Norway’s Pension Fund Global Excludes 3 Firms Over Human Rights Violations

Norway’s central bank, Norges Bank, has decided to exclude three companies from the $1.28 trillion Government Pension Fund Global due to the “unacceptable” risk that the firms contribute to human rights violations and serious violations of individuals’ rights, the bank announced on December 15.[Source]

The bank’s council on ethics recommended in June that the fund exclude Thai oil and gas company PTT PCL and its subsidiary, PTT Oil and Retail Business PCL, as well as Israeli surveillance software company Cognyte Software Ltd.

Norges Bank, which manages the world’s second largest sovereign wealth fund, said it considered the potential for other measures, such as a change in ownership, did not find them appropriate and will follow that recommendation by excluding the three companies.

The exclusion of PTT PCL and PTT Oil and Retail Business is due to what the council on ethics deemed an unacceptable risk that the companies contribute to serious violations of individuals’ rights in situations of war or conflict.

According to the central bank, PTT is partnering with Myanma Oil and Gas Enterprise, a state-owned oil company, in three offshore gas fields in Myanmar. Its subsidiary is a partner in a joint venture with the Myanmar Economic Corporation, a military-owned conglomerate, to build and operate an oil terminal and a liquid natural gas filling facility.

After the armed forces in Myanmar staged a coup d’état in February 2021, the military intensified its “extremely serious abuses of civilians,” the bank’s council said, adding that PTT and its subsidiary “provide the armed forces with substantial revenue streams that can finance military operations and abuses.” The council said the companies’ business partnerships with the state-owned firms represent “an unacceptable risk of contributing to extremely serious norm abuses in the future.”

Norges Bank’sexecutive board said it also decided to exclude Cognyte Software due to the unacceptable risk that the company contributes to serious human rights violations.

The recommendation relates to human rights abuses that may be enabled by the company’s software and services. According to the pension fund, several of the countries believed to be customers of the company have been accused of extremely serious human rights violations, including abduction, torture and other forms of abuse targeting vulnerable groups, including sexual minorities. [Source]

“The council considers that surveillance of political opponents and minorities is a foreseeable risk for the company, given the products and services it offers,” said the council of ethics in its recommendation. “Based on the information Cognyte has shared, it is not possible for the council to determine that the company has initiated appropriate measures to avoid being involved in new norm violations in the future.”

The board also decided to follow the council on ethics’ recommendation to stop observing Italian aerospace, defense and security firm Leonardo SpA. The company had been under observation since 2017, based on a recommendation from the council to exclude it due to an unacceptable risk that it contributes to or is responsible for gross corruption. However, the board said the council has since determined through investigations that there are no longer grounds for observation. [Source]

“Throughout the observation period, the council has had the impression that Leonardo’s efforts to prevent, detect and deal with corruption have steadily improved,” the council said in its recommendation. “The council’s assessment now is that the company seems to have put in place an anti-corruption system that, in most areas, aligns with internationally recognized recommendations.”

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Tags: Cognyte Software, Leonardo SpA, Norges Bank, Norway Government Pension Fund Global, PTT Oil and Retail Business, PTT PCL

This article has been updated.

The fear and loathing that have dogged capital markets in 2022 should abate to a degree next year, according to the much-anticipated outlook from Cambridge Associates. The best news: Stocks and bonds should make a comeback, the firm believes.

Despite the surprising news that third-quarter gross domestic product had grown 3.2%, revised upward from 2.9% owing to healthy consumer spending, expectations of a recession in the coming year are rife. Nonetheless, it will pay for investors to maintain allocations around their original level, advised Kevin Rosenbaum, Cambridge’s global head of capital markets research. That’s even though inflation should remain high relative to central bank benchmarks, he added.

“When markets move violently in one direction, they tend to correct violently in the other direction,” he observed. No doubt the S&P 500 has had a rotten year, down almost 20%.

Since 1970, though, stock returns in the 12 months after a downturn have shot up between 20% and 54%, Rosenbaum figures. “So investors that wrongly time rebalancing decisions during downturns may not fully participate in the rare chunky returns that tend to follow,” he argued.

A recession, of course, means that corporate earnings take a dive—and earnings are a big driver of stock performance. Profits have held up nicely in 2022, around 10%, Rosenbaum observed, and surely will dip next year. But to him, there’s one intriguing aspect to that: While he believes corporate earnings growth will be below average, “equity price levels have tended to bottom before earnings in past downturns.”

Adding to the reassuring picture is that bonds should reverse their own slump, the firm suggested. Fixed income this year has suffered an unaccustomed rout amid higher inflation and rising rates, with the Bloomberg U.S. Agg losing 12%.

To TJ Scavone, Cambridge’s investment director for capital markets research, “2022’s selloff was extreme,” and thus things should readjust for fixed income. Government bonds tend to do well during recessions, as they’re a safe haven, Scavone contends. Plus, investors, particularly institutions, will be attracted to bonds because they have been offering higher yields lately, Scavone predicts.

Negative years are rare for bonds, he states: 10-year U.S. Treasuries “have only
experienced 11 negative return years out of 63 since 1960, and only once experienced back-to-back years of negative performance, in 2021 and 2022.”

Climbing interest rates have not helped either stocks or bonds, and those should wind up next year, in the opinion of Celia Dallas, Cambridge Associates’ chief investment strategist. She points out the futures markets project that the Federal Reserve will stop tightening this coming May. She also expects that the Fed then “pauses, but does not pivot in 2023,” meaning it will not turn around and cut rates.