Defense Stocks and Ethics (Norway)

HELSINKI - Textron has become the latest defense firm to be blacklisted by Norway's $380 billion Government Pension Fund-Global (GPFG), the largest of Norway's sovereign wealth funds.

The decision to divest $36 million in Textron shares, announced by the GPFG's administrative board Jan. 31, was based on a report and an exclusion recommendation from the fund's Ethics Council, said Kristin Halvorsen, Norway's finance minister.

"Textron produces cluster weapons, which are banned pursuant to the Convention on Cluster Munitions," Halvorsen said. "We cannot participate in the funding of this type of production."

The convention was signed Dec. 3 by more than 100 countries, but not the United States, China or Russia.

The GPFG's ethical investment policy embraces the ban on production of all current cluster bombs that are air-dropped or ground-launched, including cluster munitions that eject smaller so-called cluster bomblets. The fund's anti-investment policy extends to incendiary, anti-personnel, runway and tank-cluster munitions.

"These cluster bombs are prone to indiscriminate effects, and innocent civilians die or are maimed, especially in populated areas," the Ethics Council said in a statement explaining its position. "Unexploded bomblets can kill or maim civilians long after a conflict has ended."

GPFG's shares in Textron, Providence, R.I., were sold by Norges Bank, Norway's central bank, days in advance of the Jan. 31 announcement, Halvorsen said, "so as not to affect the sale or price."

Despite its name, the GPFG derives most of its capital from profits generated by Norway's large offshore oil and gas fields. The $380 billion in the fund is equal to Norway's gross domestic product.

Legislation passed in 2006 put the country's Finance Ministry in charge of the fund. Norges Bank manages day-to-day operations.

Nine cluster'weapon producers have been excluded from the fund in recent years under revised ethical guidelines, and on Ethics Council recommendations, Halvorsen said. In Textron's case, the exclusion is based on an international convention banning cluster weapons that Norway signed in December, she said.
The Ethics Council said it will continue to urge the exclusion of companies linked to cluster munitions.

"The [new] convention's technical definition of ... cluster munitions is largely in line with the criteria the council applied in 2005, but in some areas, it is more stringent," the council said in a statement.

This implies that the production of munitions previously not excluded may fall within the 2008 treaty's definition of cluster munitions.

"The Ethics Council said it finds it appropriate to base future recommendations of exclusion on the definitions provided in the cluster munitions convention," the council statement said.

Other Fields

"There have been some very significant divestments from the fund that have been outside the weapons sphere," said Per Carlsson, an investment analyst with Swedbank in Stockholm. "Generally, the GPFG sees itself as a model for how modern sovereign funds should be operated."

In other markets, the fund divested $882 million in shares in the Rio Tinto Group, accusing the British mining firm last year of poor environmental practices in Indonesia. In 2006, the fund sold $372 million in shares in U.S. retail company Wal-Mart, citing breaches of human and labor rights.

In the Textron case, the Ethics Council studied the company's Web site, where the cluster weapon in question, the sensor-fuzed weapon CBU 97/105, is described in detail. The company has stated that the weapon satisfies several criteria pursuant to the Cluster Munitions Convention, but not all of them.

The GPFG's operating model is constantly upgraded to ensure the ethical integrity and content of its investments, said Eli Ane Lund, the fund's executive head of secretariat

"Weapon makers comprise the majority of companies excluded from the fund, but companies operating in the retail, information technology and mining and metals industries are also excluded," Lund said. "These are always companies that are deemed to be in breach of our ethical investments guidelines."

Going to the Web

The GPFG is hiring research firms to conduct Web-based monitoring of the 8,000 global companies the fund invests in to ascertain if any are in breach of its ethical guidelines.

In 2002, Singapore Technologies Engineering became the first company to be excluded from the fund for its association with the production of anti-personnel land mines.

Excluded in 2005 were Hanwha of South Korea, EADS, Britain's BAE Systems, Italy's Finmeccanica, and Thales and Safran of France, as well as eight U.S. firms - Alliant Techsystems, Boeing, Honeywell, General Dynamics, Lockheed Martin, L-3 Communications, Northrop Grumman and United Technologies.
More recent exclusions included the British group Serco in 2007 for its nuclear weapon maintenance contract with the U.K. Ministry of Defence. U.S. firm GenCorp was excluded in November 2007, with the Ethics Council citing its production of nuclear weapons.

The total divestment from the 17 excluded companies amounts to more than $800 million.

The growth in sovereign wealth funds (SWFs) could reach an asset total of $12 trillion by 2012, according to a November report from Svenskafred, Sweden's peace and arbitration agency. Svenskafred estimated the assets held in the 900 SWFs worldwide in 2008, including 450 green, social and ethical funds based in Europe, at about $3.6 trillion, or 12 percent higher than in 2007.

"There are many more investment funds in Scandinavia and Europe trading as ethical, social or sustainable funds, but that does not always mean that these so-called ethical funds do not invest in the arms industry," said Anna Ek, Svenskafred's president. "The Norwegian sovereign fund is certainly one of the better ones."

SWFs like the GPFG, which are predominantly controlled by national governments and invested in global securities, are becoming more common in Europe, following a decision by national pension funds in France, Britain, Austria, Finland, Italy and Sweden to sign up last year to the cluster munitions ban pact.

E-mail: godwyer@defensenews.com.