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Norway’s KLP excludes scandal-hit Petrobras over “unacceptable risk”

Total SA reinstated amid wide-ranging set of exclusions from leading responsible investor

Norwegian pension manager KLP has announced that it has excluded Petróleo Brasileiro (Petrobras) from its investments after the state-owned energy firm became embroiled in one of Brazil’s most extensive corruption cases ever.

The fund has also excluded 35 other companies for their involvement with coal, weapons and tobacco while also reinstating its position in Total SA, the oil major that was previously excluded for its involvement in exploration projects in the Western Sahara region.

A KLP statement deems the risk of future corruption tied to Petrobras as “unacceptable”, following incidents over the past 10 years which saw the energy firm inflate its supplier contracts by up to three times before paying bungs to Brazilian politicians, political parties and its own upper management.

Despite recent reform at both country and company level, KLP’s head of responsible investment Jeanett Bergan said that retaining a stake in the company would be irresponsible. She also outlined several measures that KLP would like to see at Petrobras if it were to ever reconsider its position, including an investigation into the firm’s ex-Brazilian operations, a new anti-corruption training program and a close look at the firm’s supply chain.

Bergan added: “The scale of the case, the size of the amounts involved and the length of time this has been going on are without parallel anywhere in the world.”

The move comes in the wake of sovereign wealth fund manager Norges Bank placing Petrobras on its watch list for “severe corruption” (in February 2016), as was Chinese telecoms firm ZTE.ZTE also finds itself on KLP’s exclusion list for similar reasons, with the latter quoting Norges’ Council on Ethics when it recommended that the Chinese firm be dropped “on the grounds of an unacceptable risk of gross corruption”, a suggestion that KLP “finds no reason to deviate from”.

Of all the 31 coal-related firms that KLP is set to divest from 25 have already appeared on Norges’ exclusion list, including Australian producer Whitehaven Coal and UK utilities firm Drax Group. Of these, seven previously formed part of KLP’s holdings and have now been sold. Four more companies which derive at least 30% of their revenues from coal will also be excluded.

The Norwegian pension fund first announced its intention to begin divesting in coal in November 2014, when it identified that NOK500m (€59m) of its holdings backed companies with a high exposure to the fossil fuel. Bergan says that this initial slate of divestment has inspired other responsible investors to follow suit.

One company has made its way back onto KLP’s books: oil giant Total. KLP says that despite divesting in June 2013 on the grounds of “violations of fundamental ethical norms”, it would now include Total as its license for exploration in the area expired in December 2015 and has not been renewed, nor does the oil firm intend to resume such activities.

Bergan commended Total and added: “That has been the objective of our dialogue with the company. With respect to non-self-governing territories, it is extremely difficult to justify exploration for and extraction of non-renewable natural resources within the framework of international law.”