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: Law at the End of the Day

Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model Part XIII

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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.

Hugh Wheelen, Norwegian govt fund checks companies for Israel-Gaza human rights abuses, Responsible Investor.com, Jan. 8, 2009 ("The Norwegian government has responded to Israel?s military offensive in the Gaza strip by asking the Council of Ethics, which advises the country?s ?267bn Government Pension Fund, to check that companies in which it invests in the region are not involved in human or labour rights abuses").

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

XIII. Conduct--Complicity
3. Serious Violations of Ethical Norms

There is one principal determination:

03.09.2009 Elbit Systems Ltd
The press release from the Ministry of Finance
The recommendation from the Council on Ethics

Summary: The companies Israel Electric Corp., Elbit Systems Ltd., and Africa Israel Investments Ltd., were all excluded from the Fund for their role in aiding the Israeli government in its occupation of and purported violations of rights of the people of the West Bank following the large scale military action in 2008/09. Similar to the exclusion of companies for producing nuclear components, the items being produced by these companies are not illegal per se, the focus is on their use. All the companies have contracts with the Israeli government to manufacture systems that through their intended use aids the Israeli occupation with respect to which many states and non governmental organizations have been championing the view that either the occupation or specific actions by Israel as the occupying power violate law, norms, or other standards that might be given effect by political bodies in the form of law or ethics. Further the exclusion of these companies might be on the basis that the Council is giving a warning and applying pressure to Israeli companies without directly playing a political game with the government. In this case, the focus was on complicity. "The Council on Ethics thus finds that the Fund?s investment in Elbit represents an unacceptable risk of complicity in particularly serious violations of ethical norms and that the company should be excluded from the Fund?s investment universe on these grounds" (Elbit pg. 9). The Norwegian state did not want to hold shares of a company that might have contracts with the Israeli government, the purpose of which is to engage in actions that the Norwegian government objects to on political and legal bases.

To enter into the details of the many issues of international law that have been raised with
regard to the construction of the separation barrier would be outside the Council on Ethics? mandate. In this context the Council will refer to the advisory opinion from the ICJ and the report from the UN Special Rapporteur, which both accept that the construction of the separation barrier along the chosen route is illegal. Israel?s Supreme Court has also
established that to the extent its purpose is to annex occupied territory, the separation barrier is not legal. The Council on Ethics is aware that the Israeli government deems the barrier a necessary and temporary measure to prevent terror attacks and that the considerations regarding the necessity of the barrier must carry more weight than the considerations vis-�-vis the disadvantages it entails. The Council on Ethics? has not made an assessment of Israel?s right and duty to protect its citizens against terror attacks. A state?s construction of fences or other control mechanisms on its own territory cannot, in principle, be considered illegal or unethical. Neither does the ICJ?s advisory opinion concern the sections of the separation barrier that are located inside Israeli territory. Israel, however, has chosen to build a separation barrier of whose extension nearly 90% is located in areas occupied by Israel. This, and the humanitarian problems that the choice of the route causes, constitute the problematic aspects of the separation barrier. (Elbit, pg. 8).

The Ethics Council thus fashions a determination by blending the legal opinions of the highest court of a domestic legal order within the state in which the complained of actions occurred as well as judicial determination of international bodies that produce something that functions like a jurisprudence. To these it adds its own interpretative application fo the Ethics Guidelines to produce a standard for exclusion on the basis of complicity that is broader than prior Ethics Council decisions. It remains to be seen whether the standard adopted is personal to the Israel situation (and Norwegian foreign policy goals in that relationship, such as it is) or whether Elbit stands for a more broadly applied principle of applying the Ethics Guidelines.

Case Summary:

03.09.2009 Elbit Systems Ltd

1. Company subject to investigation
    a. Name: Elbit Systems Ltd. http://www.elbitsystems.com/elbitmain/
b. form of organization (corporation, Partnership, etc.): Public company
    c. home country: Israel
    d. countries (exchanges) where shares are traded: NASDAQ, TASE
e. largest shareholders (individual, state owned enterprise: Unknown
f. form of investment by the Norway SWF fund: Equity
2. Chronology
    a. Date complaint filed: Unknown
    b. Date complaint resolved by the Ethics Council: 15 May 2009
3. Complainant
a. If the state, the office from which the reference was made: Not stated, possibly due to a significant amount of public attention surrounding the construction of the barrier wall.
4. Complaint
a. Action constituting violation: ?The company supplies an electronic surveillance system called ?Torch? for the separation barrier. Torch is designed to detect persons attempting to cross the barrier and to provide this information to the staff that guards it? (Para. 6 Pg. 3).
b. ?Legal? basis of violation: ?Elbit supplies a surveillance system that is part of the separation barrier being built by the Israeli government in the West Bank. The construction of parts of the barrier may be
considered to constitute violations of international law, and Elbit, through its supply contract, is thus helping to sustain these violations. The Council on Ethics considers the Fund?s investment in Elbit to constitute an unacceptable risk of complicity in serious violations of fundamental ethical norms? (Para. 2 Pg. 2).
5 Determination
a. Council recommendation (for example divest, retain, wait): Exclusion
b. Legal basis for the determination (reference to the section of the Ethics Standard invoked): Cited both the UN and ICJ in the determination that the wall was illegal, not the company directly.
c. Underlying legal basis: International law mainly used in the context of the Council?s own decision.
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 directly noted, there are numerous cases against the state of Israel in the UN and ICJ as well as the Israeli Supreme Court.
d. Reliance on other materials: Israeli government, UN, ICJ.
e. Rationale: The company produces a surveillance devise which is used in the barrier which is deemed illegal by international bodies.

Full post as published by Law at the End of the Day on February 13, 2011 (boomark / email).

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