Norway’s Pension Giant Revokes Walmart, Rio Tinto Exclusions

Norway’s central bank has decided to remove several major companies from its list of investments that are excluded from the country’s $1.07 trillion Government Pension Fund Global due to ethical reasons.

Following a review of the bans, the bank’s council on ethics recommended that retailer Walmart, mining company Rio Tinto, aerospace and defense firm General Dynamics, Mexican conglomerate Grupo Carso, and Canadian fertilizer company Nutrien be removed from the fund’s exclusion list.

Norges Bank said that a decision to revoke company exclusions implies that the fund is again allowed to invest in the companies. However, it is up to the Ministry of Finance to decide when the securities will be re-introduced in the fund’s benchmark index. If and when share purchases of the companies will take place is left to Norges Bank to decide.

Walmart Inc. and its Mexican subsidiary Wal-Mart de Mexico SAB de CV were excluded in 2006 based on “an assessment of serious or systematic violations of human rights.” In late 2005, the fund’s council on ethics recommended that Walmart be excluded on the grounds that the company contributed to human rights violations in its own operations and in its supply chain.

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In its recommendation to exclude the company, the council said there were “unacceptable working conditions” at some of Walmart’s suppliers, citing reports that “employees had been abused, that basic fire safety precautions were lacking, that employees were prevented from complaining about poor working conditions by fear of losing their employment, and that employees were forced to work overtime without compensation.”

The council has since assessed whether the violations still take place or whether the company has implemented changes that mean the grounds for exclusion no longer exist.

“A review of the reported issues relating to the company over the past three years shows that Walmart is no worse in this respect than other large companies,” said the council in its recommendation. It also said that Walmart has settled 63 such lawsuits and paid as much as $640 million in compensation to former employees. “As far as the council is aware, no further lawsuits have been filed against the company for grievances of precisely this type.”

And with respect to Walmart’s contribution to human rights violations in its supply chain, the council said that positive developments have occurred in the areas to which the council attached importance in its recommendation to exclude.

“The extent of the company’s monitoring of its suppliers has increased and the system seems better able to uncover serious non-conformances,” said the council.

“There seem to be fewer reports of poor working conditions in Walmart’s supply chain now than there were before. All in all, the scope of these improvements is such that the council no longer considers there to be an unacceptable risk.”

Rio Tinto Ltd and Rio Tinto Plc have been excluded from the pension fund since 2008 on the grounds of “serious environmental damage” caused by operations at the Grasberg mine in Indonesia. In September, Rio Tinto signed a contract to sell all its interests in the mine and in December disclosed that all formal approvals relating to the sale had been granted.

As a result of the sale, the council said it “considers that there are no longer any grounds for maintaining Rio Tinto’s exclusion from the GPFG.”

General Dynamics Corp. was excluded in 2005 due to the production of cluster munitions. However, in response to a query from the council on ethics, the company confirmed that it has stopped producing the type of cluster munitions that formed the original grounds for exclusion, adding that it no longer produces any type of cluster munitions.

“General Dynamics is not, to the best of our knowledge, involved in activities prohibited by the provisions of the two principal international accords related to landmines and cluster munitions, the Convention on Cluster Munitions, and the Convention on the Prohibition of the Use of Stockpiling, Production, and Transfer of Anti-Personnel Mines and of their Destruction,” said the council.

Mexico’s Grupo Carso had been excluded from the fund in 2011 due to its control of tobacco producer Compañía Mercantil de Productos de Tabaco SA de CV. However, in an April letter to the council, the company disclosed that neither it, nor any entities under its control, have been involved in the production of tobacco since the end of March 2017. This led to the council’s decision to remove the company from the exclusion list.

And Canada’s Nutrien Ltd., previously Potash Corp. of Saskatchewan, was excluded in 2011 after an assessment of the risk of violations of fundamental ethical norms related to the company’s operations in Western Sahara, where the company purchased phosphate minerals.

“Nutrien has now discontinued its imports of phosphates from Western Sahara, thereby eliminating the grounds for its exclusion,” said the council.

Tags: Government Pension Fund Global, Norges Bank, Norway, Rio tinto, Walmart

Almost everyone, even the Federal Reserve, thinks it is going to lower short-term interest rates this month. But how much will that be? Maybe just a quarter point, then it will be done for the year.

Federal Reserve Chairman Jerome Powell, who earlier called a halt to the ongoing campaign to ramp up the benchmark federal funds rate by a quarter percentage point (25 basis points) every three months or so, has been sounding dovish notes.

The Fed’s policymaking panel, the Federal Open Market Committee (FOMC) meets July 30-31, and expectations in the futures market are high (72% probability) for a cut of a quarter point. By year-end, wagers at the CME Group are for two more quarter-point reductions.

“Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened,” Powell told the Council on Foreign Relations in New York last week.

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Nonetheless, it doesn’t follow that Powell wants the Fed to lower rates as significantly as the futures market foresees. He has made clear that the central bank will go its own way, depending on the economic data, which remains encouraging, although slowing down.

The Fed likely will lower rates by only a quarter-point this year, in the view of Brad McMillan, chief investment officer at Commonwealth Financial Network. He expects the top rate of the federal funds rate, now 2.5%, to be lowered to 2.25%. “Overall, the real monetary policy story of the balance of 2019 is likely to be that there is no story,” he wrote in a research note.

James Bullard, the St. Louis Fed chief, said in an interview on Bloomberg TV that a quarter-point dip would be sufficient. “I think 50 basis points would be overdone,’’ he said. “I don’t think the situation really calls for that. But I would be willing to go 25.’’

President Donald Trump has loudly been demanding that the Fed lower rates drastically, saying the central bank “blew it” by not doing this in its last meeting and is acting like “a stubborn child.” Of course, the president wants to see the economy get as much juice as possible so it looks good when he seeks reelection next year.

Interestingly, Powell has pushed back, emphasizing the independence of the Fed. At the same New York appearance, Powell emphasized that “the Fed is insulated from short-term political pressures.”

Commonwealth’s McMillan and many others point out that economic growth is decelerating in the US and around the world. “Economic growth is slowing, inflation has moderated, and the Fed’s plans are consistent with those developments,” he indicated. “So, interest rate policy becomes driven by stability rather than change.”

At the same time, the economy remains in pretty good shape. Unemployment, at 3.6%, is at its lowest point in 50 years, and is expected to stay there when the June jobs report comes out on Friday.

Fed Chair Hints He May Ease Off on Rate Boosts

Hey, Maybe the Fed Should Cut Interest Rates

Tags: Donald Trump, Federal Reserve, Interest Rates, Jerome Powell