EMEA

“Unacceptable” Risk of Human Rights Violations Drive KLP Exclusions  

Norwegian pension fund says labour reforms in the Gulf have not assuaged concerns; also excludes Saudi Aramco over energy transition.  

Concerns about migrant workers’ rights and systematic surveillance have led Norway-based pension fund KLP to exclude 11 firms in the Middle East, and also Saudi Aramco over energy transition concerns and its dominant state ownership.   

The 11 companies, based in Saudi Arabia, the United Arab Emirates, Kuwait and Qatar, are in the telecommunications and real estate industries. They have been excluded after KLP assessed listed companies in the Gulf States on the MSCI Emerging Market Index.  

In a document outlining its decision, KLP, which manages assets of NOK 972.3 billion (US$93.5 billion), said several telecommunication companies in the Gulf States, characterised by an authoritarian system of government, had been accused of engaging in activity that violated key human rights such as the widespread and systematic surveillance of the population, both on social media and through other communication channels.  

Human Rights Watch has accused Gulf states of responding to online criticism with surveillance, arrests, and other arbritary punishments, for example. KLP noted that telecoms companies depended on government authorities for their licences, and that their equipment and customer data could be misused to persecute critical voices and opposition figures in those countries. “Critics and human rights activists have been arrested, with many convicted as terrorists and sentenced to lengthy terms of imprisonment,” KLP said.  

It noted that the development of advanced technology, including artificial intelligence (AI), reinforces the risk of systematic surveillance and censorship.  

There are a number of active investor initiatives to engage with investee firms using AI to ensure its responsible development and governance. This includes the World Benchmarking Alliance’s (WBA) Collective Impact Coalition for Digital Inclusion – an engagement campaign aiming to drive technology companies to advance ethical AI policies and practices.   

On its decision to exclude companies in the real estate industry, KLP said it was a labour-intensive sector, where a high proportion of migrant workers, usually from Africa or Asia, poses a risk. It highlights multiple well-documented cases of migrants’ rights being abused, particularly in the run-up to the 2022 FIFA World Cup in Qatar.   

Despite labour reforms in some Qatar states, KLP said it was unclear what effect this will have in the short term. “The probability that KLP, through its shareholdings in the sector, is contributing to the abuse of human rights is therefore deemed to be high,” it said.  

Labour and human rights are high on KLP’s agenda. The fund recently joined other Nordic institutional investors urging US electric vehicle giant Tesla, to cooperate with unions. Last November, it also excluded China-based Xinjiang Daqo New Energy Co over human rights violations.  

Weak transition plans  

KLP has also excluded oil giant Saudi Aramco over its dominant state ownership – the Saudi state owns 90% of its shares – and its “weak plans” for the climate transition. KLP noted that in a ranking of the largest oil and gas companies’, performed by NGO Carbon Tracker, Saudi Aramco comes last of the 25 companies ranked. Further, in Climate Action 100+’s annual review of 40 oil and gas companies, Saudi Aramco scores “red” on majority of the indicators associated with climate goals, climate policy and transition plans. The UN’s Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises guide KLP’s decisions and actions. Also, the Norwegian Transparency Act, which came into force on 1 July 2022, requires Norwegian businesses to perform due diligence assessments on their supply chains. 

“This means that due diligence assessments must be performed ahead of particularly high-risk investments and that risk-related factors in existing investments must be clarified. Investments in the Gulf States are deemed to be of such nature,” said KLP, adding that it sought to minimise exclusions as an index-based investor.  

“KLP aims to limit the number of excluded companies and instead focus on exercising active ownership to encourage improvement. The objective is not to eliminate sustainability risk, but to be aware of the portfolio’s latent risk and use resources systematically to keep this at an acceptable level.” 

 

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