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: Law at the End of the Day

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This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. The Ruminations Series in 2009 produced a series of aphoristic (?????????) essays, meant to provoke thought rather than explain it. The hope was that, built up on each other, the series would provide a matrix of thoughts that together might lead the reader in new directions. Ruminations continue to be produced form time to time. For 2010, this site introduced a new series--Business and Human Rights. The series took as its starting point the issues and questions raised by John Ruggie, the United Nations Special Representative of the Secretary-General (SRSG) on business and human rights, in a global online forum.

For 2011, this site introduces a new series of integrated essays--Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model. The object of this series to to consider the work of the Ethics Council of the Norwegian Sovereign Wealth Fund. The thesis of this series is this: The Norwegian Sovereign Wealth Fund (NSWF ) investment program is grounded in the application of a set of Ethical Guidelines adopted by the Storting (the Norwegian Legislature) and enforced through an Ethics Council charged with determining whether a company should be excluded from investment by the NSWF. The work of the Ethics Council has produced the beginnings of a coherent jurisprudence of ethics for corporate investment. That jurisprudence may contribute significantly both to the development of transnational social norm standards and affect the way domestic corporate law is understood. This is Part II of the series.

Billboard campaign - Aracruz celulose

Part XViI: Ethics and a Jurisprudence of Responsible Investment: The Cases--

III. Non-Exclusion Actions
2. Other Forms of Interventions by the Ethics Council

Actions:
1. Letter dated September 7, 2009, on the exclusion of Poongsan Corp.

2. Letter dated April 19, 2009, on the Council's assessments of investments in companies with activities in Israel

3. Letter dated April 18, 2008, on the Council's assessment of investments in Israel Electric Corp.

4. Letter dated October 11, 2007, on the Council's assessment of companies with operations in Burma

5. Response to Criticism Concerning the Exclusion of Companies from the Norwegian Government Pension Fund: Unofficial English translation of article published in Dagens Næringsliv, Sept. 11, 2006 (pdf)

6. Letter dated May 15, 2006, regarding investments connected to the Middle East

7. Letter dated March 22, 2006, on investments in Aracruz Celulose SA

Review of Other Documents

The move from exclusion to observation, described in the last post, suggests a pattern of governance that is replicated here. The Ethics Council has, like the Ministry of Justice, sought to fill in the spaces within the regulatory scheme with additional processes and standards that, while not explicit in the Ethics Guidelines, are not prohibited. This section explores some of the none exclusion, non observation measures that the Ethics Council has taken. The first briefing is on Aracruz Celulose SA 22 March 2006 where the Council was asked by five Brazilian NGO? to evaluate the Fund?s holdings in the company for complicity in helping the company violate land and personal rights against indigenous people in Brazil. After evaluating the company it was the decision of the Council to have increased scrutiny against the company, but to retain investment, allowing for the Brazilian courts and other bodies to form a solution. Two months later the Council issues a statement on its position on the Middle East, specifically Israel in relation to Palestinian Territory. This recommendation, while not excluding any companies directly, formed the basis for the exclusion of Elbit Systems for manufacturing products that are used to monitor opposing forces along the wall between the West Bank and Israel. It was noted in this recommendation that there was a quickly growing number of companies based in Israel that were included under the Fund. At the time none were recommended for exclusion, but one company in particular, which is nearly fully owned by the Israeli Government, was later excluded during the Israel-Gaza conflict of 2008. This recommendation from 2006 would all for the Council to make recommendations for exclusion of companies from the Fund without meeting the set criteria set in the Guidelines in Section 2 Article 3. The acceptance by the Minister of Finance of the recommendation of the Council under this type of exclusion allows for the Council to make future decisions on other matters that would be otherwise outside of the Guidelines and allow for particular states to be singled out for acts that they have committed.

The final article of 2006 comes from Ethics Council Chair Gro Nystuen specifically and was written in response to allegations of poor performance by the Council and that the Council was not doing enough to fully implement the Guidelines of the Ethics Council. Similar to the Aracruz cases, and having some of the same characteristics of the recommendation on Israel, the Council is responding directly to pressures from the outside (i.e. media, NGO?s, Norwegian press and public). In October 2007 the Council makes a formal assessment of investments in Burma. This follows the 2005 recommendation of Total SA in which the company was not excluded for aiding the government in atrocities. The stance of the Council is not to exclude companies that deal in or with Burma, but to only exclude companies on the basis that they directly contribute money, resources, weapons, or other items that are used by the government of Burma to commit human rights violations against the people of the country. Additionally the Council made the distinction that companies that aid the government solely through commerce and tax revenues are not excludable on those grounds. The only company that was excluded for involvement with the Burmese Government was Dongfeng Motors in 2008 for supplying the government with armored trucks and other equipment used by the military. As noted before Israel Electric Corp. was excluded immediately following the outbreak of the 2008 Israel-Gaza conflict in which the company is accused, and has admitted to, cutting off approximately 0.5% of the net power into the Strip during the conflict, only to restore it after a short period of time. While the power shortage can constitute a breach of human rights under the Guidelines, it is debatable at best, since it is largely left up to the Councilmembers to decide exclusion or not anyways, it is important to look at other factors that should be taken into account when looking at the case. The company is one of the largest investments that the Fund had in Israel and is in a company that is over 99% owned by the Government of Israel. Israel has already been under fire for other grave acts of violence against the people of Gaza and the company would be an easy target to attempt to exert the Council?s influence on the State of Israel. Further the recommendation for the Council took just over a month to complete, the only shorter time span was for the exclusion of companies based on tobacco production. A year to the date after Israel Electric Corp. was recommended to be excluded from the Fund the Council found that since the violations in question were no longer present the company should be reinstated and was. The final part of the Others section dealt with the reorganization of Poongsan Corp., the company through its subsidiaries was still found to be in violation of the Ethical Guidelines and should remain excluded.

Billboard campaign - Aracruz celulose

Case Summaries:

1. Letter dated March 22, 2006, on investments in Aracruz Celulose SA

1. Company subject to investigation
    a. Name: Aracruz Cellulose SA http://www.aracruz.com.br/invest.do?lang=2
b. form of organization (corporation, Partnership, etc.): Public company
    c. home country: Brazil
    d. countries (exchanges) where shares are traded: Unknown
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
    a. Date complaint filed: 23 August 2005
    b. Date complaint resolved by the Ethics Council: 22 March 2006
3. Complainant
a. If the state, the office from which the reference was made: First of its kind. The problem was not brought to the attention of the Council by any part of the government. ?Reference is made to the Ministry of Finance?s letter of 23 August 2005 in which the ministry forwards a request from five Brazilian organisations to exclude Aracruz Cellulose SA from the investment universe? (Para. 1 Pg. 1)
4. Complain
a. Action constituting violation: ?Aracruz is alleged to have unlawfully acquired lands traditionally belonging to the Indian peoples in the area? (Para. 3 Pg. 1)
b. ?Legal? basis of violation:
5 Determination
a. Council recommendation (for example divest, retain, wait): Wait
b. Legal basis for the determination (reference to the section of the Ethics Standard invoked): ?The land conflict goes back to 1979. Since then a process has been under way involving the authorities in the shape of the Ministry of Justice along with Brazil?s National Indian Foundation (FUNAI), representatives of Indian communities and Aracruz? (Para. 4 Pg. 1)
c. Underlying legal basis: It appears to be looking at domestic Brazilian law and international customary law.
6. Basis of Determination
a. standard of decision (rule or test etc.): New, first of its kind
    b. Use of prior Ethics Council recommendations as precedent or as persuasive: None
c. Use of case law of other courts or bodies: None
d. Reliance on other materials: NONE, the recommendation does not cite any sources, just saying there were five organizations that brought up the complaint with no evidence cited.
e. Rationale: Through the company?s operations in Brazil it has not properly compensated of consulted local inhabitants for land used. In all of this nothing is cited and there are numerous questions left out such as why this was excluded on the basis of human rights, why no sources were cited, location of the problem, any mention of domestic laws broken, and the source of the Council?s ruling, among others

2. Letter dated October 11, 2007, on the Council's assessment of companies with operations in Burma

The Council realizes that the Fund has approximately 20 companies that operate in Burma to varying extents with the repressive government of the state. The Council states that exclusion for companies operating in Burma shall only come if there is complicity between human rights violations that country and the company in question though it normal business transactions. Further companies that are involved in the armament of the Burmese military shall be excluded from the Fund. The French company Total was specifically noted in the review and thus far it has not been excluded because the Council found that the company was not aiding the military along the Yadan Gas Pipeline, but was operating in the country, likewise other companies operate in the state and through the generation of economic revenue do in part help the Burmese Government, but are not active in helping the military or political suppression

3. Letter dated April 18, 2008, on the Council's assessment of investments in Israel Electric Corp.

With the rapid expansion of the Norwegian Pension Fund-Global the amount of investments by the Fund into Norway from 10 to 43 between January 2008 and January 2009, this is at growing alarm to many in Norway and around the world as to the effects of the investments on the well-being of the people living in the occupied territories. In light of the 2008 Israeli-Gaza conflict the Council decided to exclude Israel Electric Corp. for its involvement in cutting off a fraction of the energy going from Israel to Gaza during the conflict and possibly in part for its near complete ownership by the Israeli government. Following that exclusion Elbit Systems Ltd. was also excluded from Fund for manufacturing surveillance systems that were used on the wall between the West Bank and Israel. The Council does state that Israeli companies are bound to the same rules for investment as all other companies around the world, and have no standard that is different. The acts that Israel Electric committed are considered to be illegal and are reason enough for exclusion from the Fund.

4. Letter dated May 15, 2006, regarding investments connected to the Middle East

?On 6 January 2006 the Ministry of Finance received a letter from the Church of Norway Council on Ecumenical and International Relations concerning ?investments in the West Bank?, the main concern of this letter was the evaluate companies that have interests in the construction of the wall between the West Bank and Israel. At the time of the review there were only 5 companies that had investments from the Fund in Israel and those companies were largely serving civilian purposes. One company in particular, Israel Electric Corp. was noted as being owned by the Israeli Government and would later be excluded for cutting off power from Israel to Gaza in the 2008 conflict. While under this 2006 review no companies were excluded for the Fund, this does set up the foundation for the exclusion of Elbit Systems later on in the Fund?s history. Further the review that all companies in the Fund shall be treated equal regardless of state of origin is upheld.

The Council has come under fire domestically from the media for what companies they choose to exclude and possibly more important what companies they choose to include. The Council reiterates that they do not have a bias in the decisions and recommendations that they produce and that all companies in the Fund are continuously inspected to see if they should still be included or excluded from the Fund.

It has also been alleged that even if a company responds to the communications from the
Council on Ethics, this has no effect; companies that have answered have still been excluded. The latter claim is correct. To answer is not necessarily the same as not being excluded; we obviously have to assess the content of the answer. The Ethical Guidelines were, however, drafted with a view to securing a fair process and giving companies real possibilities for contradicting allegations. This was seen as important both with regard to the companies? interests and with regard to the quality of the recommendations. We find it appropriate to point out that the system works as intended: because of their responses to the Council on Ethics, several companies that were assessed for exclusion were not excluded.

6. Letter dated September 7, 2009, on the exclusion of Poongsan Corp.

"On September 6, 2006, the Council on Ethics submitted a recommendation to exclude the company Poongsan Corp. because of its involvement in production of cluster munitions. The company has been restructured and is now organized as a holding company with several subsidiaries. The production of cluster munitions takes place in the subsidiary Poongsan Corp ? New (Sedol: B3BDFS1KR). The Council?s recommendation to exclude should be applied to this company.

Full post as published by Law at the End of the Day on February 17, 2011 (boomark / email).