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A tale of football, tobacco and exclusion lists: Norges Bank and Carlos Slim

Has an influential investor mistakenly excluded a billionaire’s company?

Think of any listed company in the world and chances are that Norway’s Government Pension Fund Global (GPFG) owns shares in it.

That means it has stakes in firms run by billionaires like Jeff Bezos (Amazon), Bill Gates (Microsoft), Warren Buffett (Berkshire Hathaway, albeit put under observation), Bernard Arnault (Louis Vuitton), Amancio Ortega (Inditex), Larry Ellison (Oracle), Mark Zuckerberg (Facebook) and Larry Page (Alphabet).

The business conglomerate of Mike Bloomberg, in spot #9, is not listed. But what about Carlos Slim, in fifth spot, and his Mexico-listed holding company Grupo Carso?

In August 2011 Norges Bank Investment Management (NBIM), which runs the fund, excluded Grupo Carso following the recommendation of the Council of Ethics, the independent body that assesses whether investments are consistent with the Fund’s ethical guidelines.

Back then Grupo Carso owned close to 70% in tobacco firms Compañía Mercantil de Productos de Tabaco SA de CV and 20% of Philip Morris SA de CV.

It was excluded on the grounds of tobacco production, but a couple of years later, in 2013, Grupo Carso announced it was selling its tobacco business – making headlines in Mexico and beyond.

The previous year, in November 2012, Slim had become, via a €2m investment, the majority shareholder in one of La Liga’s historic football clubs, Real Oviedo in northwest Spain, then relegated to the third tier of the championship.

Real Oviedo fans had started an international campaign, issuing shares to save the club from bankruptcy after years of mismanagement and poor results in the pitch. Slim turned up at the eleventh hour and saved the day.

The campaign gained attention when some former Real Oviedo players, now stars of the English Premier League, bought shares: Manchester United’s Juan Mata, Arsenal’s Santiago Cazorla and Swansea’s Michu. They also joined the campaign and galvanized ‘Oviedistas’ worldwide to support the club.

The story was chronicled by British sports journalist Sid Lowe, who had spent an Erasmus year in Oviedo University where he became himself a passionate Oviedista.

The optics of tobacco interests buying a sports club were not good from a responsible investment perspective. In hindsight, though, it seemed as if Slim was preparing to switch out of nicotine for ‘the beautiful game’.

This might not have been as a result of NBIM’s exclusion, But, in any case, a responsible investment goal was achieved: Grupo Carso was not producing tobacco anymore, instead focusing on its industrial, retail, infrastructure and construction divisions.

Exclusion lists
Among investors that do not exclude Slim’s company are France’s AXA and Fonds de Réserve pour les Retraites (FRR).

A spokesperson for Storebrand, the Norwegian listed asset manager with $81bn in assets under management, tells RI that Grupo Carso was excluded from 2011 to 2015 but not today, although it doesn’t hold its stock.

Similarly, Dutch asset manager Robeco does not exclude Slim’s company. A spokesperson tells RI: “Exclusion is applied to companies that are involved in the production of tobacco or suppliers of significant components of cigarettes – such as filters – or companies with a significant ownership in those companies.”The exclusions of NBIM carry weight with other asset managers and owners, particularly in Norway.

For example, Kommunal Landspensjonskasse (KLP), the pension scheme for Norwegian municipal employees with $78bn in assets, aligns its exclusion guidelines with its influential neighbour.

Jeanett Bergan, Head of Responsible Investments at KLP, tells RI it can be “quite inconvenient” to remove an exclusion before NBIM does.

At the distribution level, she explains, “a lot of our clients want us to follow the [NBIM] list”. Otherwise the fund could be singled out or “kind of red-flagged” for investing in companies excluded by the GPFG.

“This is new information for us.”

However, Bergan says of Grupo Carso: “We could potentially remove the company from our exclusion list. This is new information for us.”

Likewise, a spokesperson for the €218bn Dutch pension fund manager PGGM, which also excludes Grupo Carso excluded, told RI: “For the next update of PGGM’s exclusion list we will use this [information] as input.”

Asked about the reasons for its exclusion by NBIM, the investor relations department for Carso tells RI that it could be due to a technicality.

In the corporate structure of the company there is a subsidiary with no activity (CIGATAM, S, DE R.I. DE CV), which was linked to the now exited tobacco business.

The investor relations team says this subsidiary is a “cascarón” (shell corporation) that wasn’t formally liquidated due to tax reasons.

Alberto Rodriguez Govela, Co-head of Equities at financial and brokerage house Grupo Bursatil Mexicano, confirms that neither Carso nor its subsidiaries are in the tobacco production business. The assets of such a shell company were sold when it divested from tobacco, he says.

When asked why Grupo Carso is still excluded, despite not producing tobacco, NBIM refers to press releases of the exclusion announcement from 2011 and policy documents broadly outlining how exclusions work.

Asked the same question, a spokesperson for the Ethics Council, which advises the fund, says: “As a matter of policy we never comment on our intentions or assessments regarding a specific company, unless Norges Bank has made public a statement about it first.”

Grupo Sanborns, the retail division of Carso, lists tobacco as one of the categories of products that it sells. Could this be the reason for the exclusion?

MSCI ESG Research produces the Global Ex Tobacco Involvement indices. Asked about Grupo Carso’s exposure to tobacco sales, a spokesperson for MSCI tells RI:

“The company is only flagged for the retail of tobacco products, with revenue range between 0.01 – 0.50%. It’s not flagged for production, supply or distribution – just retail.”

However, NBIM’s exclusion is based exclusively on tobacco production. Otherwise, NBIM would have long ago divested and excluded Swiss firm Dufry, which sells tobacco in airport duty free stores but is still in its portfolio.

It is interesting to note that Carlos Slim himself and Johan H. Andersen, the Chair of the Council of Ethics, have something in common: tobacco.

Andersen’s family wealth is linked to the Tiedemanns Tobaksfabrik, nowadays property of the Northern Europe subsidiary of British American Tobacco plc.

But it seems that, in all likelihood, the continued exclusion of Grupo Carso could be merely an oversight.