The National Employment Savings Trust (NEST), the influential UK workplace scheme, has excluded from the investment universe of its ethical fund option the controversial London-listed Cairn Energy, and by default its partner NYSE-listed company Kosmos, due to their offshore oil exploration activities in the disputed Western Sahara region.
It’s a rare move by a UK institution, which unlike peers elsewhere (witness Storebrand’s exclusion of companies linked to the controversial Dakota Access pipeline this week) seldom go above the parapet with exclusions, preferring to engage companies.
The decision had input from the Responsible Investment Advisory Council (RIAC) at NEST’s ethical fund manager BMO Global Asset Management (the former F&C), a panel which is chaired by Archbishop of Canterbury Justin Welby.
BMO provides some of the building blocks of the NEST Ethical Fund, which includes BMO’s Responsible Global Equity and Responsible Sterling Corporate Bond funds.
NEST, which recently seeded a climate aware fund from UBS Asset Management, agreed Cairn was “unacceptable for investment” as its involvement in an offshore block lacks the support of the Front Polisario, the UN-recognised representative organisation of the local Saharawi people (for further context, please see separate story).
The exploration of the Cap Boujdour Offshore Block off the Canaries is a joint venture between Cairn, Kosmos and Morocco’s national oil company, which have respective stakes of 20%, 55% and 25%.
A BMO spokesperson explained to RI that the main reason behind the exclusion follows the 2016 review of the Norwegian Council of Ethics, which recommended Norges Bank Investment Management exclude Kosmos and Cairn from the Government Pension Fund Global. The fund then sold its NOK138m and NOK338m stakes in the firms.
The spokesperson said the NEST Ethical Fund has never held Cairn Energy in its portfolio and added that BMO’s oil and gas experts reached out to Cairn for a response.
The experts drew a conclusion in line with the Norwegian Council of Ethics, making Cairn “unacceptable for our Responsible Fund range” as it “breached our Human Rights criteria”.
Asked whether the exclusion includes Kosmos, the spokesperson said the company has not been screened and no decision has been taken on the company though “the same considerations would apply” to it.Further research has been undertaken by the Western Sahara Resource Watch, an umbrella organisation of NGOs monitoring the conflict, which identified exclusions in asset managers and owners from Sweden, Norway, The Netherlands, Luxembourg, Paris and the US .
Cairn’s involvement in the Western Sahara goes back to a 2013 deal between its wholly owned subsidiary Capricorn Exploration & Development and Kosmos.
According to WSRW, the offshore block is the same from which Kerr-McGee withdrew in 2006 after facing mounting pressure for drilling in the Western Sahara, prompting Norway’s sovereign fund to divest on similar grounds than those expressed a decade later regarding Kosmos and Cairn.
As now, the objection was that the exploitation and exploration were not in accordance with local people’s wishes and interests as they hadn’t been consulted and that they contribute to maintaining an unresolved situation in the area.
The Cairn-Kosmos joint venture also conducted drilling operations between the end of 2014 and the beginning of 2015.
Asked whether this new exclusion from NEST in the UK would change the strategy of Cairn, a spokesperson said there is no change in their positions, citing the company’s half-year corporate responsibility update issued after the Norwegian fund’s divestment, which states:
“Cairn has always acted in accordance with international law which states that responsible exploration offshore Western Sahara, a UN designated non-self-governing territory, can occur in parallel with the UN-led discussion on the region’s future.”
The spokesperson said more information about the joint venture’s position on the Western Sahara issue can be found in an ad-hoc website of its partner Kosmos called Western Sahara Oil.
Erik Hagen, WSRW board member and CEO of the Norwegian Support Committee for Western Sahara, told RI that there is nothing responsible in carrying out exploration in occupied Western Sahara.
“The company has systematically ignored the wishes of the people of Western Sahara, a people who are protesting vigorously against the operations. Cairn’s arrogant approach is deeply provocative for the owners of the oil that it is exploring.”