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Norwegian bank chiefs say OECD guidelines “untenable” for minority shareholders

Norges Bank’s letter to OECD ups the ante in test case

The Governor of the Norwegian Central Bank has warned of a potentially “untenable” situation if the Organisation for Economic Cooperation and Development’s guidelines on responsible business were to be applied to minority investors such as the country’s giant state pension fund.

The bank is seeking “clarification” from the OECD about how the Guidelines for Multinational Enterprises apply to shareholders such as the NOK4.4trn (€556bn) Government Pension Fund – and says it has concerns about the impact on the credibility of the guidelines.

Central Bank Governor Oystein Olsen and Yngve Slyngstad, CEO of Norges Bank Investment Management, which oversees the fund, raised the issue in a strongly worded letter to OECD Investment Committee Chair Manfred Schekulin late last month.

“It is important for the OECD Investment Committee to appreciate that an alternative interpretation and implementation the Guidelines could create an untenable situation,” they say in the letter, seen by Responsible Investor.

It’s the latest development in an ongoing disagreement about how the guidelines impact investors. It stems from a case brought by a group of NGOs relating to NBIM’s 0.9% holding in South Korean steel giant POSCO which is facing alleged environmental and human rights violations at POSCO-India’s plant in the state of Odisha.

The OECD’s Norwegian National Contact Point (NCP) made its allegations in a May 24 report. At the time, Norges Bank issued a statement saying that it had complied with the NCP’s requests, but that in its own assessment the case should be rejected as the Guidelines don’t apply to minority shareholders.The bank chiefs’ new letter acknowledges that the OECD guidelines serve as a basis for its own responsible investment and “active ownership” activities.

But Olsen and Slyngstad say: “In our opinion there is no ‘direct link’ (causality), as required by the Guidelines, between a minority shareholding and the alleged human rights violations attributable to the company we have invested in.” They argue the Norwegian NCP has interpreted the Guidelines “in a new way”.

“It is important for the OECD to appreciate that the Guidelines could create an untenable situation”

“We are concerned about the potential ramifications for NBIM, other minority shareholders and the credibility of the Guidelines under such an interpretation.” How the guidelines apply to minority shareholders warranted a “separate and thorough assessment” at OECD level. The bank also anticipated clarifications so that minority shareholders “are under no obligations under the Guidelines”.

The issue was a topic of debate at the OECD Global Forum on Responsible Business Conduct in Paris last month.

In his closing speech, Richard Howitt, the European Parliament’s ‘rapporteur’ on CSR said: “Norway showed a global lead when its state pension fund divested in relation to companies operating in the Western Sahara and in relation to irresponsible conduct by some tobacco companies.

“I really hope your country can continue to play that leading role in setting the highest standards for others to follow.” NBIM statement on POSCO.