I usually think of Scandinavian countries as great examples of responsible international engagement – they’re known for protecting the environment, promoting human rights, and not tolerating corruption. That’s why I was so disappointed with a decision coming out of the Norwegian Ministry of Finance this week. The Ministry elevated corporate fiction and energy politics over ethical obligations this week by rejecting the findings of its own expert consultants, who recommended that Norway’s public pension fund divest from PetroChina, concluding that the Chinese oil company is linked to severe human rights abuses around Burma’s Shwe Gas Project and a crude oil pipeline under construction across the breadth of Burma.
The Government Pension Fund – Global is entrusted with investing Norway’s surplus oil income and is the first or second largest pension fund in the world, occupying 1% of global equity markets. For almost a decade, the Fund has been charged with observing strict Ethical Guidelines that restrict the kinds of companies it can invest in. The government has created an expert Council on Ethics, which can recommend that a firm be “excluded” from the Fund’s investment universe if it concludes that the firm violates the Ethical Guidelines. These recommendations, which are backed up by rigorous factual research and reasoning, are made public but are not binding on the Ministry of Finance, which makes the ultimate decision on divestment.
ERI has been pushing the Council to scrutinize companies that are involved in Burmese oil and gas projects because these projects are associated with systematic human rights abuses. ERI reports on companies like CNPC PetroChina, Total, and Daewoo that are connected to the building or operation of pipelines have concluded that a proper application of these Guidelines should lead the Council to recommend divestment. The Council has declined to do so until now; instead it has clarified on two occasions that it would consider recommending exclusion for companies that sign contracts to build and operate onshore pipelines or other major infrastructure projects in Burma, because these projects pose a high risk of future human rights abuses.
This week, the Ministry rejected the Council’s latest word on companies operating in Burma, in which the Council applied its previously issued guidance and recommended PetroChina for exclusion due to the actions of its parent company, Chinese state-owned oil giant CNPC. CNPC is the majority partner in a joint venture building the onshore portion of the Shwe gas pipeline project and an additional pipeline, which will carry natural gas and oil, respectively, from Arakan State in southwestern Burma to China’s Yunnan Province. The Council found that given the growing militarization of the area and a well documented history of extrajudicial killings, forced labor, and sexual abuse associated with the construction of pipelines in Burma, “the construction of CNPC’s pipelines will entail severe and systematic human rights violations.” While not questioning the likelihood of abuses or CNPC’s connection to them, the Ministry found that it was inappropriate to hold PetroChina responsible for its parent’s actions; it therefoer decided to disregard the Council’s recommendation.
The Ministry’s general intuition – that lines of authority are usually such that a parent may fairly be held responsible for its subsidiary’s actions, but not vice versa – is not a controversial one, and in most cases it would be a reasonable point. The problem is that the relationship between CNPC and PetroChina is not a normal one. As the Council concluded, the two companies are directed, managed, and overseen by almost exactly the same people, who occupy much the same positions in each. Plus, CNPC describes itself as a service provider for PetroChina, and explains that it created a separate subsidiary to do its Burma work chiefly in order to avoid U.S. legal restrictions on investment in oil companies operating Burma, which apply to PetroChina because it raises money in U.S. capital markets. In other words, the legal separation between PetroChina and CNPC is a corporate fiction; CNPC and all its subsidiaries are operated in a tightly coordinated fashion that justifies acting against PetroChina for CNPC’s activities.
The Ministry ignored all this analysis when it rejected the recommendation. But why? Perhaps the Ministry feared cutting off a lucrative investment option in uncertain financial times. More likely, the Ministry calculated that the foreign relations fallout of a public decision to exclude a Chinese state-controlled company like PetroChina would be more damaging than the reputational consequences of failing to uphold its own Ethical Guidelines. In any case, the decision weakens one of the few tools affected communities have to seek protection from the abuses to which they are subjected by Burmese government forces assisting companies to secure Burma’s natural resources.
There is one potential bright spot in this story of broken ethics. Although the Ministry rejected the Council’s conclusions on the relationship between PetroChina and CNPC, it did not question the Council’s findings on the complicity of pipeline companies in human rights abuses in Burma. Evidence not available when the Council issued its previous statements now proves that companies in which the Fund is invested, such as Daewoo and POSCO (Korea), GAIL (India), and Kunlun Energy (China) are all involved – directly or through their subsidiaries – in the onshore phase of the same Shwe gas pipelines that CNPC is building. The Council on Ethics should investigate and recommend exclusion for these companies. And this time, the Ministry should listen.