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Norwegian sovereign fund exposed to human rights risks in Occupied Palestinian Territories – report

Report recommends exclusion criteria review and fresh human rights due diligence

A new research report claims there are inconsistencies in the exclusion criteria of the Norwegian sovereign fund which exposes it to human rights risk linked to its investments in companies active in the Occupied Palestinian Territories.

The report, entitled “Investor Obligations in Occupied Territories: A report on the Norwegian Government Pension Fund Global” (link, Norwegian), recommends reviewing the Council of Ethics’ criteria to exclude companies in the Occupied Palestinian Territories to avoid inconsistencies and prevent human rights risks. The council is an expert panel which advises the fund.

Norges Bank Investment Management, which runs the $1trn global fund, has in the past excluded Elbit Systems, Shikun & Binui Ltd., and Africa Israel Investments (and subsidiary Danya Cebus) due to the construction of settlements and dividing walls in the West Bank. But it retains a number of companies with settlement links in its portfolio.

The report comes at a time when Israel PM Benjamin Netanyahu will likely form a new governing coalition to stay in office for a record fifth term. He has promised to annex Jewish settlements in the occupied West Bank, of which there are currently 230 with a population of 400,000 – although it’s illegal under international law.

The new research report states: “With the myriad of human rights impacts caused by the settlements, it is difficult to imagine how any business could operate in a West Bank settlement while meeting the responsibility to respect human rights.”

It was commissioned from the University of Essex’s Business and Human Rights Project by the Norwegian Union of Municipal and General Employees (Fagforbundet) and Norwegian People’s Aid. It was written by three academics: Dr Chiara Macchi; Dr Tara Van Ho; and Luis Felipe Yanes.

They have analysed the GPFG’s responsibility in light of two global ‘soft law’ regimes, the United Nations Guiding Principles (UNGP) on Business and Human Rights (known as the Ruggie Principles after Harvard professor John Ruggie) and the OECD Guidelines for Multinational Enterprises.

From the analysis of the Ruggie Principles, the researchers conclude that an institutional investor like NBIM can be responsible for “directly contributing through its investments” to human rights abuses or for being “directly linked” to adverse human rights impacts.

“Minority shareholding in corporate entities is by all means sufficient to give rise to a “business relationship” for the purpose of the UNGP and the OECD Guidelines,” the authors write.Ruggie himself made much the same point in an interview with RI in 2015.

The authors classified business activities in the Occupied Palestinian Territories in five categories for companies they consider the Fund can either be directly contributing to or to which they are directly linked.

First: companies that sell security equipment to occupying forces. They offer as examples Hewlett-Packard Enterprises and Motorola Solutions.

Second: companies contributing to home demolitions, such as Caterpillar.

Third, quarrying business. The authors single out Heidelberg Cement, quoting The Hague Regulations of 1907: “Quarrying in occupied territory without the permission of the occupied government breaches the law of occupation as it constitutes the war crime of pillage.”

Fourth: business financing and constructing settlements, where the authors include besides Heidelberg Cement, Mexican firm Cemex as well as five banks: Bank Hapoalim, Bank Leumi, First International Bank of Israel, Israel Discount Bank and Mizrahi Tefahot Bank.

Fifth, companies engaged in wall and rail construction, such as Alstom and Cemex, according to the authors.

They reach the conclusion that “in many cases, the Fund’s responsibility to respect human rights will only be discharged by divesting from companies that cause or contribute to the Israeli settlements in the West Bank and to the human rights violations that stem from the Government of Israel’s approach to the settlements”.

The authors say that as a “leading global player committed to responsible investment” the Fund is able to act as a “standard-setting investor.”

They recommend human rights due diligence for all investee companies in the occupied territories and that the Council of Ethics guidelines be revised as its “narrow focus on serious and systematic abuses might lead to arbitrary and contradictory decisions”.

The authors of the report consider that GPFG should divest from the Israeli banks as it appears they cannot avoid financing settlement construction and therefore there would not be room for engagement.

A spokesperson for NBIM told RI in a statement:

“We read all reports with interest. We have clear expectations towards how companies manage human rights. These expectations are relevant for all companies we are invested in, independent of where they have operations. We monitor our investments and assess sustainability and social risks. We address human rights issues as part of our ownership dialogue.

“The Guidelines for observation and exclusion forms the basis for recommendations from the independent Council of Ethics related to gross ethical breaches.”