Investors should examine their exposure to companies linked to Western Sahara

by Anna Hyrske and Anna Tytti Kaasinen

For global companies and investors, involvement in some locations can be more challenging than others. Some of these are well-publicised and accounted for in business plans, while others barely get a mention despite being no less precarious and risky. Western Sahara in North West Africa is a case in point. The situation in the territory is unstable and human rights at the risk of being violated, and the continued presence of a UN peacekeeping force points to the political sensitivity of the area. Accordingly, investors in the companies operating in or sourcing from the territory have even greater responsibilities to ensure that they don’t sustain or aggravate the conflict or become complicit to oppression and human rights violations.

Occupied by Morocco since 1975, Western Sahara is formally classified by the UN as a “Non-Self-Governing Territory”, a country that according to the UN still is non-decolonised. This means that we are talking about a state in which the process of decolonisation, including a referendum on self-determination by the indigenous people (the Saharawis), has not yet been completed.
Despite the restrictions on the Saharawis’ freedom of expression, association and assembly there have been demonstrations, turning fatal as recently as in late 2010, against the discrimination by Moroccan authorities. The Saharawi protests have centred on not receiving a fair share of the benefits deriving from the region’s natural resources and on the local authorities having failed to address their socio-economic grievances.In fact, some political analysts say that the escalation of unrest in the Middle East and Northern Africa actually began in Western Sahara.
Those close to the conflict have warned that the tensions in Western Sahara appear to be intensifying again, and this would undoubtedly also affect the trade in the region.

Indeed, there are companies sourcing from the disputed territory through Morocco, despite the International Court of Justice having in 1975 ruled that Morocco has no legal claims to Western Sahara, and consequently is not entitled to exploit natural resources belonging to the region for its own profit. The exploitation of the natural resources of colonised territories – Western Sahara in particular – was further declared illegal in an opinion issued in 2002 by the UN Under-Secretary General for Legal Affairs, who stated that if exploration and exploitation of the resources in the territory “were to proceed in disregard of the interests and wishes of the people of Western Sahara, they would be in violation of the international law principles applicable to mineral resource activities in Non-Self-Governing Territories”. Instead, the administering power – Morocco in this case – should ensure that economic activities in the territory under its administration do not adversely affect the interests of the people, but should instead be directed towards assisting them in exercising their right to self-determination – a cornerstone among human rights principles.
Yet there are currently no mechanisms in place to ensure

that the wishes and rights of the Saharawis over their natural resources are taken into account. This, in light of the UN legal opinion as outlined above, indicates that companies involved in fishing, importing phosphate or conducting oil and gas exploration in the Western Saharan territory perform illegal activities according to international standards.

Relevant fishing companies tend to be unlisted, however there are several well-known names in the extractives industries whose operations in Western Sahara are worth noting for investors. Indeed, although Western Sahara has not attracted as much media and public attention as certain other conflict areas this does not mean that investors could not utilise their influence to encourage publicly listed companies to respect the human rights of the Saharawi population. For instance, Ilmarinen and its service provider GES Investment Services, together with KLP and Folksam, have over the past four years carried out extensive engagement with Wesfarmers, FMC Corporation, Incitec Pivot and Potash Corporation of Saskatchewan Inc., which all admitted sourcing phosphate rock from the territory. The fate of Western Sahara’s high quality phosphate resources, key ingredient in fertilisers, is particularly pertinent at the time when concerns over population growth and food security put agricultural productivity firmly among the top challenges facing the world and responsible investors alike.
Dialogue with the companies has centred on encouraging them to assume a more responsible approach to the trade, namely by actively involving the affected stakeholders and illustrating how imports fromWestern Sahara are in line with the interests and wishes of the people or, should this not be possible, ceasing the imports from the disputed region.

The engagement has been met with varying responses, with Wesfarmers beginning to develop new technology to reduce its reliance on the supplies from Western Sahara and FMC recently exiting the phosphates business altogether for reasons unrelated to the conflict, for instance.

While some companies have taken positive measures a lot more remains to be done, with the parties to the conflict being no closer to finding a solution while the Saharawis’ socio-economic plight continues. As the issue is location rather than sector-specific investors examining their exposure to it should scrutinise holdings in various actors in both the phosphates and oil & gas industries. GES Investment Services, Ilmarinen and other investors participating in the joint engagement strongly believe that investors have an important role in encouraging their investees to mitigate the related risks and behave in accordance with international laws and norms on one hand, and to meaningfully contribute to improving the situation on the ground on the other. Accordingly, we hope to see more investors join us in urging companies linked to the territory to act responsibly and help Western Sahara get the attention it deserves.

Anna Hyrske is Head of Responsible Investments and CR at Ilmarinen and Anna Tytti Kaasinen is Senior Research Analyst at GES Investment Services.

• Note: This article was written before the recent decision by the Norwegian Ministry of Finance to exclude Potash Corp. and FMC Corp.