Norwegian investor coal sell off continues as KLP blacklists more stocks

KLP (Kommunal Landspensjonskasse), the NOK470bn (€54bn) Norwegian fund for public sector occupational pensions, is excluding five more coal companies from its investment portfolio this month, taking the total number of excluded coal firms to 32, just weeks after its peer, the €750bn Government Pension Fund Global (GPFG) announced it was selling some of its own coal stakes.
It continues the massive coal sell-off by two of Norway’s biggest investors.
The latest companies to be removed from KLP’s investments on the grounds of their coal-based operations are China Power International Development, Electric Power Development, FirstEnergy Corp, Huadian Power International and Huaneng Power International.
KLP said it defined coal companies as those that derive over 50% of their revenues from coal-based operations, meaning mostly mining enterprises and power utilities.
Last month, the finance committee of the Norwegian parliament called for the GPFG to cut its exposure to the global coal industry and sell stakes in firms that generate more than 30% of their revenues/output from activities linked to coal, a lower threshold than that set by KLP.
Jeanett Bergan, Head of Responsible Investment at KLP, said: “KLP will continue to assess the definition and the threshold set as the basis for decisions relating to exclusion. It may be expedient to take account of additional parameters, but at the moment we do not have data of sufficiently high quality or coverage for our global investments to consider whether any adjustments are appropriate. Furthermore, we will naturally consider the new coal criterion adopted for the Norwegian Government Pension Fund Global (GPFG), and evaluate further exclusions in light of this.”
KLP 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.To this end, the fund has also divested five other companies for ESG breaches.
Two cement companies, Heidelberg Cement and Cemex, have been excluded for exploiting natural resources in occupied territory on the West Bank in Palestine. KLP’s said it considers this an unacceptable risk of violating fundamental ethical norms. Bergan said: “From the perspective of international law, an assessment of this case has proved more difficult than similar assessments with respect to Western Sahara. Nevertheless, the international legal principle that occupation should be temporary has carried the most weight. New exploitation of natural resources in occupied territory offers a strong incentive to prolong a conflict.”
Separately, China Railway Group (CRG) has been excluded because of corruption risks, which KLP said followed a recommendation from October 2014, by the Norwegian Government Pension Fund Global’s Council on Ethics.
Hong Kong-based and Singapore-listed agricultural energy company, Noble Group, has also been blacklisted following a similar Council on Ethics’ June 2013 “due to an unacceptable risk that the company is responsible for severe environmental damage as a result of its conversion of tropical forest into oil palm plantations”. In KLP’s opinion, Noble Group has failed to satisfactorily explain the omissions the Council on Ethics identified: “As a result, the risk of severe environmental damage is considered to be unacceptably high,” Bergan said.
Turkish conglomerate, Sabanci Holdings (Haci Omer), is being dropped because of its involvement in tobacco production.
One company, Dongfeng Motor Group, is, however, being readmitted to KLP’s portfolio after it ended the sale of military hardware to Myanmar. This was the reason behind a December 2008 decision by the Norwegian Ministry of Finance to exclude the stock from the GPFG’s investments, which was then mirrored by KLP.