Norway’s KLP signs up with audit firm BDO for forensic portfolio research on corruption risks

Fund says exclusions may follow for most risky holdings.

KLP (Kommunal Landspensjonskasse), the NOK470bn (€54bn) Norwegian fund for public sector occupational pensions, has signed an agreement with BDO, the international network of public accounting, tax and advisory firms, where the audit firm will research and, where necessary, carry out a forensic examination of companies in its portfolio where it believes there could be a high risk of corruption.
Jeanett Bergan, Head of Responsible Investment at KLP, told Responsible Investor that the fund may then exclude the “worst of the worst” companies if it deems that corruption concerns could hit its reputation or investment returns. She said the portfolio investigation by BDO would examine risks based around business ethics, corruption, bribery and aggressive accounting. Companies have been hit with large fines for legal breaches in each of these areas, but Bergan noted that it was a complex subject to research. To date, KLP has excluded 99 companies from its investment portfolio for ethics violations, but none for corruption.
The Norwegian fund is one of the world’s highest profile responsible investors. It operates a transparent system of engagement with companies on ESG risk issues based on investigation, dialogue and measurable results. It publicly announces exclusion from its portfolio where it does not get an adequate response. It also reinstates companies publicly if the company’s response changes based on further discussion.Last week, the fund cleared Yahoo for re-investment to its portfolio after excluding it in December 2005 due to a violation of its human rights code after Yahoo handed user information over to the Chinese authorities, which led to a Chinese journalist being sentenced to 10 years in prison. KLP said: “Yahoo admits that the incident which formed the original grounds for exclusion was worthy of criticism, and has introduced a number of measures to strengthen user privacy. KLP recommends continuing the dialogue regarding Yahoo’s respect for freedom of expression, but feels there are no longer any grounds for the company’s exclusion.”
BDO, which will carry out the corruption research, is represented in 151 territories with almost 1400 offices worldwide. It runs an anti-corruption compliance & investigation service, although its name is not heard often around responsible investment research.
KLP is also part of a group of asset owners called the Nordic Engagement Cooperation (NEC), including Ilmarinen from Finland and Folksam in Sweden, which collaborates on investing screening for its portfolios via research carried out by GES Investment Services.
KLP announced last week that it was divesting NOK500m (€59m) from 27 companies with a high exposure to coal.