of Juste has ruled that Morocco has no conditions in the mines and factories. Country: Australia legal claims to Western Sahara, and consequently Morocco is 2 Industry: Fertilizers and Agricultural not entitled to exploit its natural resources. The exploitation of Chemicals the natural resources of colonised territories, Western Sahara Progress: WESFARMERS Wesfarmers is associated with illegal exploitation of natural 3 Index: MSCI-WI in particular, has also been declared illegal in an opinion issued Excluded since: December 2007 resources in Western Sahara, thus indirectly funding Morocco’s by the UN Under-Secretary General for Legal Aff airs. 1 illegal occupation of the country. The practice of imporing 4 Source: GES Country: Australia phosphate rock from the concerned territory has been 2 Industry: Hypermarkets confi rmed by the company. In 1975, the International Court and Super Centres of Justice ruled that Morocco has no legal claims to Western 3 Progress: L-3 COMMUNICATIONS The US army’s investigation about the conditions in the Abu Index: MSCI-WI, FTSE Sahara and consequently not to its natural resources. In Ghraib prison describes several instances and practices of 2002, the exploitation of the natural resources of colonised Excluded since: December 2005 4 1 Source: GES human rights abuses where not only soldiers but also Titan territories – Western Sahara in particular – was declared illegal Country: USA employees allegedly were involved or present. In 2003-2004, in an opinion issued by the UN Under-Secretary General for 2 Industry: Aerospace and Defence the US army held hundreds of prisoners in various prisons in Legal Aff airs. Index: MSCI-WI, FTSE Iraq. Titan has been acquired by L-3 Communications, who is 3 continuing to supply linguist and translator services to the US army and therefore should adopt a human rights policy 4 Progress: YAHOO! Yahoo stands criticised for having passed on Internet user addressing operations in sensitive countries such as Iraq and Excluded since: December 2005 information of a Chinese journalist to China’s state security Afghanistan. See further reasons for exclusion of L-3 1 Source: GES leading to a ten-year imprisonment for the journalist. The Communications under Weapons production. Country: USA transfer of information is confi rmed by Chinese court 2 Industry: Internet (software documents and company statements. The company has during and services) 2008 launched a Business and Human Rights Program to raise 3 Index: MSCI-WI, FTSE the awareness on the issue within the company. It has also Potash Corp Saskatchewan has confi rmed that a wholly Progress: POTASH CORP together with other information technology companies in the owned subsidiary is importing phosphate from Western 4 SASKATCHEWAN Global Network Initiative launched a set of principles that aim 1 Sahara. The company is thus indirectly funding Morocco’s Excluded since: June 2010 to protect freedom of speech and privacy in the information illegal occupation of the territory. In an opinion, issued in Source: GES and communication technologies industry. 2 Country: Canada 2002, by the UN Under-Secretary General for Legal Aff airs, Industry: Fertilizers & Agricultural the exploitation of natural resources in colonized territories, 3 Chemicals Western Sahara in particular, was declared illegal if it is not to Index: MSCI-WI, FTSE the benefi t of the people of the territory. 4 NEW
26 SRI REPORT 2010 PAGE 27 Labour rights Environment Every employee has fundamental labour rights. The ILO set core The environment is our common resource, and subsequently, our common standards governing freedom of association, forced labour, child labour responsibility. By excluding com panies causing environmental degradation, and discrimination. Companies should apply these standards on a global KLP acts responsibly and wishes to signalize the importance of sound basis. Three companies have been excluded from our investment universe environment management. As a consequence, eight companies have been associated with labour rights violations. excluded from our investment universe.
Progress: BRIDGESTONE The UN Mission in Liberia has published a report on human Progress: BARRICK GOLD Barrick Gold, the world’s larges gold producer, causes extensive Excluded since: December 2006 rights conditions at rubber plantations, including a plantation Excluded since: February 2009 environmental degradation by its operations in the Porgera 1 Source: GES owned by Firestone, a Bridgestone subsidiary. The report 1 Source: GES, NGPF gold mine in Papua New Guinea. The company makes use of a Country: Japan portrays child labour as a serious problem, supporting the Country: Canada natural river system to transport and dispose of mine waste, 2 Industry: Tires and Rubber allegations forwarded in a lawsuit against the company 2 Industry: Metals and Mining which has a negative impact on the population’s life and health, Index: MSCI-WI, FTSE fi led by the International Labor Rights Fund (ILRF), which Index: MSCI, FTSE including both the residents of the actual mining area and 3 is still ongoing. The company claims it has banned children 3 people who live along the river downstream of the mine. The from tapping trees, but workers say the ban is not enforced. biggest threat is the heavy metals contamination, especially 4 4 Allegedly, children begin to work at the age of nine or ten from mercury, produced by the tailings. The environmental in order to help their parents meet the quotas set by the damage that riverine disposal may cause are well known, but company. The plantation is the largest plantation in the world, the company has not implemented any appreciable measures to and the largest employer in Liberia. An important step forward prevent or reduce this damage. is the collective bargaining agreement that was signed at the plantation in summer 2008. Progress: CHEVRON In 2004, a trial was initiated against Chevron in Ecuador. The Excluded since: June 2004 company stands accused of systematically dumping billions 1 Source: GES of gallons of highly toxic, carcinogenic waste into pits dug Progress: The Toyota Motor Philippines Company Workers Association TOYOTA MOTOR Country: USA into the earth. This happened in the Amazonas jungle where union alleges that the management of Toyota Motor Excluded since: December 2005 2 Industry: Oil and Gas Chevron operated from the 1960s to the 1990s. The trial is 1 Philippines has impeded the right to organise and collective Source: GES Index: MSCI-WI, FTSE ongoing, and both parties are doing scientifi c studies of the Country: Japan bargaining and recurred to illegal dismissals of workers. 3 2 area. Chevron contests several of the studies made, saying that Industry: Automobile Manufacturer The case is under scrutiny by a Philippine court and by the they are scientifi cally unreliable. However, in autumn 2008, an Index: MSCI-WI, FTSE International Labour Organization’s (ILO) Committee of 4 3 independent expert found that 42 out of 46 toxic waste pits Freedom of Association. The ILO lists a number of actions inspected contain high levels of toxins, and that most of them taken by the company to challenge the certifi cation of a union 4 were excluded from the remediation program that Chevron has and to intimidate employees in their preference of union. agreed upon with the government of Ecuador.
Progress: WAL-MART STORES A steady stream of media reports and law suits testify of Progress: DUKE ENERGY Duke Energy has chosen not to install pollution control equipment at several of its plants. This in combination with Excluded since: June 2003 Wal-Mart’s notoriously bad labour practices. The company is Excluded since: December 2006 1 the age of the plants and their large quantity of emissions 1 Source: GES, NGPF criticised for regulatory and legal non-compliance in several areas Source: GES indicate that the company does not manage its most central Country: USA related to labour rights. Specifi c incidents concern child labour, Country: USA 2 environmental risks in an adequate way. The impacts of its 2 Industry: Hypermarkets sweatshop conditions at factories, discrimination of women and Industry: Electric Utilities operations are signifi cant on the environment and public and Supercenters anti-union behaviour. In 2008, Massachusetts’ highest court ruled Index: MSCI-WI, FTSE 3 3 health. In 2006, the US Supreme Court granted permission Index: MSCI-WI, FTSE in favour for some 67,500 current and former employees of Wal-Mart who claimed the company systematically withheld their for the Environmental Protection Agency to proceed with a 4 4 wages. The attorney on the case has more than 30 other similar lawsuit against Duke Energy under the Clean Air Act. cases pending against Wal-Mart in other states. Progress: FREEPORT MCMORAN Freeport McMoRan has received heavy criticism for polluting Excluded since: July 2006 the surroundings of its Grasberg mine in Indonesia, the world’s 1 Source: GES, NGPF largest gold mine and second largest copper mine. It is one Country: USA of the world’s most criticized mining ventures. The main 2 Industry: Metals and Mining concerns relate to acid rock drainage and riverine tailings Index: MSCI-WI, FTSE disposal. The company disposes 230,000 tonnes per day 3 of heavy metal containing mine tailings into local rivers, a practice that has been widely outlawed. The government has 4 accused the company of negligence and ordered it to take measures to minimise the eff ect on the environment.
28 SRI REPORT 2010 PAGE 29 Progress: NORILSK NICKEL For many years, Norilsk Nickel’s Polar Division has emitted large Excluded since: December 2009 amounts of sulphur dioxide, nickel and heavy metals. Emissions 1 Source: NGPF have caused death or signifi cant damage to vegetation up to Weapons production Country: Russia 200 kilometers from the operations. Atmospheric emissions 2 Industry: Metals and Mining have also caused the local population signifi cant health Some weapons hit harder, and aff ect more civilians than others. KLP does Index: Not included in KLP’s problems. Respiratory diseases and various forms of cancer 3 benchmark index are more prevalent here than in other regions in Russia. Even not want to contribute to manufacture, sale or use of weapons that do not though the company has implemented measures in recent 4 years to reduce metal emissions, current emission levels remain diff erentiate between civilian and military targets. As a consequence, 21 high. Additionally, SO2 emission levels are nearly unchanged. In companies involved in the production or sale of landmines, nuclear or cluster the Council’s opinion, it seems that the company fails to comply with national environmental regulations and, moreover, does weapons have been excluded. not seem to plan to clean up the aff ected areas. ALLIANT TECHSYSTEMS Alliant Techsystems has been involved in many weapon projects as a Progress: RIO TINTO Rio Tinto Group is a joint venture partner with Freeport Excluded since: December 2005 supplier of special components as well as main contractor for whole Excluded since: December 2008 McMoRan in the Grasberg mine in Indonesia, the world’s Source: GES, NGPF cluster munitions. It still markets some of them on its website. The 1 Source: GES, NGPF largest gold mine and second largest copper mine. The Country: USA company has for instance produced the cluster bomb CBU-87/B, which Country: UK, Australia mine discharges large amounts of tailings directly into a Industry: Aerospace and Defence contain 202 pieces of BLU-97 explosive devices. This is one of the most 2 Industry: Metals and Mining river; approximately 230,000 tonnes or more per day. The Index: Not included in KLP’s commonly used air-delivered cluster weapons. This information is verifi ed Index: MSCI-WI, FTSE discharges will be increasing in future in line with expansion benchmark index by Jane’s Information Group. 3 of the mine. There is a high risk that acid rock drainage from the waste rock and tailings dumps will cause lasting 4 ground and water contamination. The mine is deemed to BAE SYSTEMS BAE Systems, Finmeccanica and EADS have together formed the joint remain profi table until 2041, which is expected to result in Excluded since: January 2006 venture MBDA. The ownership structure, according to EADS’ homepage is severe long-term environmental degradation. There are no Source: NGPF 37,5 percent BAE, 37,5 percent EADS and 25 percent Finmeccanica. This indications that these practices will be changed. Country: UK is also confi rmed on the homepages of BAE Systems and Finmeccanica. Industry: Aerospace and Defence According to Jane’s Air Launched Weapons, MBDA is under contract to Progress: STERLITE INDUSTRIES Sterlite Industries is a signifi cant joint venture-partner in the Index: MSCI-WI, FTSE develop and produce the ASMP-A missile for the French armed forces. Excluded since: June 2010 Vedanta Resources controlled aluminium production complex ASMP-A is described as a “nuclear warhead air-to-surface missile”. 1 Source: GES, NGPF currently being established in Orissa in India. See reason for Country: India exclusion for Vedanta. 2 Industry: Metals and Mining BOEING The company is, according to its own home page a suppler of various Index: Not included in KLP’s 3 Excluded since: January 2006 forms of maintenance and upgrade services for the Minuteman III ICBM. benchmark index Source: NGPF ICBM, short for Intercontinental Ballistic Missiles, is the main element of 4 Country: USA the US land based strategic nuclear weapons. Industry: Aerospace and Defence Index: MSCI-WI, FTSE Progress: VEDANTA RESOURCES Vedanta Resources is establishing an aluminium production Excluded since: December 2007 complex in the Indian state of Orissa. In this process the 1 Source: GES, NGPF company has, according to local authorities, breached EADS EADS (European Aero-Nautics Defence and Space Company) has Indian environmental laws, mislead authorities and caused Country: UK Excluded since: December 2005 confi rmed that the company is part of the joint venture TDA. TDA 2 environmental harm. These include the discharge of toxic Industry: Metals and Mining Source: GES, NGPF produces, among other things, the artillery grenade PR Cargo, which the alkaline and heavy metal laden water into rivers and Index: MSCI-WI, FTSE Country: Netherlands company describes as follows: “This is a submunition projectile for 120 3 groundwater. Several square kilometres of forest in one of Industry: Aerospace and Defence mm rifl ed mortars. Equipped with dual eff ect-submunitions, it engages India’s most biodiverse regions will be cleared. Other accusations 4 Index: MSCI, FTSE dismounted troops and light armored vehicles.” According to Jane’s include illegal production expansions, irresponsible handling of Information Group’s database InfantryWeapons, PR Cargo contains 16 hazardous waste and dangerous working conditions. bomblets each. This type of weapon is an “area-weapon” and is primarily used against personnel.
Corruption FINMECCANICA BAE Systems, Finmeccanica and EADS have together formed the joint Excluded since: January 2006 venture MBDA. The ownership structure, according to EADS’ homepage is Corruption is one of the major economic challenges hindering economic and Source: NGPF 37,5 percent BAE, 37,5 percent EADS and 25 percent Finmeccanica. This sustainable development in many countries. As an inves tor, KLP supports Country: Italy is also confi rmed on the homepages of BAE Systems and Finmeccanica. Industry: Aerospace and Defence According to Jane’s Air Launched Weapons, MBDA is under contract to the international battle against corruption by excluding companies that are Index: MSCI-WI, FTSE develop and produce the ASMP-A missile for the French armed forces. associated with severe or systematic corrupt ac tivities. ASMP-A is described as a “nuclear warhead air-to-surface missile”.
No company associated with corruption is excluded as of June 1, 2010.
30 SRI REPORT 2010 PAGE 31 GENCORP GenCorp has manufactured special components for cluster munitions and MCDERMOTT McDermott International is associated to the provision of key products Excluded since: January 2008 still markets the products on its website. The company markets propulsion INTERNATIONAL and services for nuclear weapons. The company’s subsidiary, Babcock Source: GES, NGPF systems and warheads for the cluster weapon systems GMLRS, MLRS Excluded since: June 2010 & Wilcox Company, operates two nuclear weapon plants, Y-12 National Country: USA and ATACMS. All three weapon systems fulfi l the defi nition under the Source: GES Security Complex and the Pantex Plant, on behalf of the US government. Industry: Aerospace and Defence Convention on Cluster Munitions. Furthermore, GenCorp is assumed to Country: USA Index: FTSE. Not included in KLP’s be involved in the production of nuclear weapons. GenCorp’s fully owned Industry: Industrial Conglomerates NEW benchmark index subsidiary, Aerojet, produces propulsion systems for missiles that have no Index: MSCI-WI function other than to deliver nuclear warheads.
The company is, according to its own press release, contractor for The company acknowledged in 2005 that the company produces key NORTHROP GRUMMAN GENERAL DYNAMICS Excluded since: January 2006 maintenance and upgrading of the US Air Force’s Minuteman III ICBM. Excluded since: components in cluster bombs. Yet, in 2008 the production is in abeyance December 2005 Source: NGPF ICBM, short for Intercontinental Ballistic Missiles, is the main element of Source: and the weapon programs that the components were intended for have GES, NGPF Country: USA the US land based strategic nuclear weapons. Country: been terminated. However, the company is still marketing cluster bombs USA Industry: Aerospace and Defence Industry: on its website and has no corporate policy related to its involvement in Aerospace and Defence Index: MSCI-WI, FTSE Index: MSCI-WI, FTSE cluster munitions.
HANWHA CORPORATION The company produces various forms of military equipment, among these POONGSAN CORPORATION Poongsan produces various types of munitions for military use, including diff erent types of munitions. The company have confi rmed the production, Excluded since: January 2008 Excluded since: January 2007 cluster bombes. On its website, the company describes three of these and cluster munitions are marketed on the company’s website. Source: GES, NGPF Source: GES, NGPF products. One shell is described as containing 88 “bomblets”, i.e. small, Country: South Korea Country: South-Korea explosive sub-munitions that characterize cluster munitions. Another is Industry: Commodity Chemicals Industry: Metals and Mining described as “used for blast, fragmentation, mining eff ects.” Index: Not included in KLP’s Index: Not included in KLP’s benchmark index benchmark index
HONEYWELL The company is, through its subsidiary Honeywell Technology Solutions POONGSAN HOLDINGS Poongsan Holdings owns 32 percent of the shares in Poongsan. Inc, responsible for repair, development, calibration, operations and INTERNATIONAL Excluded since: January 2007 See reason for exclusion of Poongsan. maintenance of instrumentation and recording of data from simulated Excluded since: January 2006 Source: GES, NGPF nuclear detonations at White Sands Missile Range in New Mexico. Source: NGPF Country: South-Korea Country: USA Industry: Metals and Mining Industry: Aerospace and Defence Index: Not included in KLP’s Index: MSCI-WI, FTSE benchmark index
JACOBS ENGINEERING Jacobs Engineering Group is associated to the provision of key products RAYTHEON The company produces, according to its own web-site, 3 JSOW (Joint Stand and services for nuclear weapons. The company’s joint-venture, Atomic GROUP Excluded since: December 2005 Off Weapon), and cluster munitions to these: “JSOW integrates the BLU- Weapons Establishment (AWE), is involved in manufacturing and Excluded since: June 2010 Source: NGPF 97 combined eff ects bomblets and the BLU-108 sensor fused weapon maintaining warheads for the Trident II missile system, which is a part of Source: GES Country: USA submunitions for area targets or armoured vehicles”. These are considered the UK nuclear deterrent programme. Country: USA Industry: Aerospace and Defence as cluster weapons. This information is confi rmed by Jane’s Information Industry: Construction and Index: MSCI-WI, FTSE Group. Engineering NEW Index: MSCI-WI, FTSE
SAFRAN Safran is the mother company of companies Snecma and Sagem. In 2005, L-3 COMMUNICATIONS L-3 Communications has confi rmed to GES and to the Council on Ethics Excluded since: January 2006 Jane’s Missiles and Rockets wrote “EADS SPACE Transportation has signed Excluded since: December 2005 for the Norwegian Government Pension Fund (NGPF) that it produces Source: NGPF a contract with the French armament procurement agency (DGA) for Source: GES, NGPF components of cluster bombs. See further reasons for the exclusion of L-3 Country: France production of the M51submarine-launched ballistic missile (SLBM) The Country: USA Communications under Human Rights. Industry: Aerospace and Defence contract covers series production of the M51 weapon system for a period Industry: Aerospace and Defence Index: MSCI-WI, FTSE of ten years. Worth more than EUR3 billion, it includes a fi xed tranche Index: MSCI-WI, FTSE and several conditional options. EADS SPACE Transportation is prime contractor for the programme, while SNECMA, SNPE, DCN, Thales and Sagem are the main subcontractors.” LOCKHEED MARTIN Lockheed Martin has developed and manufactured weapon systems for Excluded since: December 2005 dispensing cluster munitions. The company markets components as well Source: GES, NGPF as three cluster munitions on its website. The company is also associated Country: USA to the provision of key products and services for nuclear weapons. Industry: Aerospace and Defence The joint-venture Atomic Weapons Establishment (AWE) is involved in Index: MSCI-WI, FTSE manufacturing and maintaining nuclear warheads for the Trident II missile system, which is a part of the UK nuclear programme.
32 SRI REPORT 2010 PAGE 33 SERCO GROUP According to information on the company’s website, Serco Group is a Excluded since: January 2008 partner in the company AWE Management limited (AWEML), which is the Source: NGPF operating company to the British Atomic Weapons Establishment (AWE). Good performance Country: UK AWE is a government owned company which produces and maintains the Industry: Environmental UK’s nuclear weapons. and Facilities Services Index: MSCI-WI of ethical investments Last year it paid to be a responsible investor. Also in the long term, we assert SINGAPORE The Ministry of Foreign Aff airs in Thailand acknowledge to the International that responsible investing is the best for our customers’ returns. We balance TECHNOLOGIES Campaign to Ban Landmines (ICBL) that a fully-owned subsidiary of ENGINEERING Singapore Technologies Engineering continues to produce anti-personnel our portfolios in order to minimize the eff ect of the exclusions. At the same Excluded since: December 2001 mines. The company confi rms that mines are still being produced, however time, KLP is working systematically to infl uence the excluded companies in Source: GES, NGPF not for exports but “only for the defence of Singapore and only when we Country: Singapore are asked to”. order to reinstate them into our investment portfolios. Industry: Aerospace and Defence Index: MSCI-WI KLP World is a customised benchmark index Index only. When we exclude a company, it is where companies which have been excluded excluded from all portfolios within all relevant are removed from the index. This index is asset classes, and the excluded securities TEXTRON Textron develops and markets cluster munitions and their submunitions, rebalanced so that that the industrial group’s will be replaced with higher weights in others Excluded since: December 2008 which are prohibited according to the Convention on Cluster Munitions. weighting corresponds with MSCI World. This within the same industry group. Consequently, Source: GES The company confi rms that it still off ers e.g. the cluster munitions CBU- method of industrial group neutralisation is the real eff ect is diff icult to measure. There Country: USA 105 and it has developed and is manufacturing the submunition BLU-108, Industry: Industrial Conglomerate which is not in compliance with the convention. The company says that utilised because the diff erence in return be- might also be diff erences between the eff ects Index: MSCI-WI a redesign of the weapon in order to be compliant with the convention tween the two indexes is expected to be minor. on diff erent regions. Nevertheless, the largest would be one possible solution, but the company is not “convinced that eff ect on the deviation will be the weight of this would be the best solution for eliminating the unacceptable risk to Positive deviation for KLP World the single excluded security (index weight) civilians”. So far this year, KLP’s benchmark index KLP and its performance relative to its peers World has a level of return that is 0.24 per- within a certain period of time. cent higher than the MSCI World. Last year, KLP World outperformed with 1 percent. However, it is a too short time period to draw Note that this is a quantitative analysis of any solid conclusions about the long-term the potential infl uence on the KLP World fi nancial eff ects.
Monthly return deviation, KLP World and MSCI World The fi gure shows the variation between a portfolio of global stocks with negative screening and a global portfolio without exclusions (December 2002 – April 2010).
% 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 I I I I I I I I I Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. April ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10
Annual return deviation, KLP World and MSCI World As of April 30, 2003 2004 2005 2006 2007 2008 2009 2010 -0.31% 0.09% 0.84% -0.69% -0.29% -0.82% 1.00% 0.24%
34 SRI REPORT 2010 PAGE 35 Published by: KLP Production: Mediaprint Photographs: Morten Brun June 2010 Dronning Eufemias gate 10 P. O. Box 400 Sentrum NO - 0103 Oslo Telephone +47 22 03 35 00 Fax +47 22 03 36 00 www.klp.no