Why can’t more investors be like Norway?

Yet again, Norway has shown the way forward where ethical investing is concerned.

The country’s oil fund — otherwise known as Norwegian government pension fund-global — has blacklisted a company whose willful destruction and degradation of the environment, fuelled by investor greed, merits far more than just disinvestment.

The company — Rio Tinto — was struck off because of its role in the Grasberg copper, gold and silver mine in Indonesia, one of the deepest and most productive opencast mines in the world. Where once there was a mountain surrounded by glaciers, there is now a massive pit made up of artificially carved out concentric terraces.

Anglo-Australian mining group Rio Tinto joins a group of some 30 companies that have been blacklisted by the oil fund, including BAE Systems, Boeing, EADS, Safran, Vedanta Resources and Wal-Mart. Rio Tinto is suffering on several fronts at the moment: it is seeking to see off a AUS$165bn takeover bid from rival mining group BHP Billiton, and its shares lost 6.7% of their value today as global demand for commodities such as copper continues to weaken.

The oil fund officially sold its NOK4.85bn (€604m) holding in Rio Tinto at the end of June because of concerns that the Anglo-Australian mining group, which has a minority stake in the mine, is causing “severe environmental damage” in Indonesia.

Kristin Halvorsen, Norway’s finance minister, said the exclusion of a company from the pension fund “reflects our unwillingness to run an unacceptable risk of contributing to grossly unethical conduct… Norway’s Council on Ethics has concluded that Rio Tinto is directly involved, through its participation in the Grasberg mine in Indonesia, in the severe environmental damage caused by that mining operation.”

The Council on Ethics said Rio Tinto “co-operated closely with [majority owners of the mine] Freeport in the areas of mine management and operations, technology and analyses, including environmental impact reports”.

The key area of concern is that the Grasberg mine dumps 230,000 tonnes of ore waste or tailings directly into the Aikwa river system each day. Already 130 sq kms of lowland areas along the Aikwa River are wsaid to have been saturated, with fish all but disappearing.

The discharges are expected to increase in future as the mine expands. Norway claims there is a high risk of lasting ground and water contamination.

In its defence Rio Tinto — which means “Red River” and was founded in 1873 when a group of investors purchased a complex of mines on the Río Tinto, in Huelva, Spain, from the Spanish government — claimed that the discharges are not environmentally harmful and the environmental damage is not irreversible, claiming there is an “engineered, managed system for deposition and control”.

Norway’s Government Pension Fund-Global has been more successful in its active ownership processes with Monsanto Co, where it has contributed to a “significant reduction’ in the use of child labour in the company’s hybrid cotton seed production.

Isn’t it about time that other investors followed Norway’s example and used their considerable financial muscle to urge big business to behave more responsibly?

To me, it seems that many other investment management firms that profess to have an interest in responsible investment mislead investors with weasel words such as “SRI screening” and “Environmental and Social Governance”. When push comes to shove, most are happy to sit on their hands and add succour to some of the world’s least savoury and environmentally-irresponsible companies.

This blog post was published on 9 September 2008. To read an earlier blog post on Vedanta Resources click here