Korea’s National Pension System named in NGO complaint against repeat offender POSCO

Pension scheme asked to account for deforestation by portfolio company

Korea’s National Pension Service, the world’s third largest pension fund with $600bn in assets, has been named in a complaint under the OECD’s Guidelines for Multinational Enterprises “soft law” mechanism.

The complaint says it has done nothing while a portfolio company carried out large-scale deforestation in an area of “exceptionally rich and unique biodiversity” and encroached on indigenous land, rendering it uninhabitable.

The destruction was reportedly perpetrated by oil palm plantation PT Bio Inti Agrindo (PT BIA), which is linked to Korean steelmaker POSCO – in which the NPS is a major shareholder with a stake valued at approximately $1.8bn, or over 10% of the firm’s equity.

The complaint alleges the NPS “has not used its leverage to influence POSCO…despite its awareness of the harms caused”

According to a complaint filed under the OECD human rights grievance system, the operations of PT BIA in Papua, Indonesia did not receive the consent of the land’s indigenous owners, caused large scale deforestation of tropical rainforest and poisoned a local river used as a source of drinking water 

In turn, the complaint alleges the NPS “has not used its leverage to influence POSCO… despite its awareness of the harms caused”, citing Korean media coverage of the allegations against PT BIA.

Since mid-August, the region of Papua has been gripped by mass protests and violence that has claimed up to 41 lives, according to reports.

Under the OECD’s National Contact Point (NCP) grievance mechanism, complaints can be made against companies which breach the Guidelines for Multinational Enterprises. 

If the complaint is upheld, the NCP will facilitate a process of  conciliation and mediation to resolve the dispute

In 2017, the OECD issued guidance clarifying that minority investors were responsible for the operations of a portfolio company due to an ongoing “business relationship” between the two parties. This was in response to minority shareholders arguing for an exemption under the OECD Guidelines.

A total of three complaints have been filed to the Korean NCP by four NGOS with regards to PT BIA’s operations. Apart from the NPS, POSCO International – the owner of PT BIA – and Export-Import Bank of Korea (KEXIM) were named in separate complaints as parties to the alleged misconduct. 

KEXIM, a publicly owned Korean institution, is on the hook for financing PT BIA’s Papuan plantation “for several years”.

An NPS spokesperson declined to comment on the case, citing existing regulations. Neither POSCO International nor KEXIM responded to repeated requests for comment.

The Korean NCP has around three months to announce whether it will admit or reject the latest complaints against POSCO.

Apart from the complaints currently under consideration, at least seven other complaints have been filed to NCPs in various jurisdictions alleging serious corporate breaches of OECD Guidelines by POSCO since 2012. 

Earlier submissions have alleged POSCO’s use of slave and child labour in Uzbekistan, the firm’s displacement of more than 20,000 protected indigenous peoples in India, and large-scale deforestation and environmental damage in Indonesia. 

Dutch civil service pension giant ABP and Norges Bank Investment Management (NBIM), the manager of Norway’s sovereign wealth fund– which were both named in previous complaints to the NCP as investors in POSCO – divested shares of the Korean conglomerate in 2015 and 2018 respectively. 

However, concerns have been raised over the independence of the Korean NCP which is housed within the country’s Ministry of Trade, Industry and Energy and consists of seven commissioners appointed by the government. 

Joseph Wilde-Ramsing, Director of independent NCP watchdog OECD Watch, said to RI: “The Korean NCP is under significant international scrutiny and pressure to improve its track record after rejecting almost every single case they have received in nearly 15 years. Up to this point, it has yet to decide against a Korean company and there is a wide perception of significant pro-business bias in its determinations.

“We’ve raised issues about the lack of independence and poor track record of the Korean NCP at the OECD Investment Committee in Paris in front of governmental peers and are hopeful that these concerns will be addressed as a matter of urgency.”