Danish investors raise ESG concerns over DSV’s tie-up with Neom project

Investors in Denmark have expressed concern about a $10 billion joint venture between one of the country’s largest logistics firms and Saudi Arabia’s Neom megacity project.   

Announced in 2017, Neom is part of the Vision 2030 strategy of Saudi Crown Prince Mohammed bin Salman.

The development is set to cover more than 10,000 square miles in northwestern Saudi Arabia and cost $500 billion. Flagship projects include a floating industrial complex called the Oxagon, and The Line, a 170 kilometre-long city that will house nine million residents in a single continuous structure.

As well as concerns about its environmental impact, there have been widespread reports of alleged human rights violations related to the project, including the forced eviction of local populations and the execution of protesters.

The joint venture with DSV, announced last month, will see the Danish firm provide “end-to-end supply chain management, development and investments in transport and logistics assets and infrastructure as well as transport and delivery of goods and materials within Neom”.

Human rights 

News of the tie-up has caused consternation among investors in Denmark. DSV is the country’s second-largest firm by market cap at DKr231 billion ($33 billion; €31 billion).

Shareholders have raised concerns about both the human rights record of the Neom project and its climate credentials. 

Anders Schelde, CIO of AkademikerPension, said: “The Line is a project with significant challenges and risks both in relation to the climate, labour rights and human rights, so DSV is sticking its hand into a hornet’s nest with this investment. It is well-known that Saudi Arabia has a strained relationship with human rights and the Paris Agreement.”

This is not the first time DSV’s human rights record has been highlighted.

An analysis of the human rights policies and due diligence practices of the 30 largest Danish companies published last year by the Danish Institute for Human Rights ranked DSV in the bottom 10 overall.

On “embedding respect and human rights due diligence”, it was one of only eight companies to score zero points (out of a total of 12).

Responsible Investor understands that DSV held a meeting with investors last week, during which the firm flagged that the JV documentation includes an exit clause that will allow the firm to recover returns from the investment under certain circumstances.

Details of the exit clause were not revealed.

Investors involved in the process reported that the negative reaction by stakeholders to the JV, and in particular the focus on climate impacts and human rights, appeared to have taken DSV by surprise.

RI understands that, in response, the firm said it was following international guidelines for human rights and responsible business conduct.

‘Insufficient comfort’

However Troels Børrild, head of responsible investments at AkademikerPension, told RI that the answers provided by DSV about the Neom JV “have not provided sufficient comfort”.

The pension fund has requested a meeting with the company to discuss the issue and encourage it to document their human rights and environmental due diligence better “to appease ESG-minded investors”.

“We also still struggle to see that there is room in the carbon budget for projects like Neom/The Line if we want to keep global temperature rise in line with the goals of the Paris Agreement,” he said.

Eric Pedersen, head of responsible investments at Nordea Asset Management, told RI he was satisfied that DSV is committed to ensuring that the ESG risks “which the company can control, within the joint venture itself and the related value chain, are in line with the company’s policies”.

However, he noted that given the larger context in which the Neom project exists, “there are risks that may be outside of the company’s control”.

“This we will stay in contact with the company about,” he added.

Oshni Arachchi, head of active ownership at Danske Asset Management, told RI that the firm is in dialogue with DSV. “Our clear expectation is that the companies we invest in must comply with human rights and other international guidelines,” she added.