Today, Norway’s Ministry of Finance banned Norway’s Government Pension Fund – Global from investing in two companies in the global logging and palm oil sectors because each pose an “unacceptable risk that the company is responsible for severe environmental damage”: WTK Berhad Holdings and Ta Ann Berhad. Both companies have significant operations in Malaysia’s Sarawak province, a global biodiversity hotspot and critical global carbon sink.
Norway’s Pension Fund is valued at approximately $792 billion, amounting to approximately one percent of global stock equity. The fund has frequently set the standard for responsible investors and triggered other divestments. Investors, lenders, and underwriters should seriously consider whether holdings in WTK Berhad and Ta Ann Berhad pose outsized reputational, regulatory, trade, and other risks.
Norway’s actions were based on a finding by the Norwegian Government’s Ethics Council that the companies pose “unacceptable risk” to the environment. The Ethics Council continues to evaluate companies linked to deforestation and other environmental damage.
Key findings from the Norwegian report on WTK Berhad Holdings (Bursa Malaysia Symbol: WTKH)
WTK holds timber licenses totaling 194,000 hectares and two licenses for planted forests totaling 131,000 hectares. All but one of WTK’s licenses overlap with the Heart of Borneo and the Sundaland Biodiversity Hostpot, among the highest biodiversity areas on Earth. WTK intends to convert 130,000 hectares of natural forest to monoculture plantation – a globally significant threat to biodiversity. The report finds that WTK “seems to have breached numerous government requirements,” and engaged in widespread illegal logging. WTK’s alleged illegal activities include:
- Logging outside concession areas.
- Logging in buffer zones along river banks and roads.
- Logging on steep slopes, causing massive erosion and possibly contribution to the notorious Rajang River 2010 mudslides and logjam.
- In just one license area examined, the report estimates WTK’s illegal logging at 4,000 hectares.
- WTK’s activities threaten species such as the Malaysian sun bear, Bornean Gibbon, pangolin, Rhinoceros Horbnibll, Crested Fireback Pheasant, and many others.
Despite being given multiple chances to respond, the report concludes that there is “no indication that the company will end these operations or substantially change the way they are run.” WTK represents an ongoing reputational risk to investors because of these activities. In addition, because of the extent of alleged illegality, there is also substantial regulatory risk to investors. In addition to potential violations of Sarawak and Malaysia law, imports of WTK-sourced products to the United States, Europe, and Australia could face criminal sanction or other penalties under the US Lacey Act, the EU Timber Regulation,and the Australian Illegal Logging Prohibition Act, which ban import of illegally logged wood and other forest products.
Full report: http://www.regjeringen.no/pages/1930865/WTK_eng.pdf
Key findings from the Norwegian report on Ta Ann (Bursa Malaysia Symbol: TAH):
Ta Ann holds over 360,000 hectares of timber licenses, an area five times the size of Singapore – and is poised to completely destroy more than 100,000 hectares of forest and convert it to monoculture palm oil and acacia plantations. Much of this land falls in the fabled “Heart of Borneo” and all licenses overlap with the Sundaland Biodiversity Hotspot, considered to be one of the most diverse regions on Earth. The area Ta Ann intends to destroy includes habitat for rare protected animals including:
- Clouded Leopard
- The Bornean Gibbon
- Hose’s Langur
- Western Tarsier
- Slow Loris
- Giant Squirrel
While Ta Ann’s assertions are to the contrary, maps from the Great Apes Survival Partnership suggest significant orangutan populations within the area affected by Ta Ann’s activities.
In addition, Ta Ann’s ongoing deforestation represents a globally important threat to the climate. For these reasons, we recommend that investors, lenders, and underwriters follow Norway’s example and seriously consider discontinuing financial engagement with company.
Today’s Action in Context
As part of today’s actions, the Norwegian Finance Ministry has also banned Zijin Mining Group and Volcan Compañia Minera for severe threats to the environment, and reported on positive steps taken by the mining company AngloGold Ashanti to repair past problems, and that it has placed Royal Dutch Shell and Eni’s operations in the Niger Delta under observation.
Today’s actions by the Norwegian Finance Ministry highlight the need for investors, creditors, and underwriters to exercise serious caution and due diligence when undertaking engagement with companies exposed to deforestation for palm oil, timber, pulp and paper, or other commodities.