KLP’s Annie Bersagel: Excluding Petrobras – impact through transparency

How a high-profile exclusion led to increased dialogue

We recently received a reminder of why it is important to disclose the rationale for excluding companies from KLP’s investments. This is seldom an easy task. Requiring detailed documentation for each divestment decision results in practice in a higher threshold for exclusion, as KLP opens each decision to scrutiny. Moreover, it means that cases with insufficient documentation, despite strong indications of a violation, do not lead to exclusion – no matter how frustrating this may be.

But there are several advantages of openness, not least that it has a substantially greater impact than if KLP sold its small stake in a multinational company in silence. We saw an example of that with the Brazilian energy company Petrobras, which KLP excluded in June 2016 due to association with serious corruption.

Petrobras invited KLP to a meeting with the CEO, Pedro Parente, and the head of exploration and production, Solange da Silva Guedes, in connection with the annual oil conference in Stavanger. KLP has been in dialogue with Petrobras both before and after the exclusion decision. But after KLP’s exclusion of Petrobras attracted international media attention, including an article in the Financial Times, KLP’s dialogue with the company reached a higher level.During the meeting, it became clear that Petrobras takes KLP’s decision very seriously, even though the size of KLP’s holding in Petrobras was of no practical significance to the company. KLP views it as a positive sign that Petrobras initiated the meeting. The measures CEO Parente outlined clearly demonstrate that he has a strong personal commitment to the cleanup. He was also able to describe some improvements in the company’s anti-corruption systems.

The corruption investigation is ongoing in Brazil and USA, and it is therefore too early to exclude the possibility that the case scope may expand. Moreover, several high-profile former supplier company CEOs are in settlement talks with Brazilian authorities. Their testimony may include new revelations about the case.

At any rate, the meeting underlined the importance of KLP’s transparency. We look forward to continuing the dialogue with Petrobras. Addressing the fallout from the Lava Jato [‘Operation Car Wash’] scandal and developing a comprehensive compliance system will undoubtedly prove demanding, but our goal is that KLP can invest in the company again.

Annie Bersagel is Advisor – Responsible Investments at KLP.