Norway’s Government Pension Fund Global (GPFG), the world’s largest sovereign wealth fund, has dropped 11 companies because of connections to deforestation, the fund said in its 2015 annual report.
The fund’s decision shows the growing clout of the finance sector in pushing firms to improve their environmental practices by setting higher standards for investment.
Four firms were formally excluded by the fund’s council on ethics after investigations showed that their oil palm plantations caused serious environmental damage in Indonesia, including fires in at least one case. The excluded companies are South Korea’s Posco and its subsidiary, Daewoo International Corp, and Malaysia’s Genting Berhad and IJM Corp. The fund held nearly US$200 million (about S$270 million) of Posco shares at end-2014.
The fund formally excluded the four because of deforestation in rainforest areas, including primary forest areas critical to wildlife. The council used satellite imagery, government maps and information on company websites, as well as research that it commissioned.
IJM did not respond to repeated requests for comment. Spokesmen for Posco-Daewoo and Genting said they were unable to comment on the council’s findings.
Stakes in another seven firms were divested by the fund, the GPFG said in its annual report on March 9, citing deforestation and lack of environmental safeguards. It did not name these firms, which included two palm oil firms, four pulp and paper firms and an Indian coal miner.
Green group Rainforest Foundation Norway (RFN), which monitors the fund’s investments, identified the two palm oil firms as Kulim Malaysia and Hong Kong-listed First Pacific, the majority owner of Indonesian food giant PT Indofood that owns Singapore-listed Indofood Agri Resources.
“Our approach to responsible investment management may in some cases lead to divestments from companies where we see elevated long-term risks,” a spokesman for GPFG told The Straits Times in an e-mail. “We divested from 73 companies last year. Of these, seven… were related to deforestation and 42 were related to greenhouse gas emissions.”
First Pacific and Kulim did not reply to requests for comment. Indofood Agri Resources also did not reply, but it has been the focus of non-governmental organisations critical of its environmental practices, labelling it a laggard.
With assets of about US$830 billion, the fund’s actions are closely monitored by investors and environmental groups. It invests in over 9,000 firms, but in recent years has taken a tougher approach to those involved in environmental destruction, labour rights abuses, corruption and driving climate change.
Since 2012, the fund has divested 50 firms for their deforestation practices and formally excluded eight for severe environmental damage in rainforest areas, RFN said. Among palm oil firms dropped are Singapore-listed Wilmar and Golden Agri-Resources.