Business

Why the World’s Largest Sovereign Wealth Fund is Leaving Indian Companies in the Cold and What That Tells Us About Make in India

Norway’s wealth fund blacklists Vedanta, other Indian firms over rights violations, climate impact

Latehar Jharkhand, 2014. A mining dumper rushes past the Tetariakhar village, heading back for the next haul of coal. The village, after which Coal India's mine is named, no longer exists. Adivasi and Dalit communities were forcibly evicted from here without their consent or adequate compensation. Credit: Aruna Chandrasekhar/Amnesty International India.

Latehar Jharkhand, 2014. A mining dumper rushes past the Tetariakhar village, heading back for the next haul of coal. The village, after which Coal India’s mine is named, no longer exists. Adivasi and Dalit communities were forcibly evicted from here without their consent or adequate compensation. Credit: Aruna Chandrasekhar/Amnesty International India.

Norway’s Government Pension Fund Global (GPFG) – the world’s largest sovereign wealth or state-owned investment fund – continued to put a series of companies with Indian operations on its exclusion lists, citing human rights, environmental and climate change impacts. These include companies with substantial investments in metals, coal and thermal power.

About the pension fund

With a market value of 7,510 billion kroner (roughly $887.81 billion ) in 2016, the GPFG is owned by the Norwegian people, administered by its Ministry of Finance and managed by the Norges Bank Investment Management. The fund, owning a minority share in over 9000 companies globally, invests abroad the proceeds of Norway’s oil and gas sales. A council of ethics appointed by the Ministry of Finance makes recommendations on whether to put certain companies on an exclusion or observation list. This is based on stringent criteria that look at environmental, social and governance risks. On March 9, the GPFG released its annual report looking at its responsible investments over 2016 and the council’s recommendations.

Coal criterion

Following the Norwegian parliament’s call for a withdrawal of the GPFG’s investment in coal stocks and bonds in 2015, the Norges Bank adopted a coal criterion in February 2016, excluding companies who earned 30% of their revenue or had 30% of their activities dependent on thermal coal. In April 2016, it divested from 13 Indian coal companies, including Coal India Ltd., NTPC, Reliance Power, Reliance Infrastructure Ltd., Tata Power, Gujarat Mineral Development Corporation and CESC, besides others. So far, 69 companies have been put on the exclusion list, and two on observation.

Vedanta Resources Plc.

UK-based Vedanta Resources Plc., first excluded in 2007, once again made its way to the GPFG’s exclusion list. The council recommended against the re-introduction of Vedanta in the GPFG’s investment universe, stating that “in the council’s view there continues to be an unacceptable risk that your company will cause or contribute to severe environmental damage and serious or systematic human rights violations”.

The council of ethics reviewed developments in three of Vedanta’s Indian subsidiaries – Lanjigarh Alumina, Sterlite Copper and BALCO in India – and Konkola Copper in Zambia from 2007. It made stinging observations on ongoing transgressions in operations and increasing, unaddressed human rights risks.

Kalahandi, Odisha, 2011. Lado Sikkaka, leader of the Niyamgiri Surakhya Samiti, leads a drum procession around a shrine built for Niyamraja, atop Niyam Dongar. Arbitrary arrests against members of his community, the Dongria Kondh tribe, have been on the rise, with three persons booked under the charges of being Maoists recently. Credit: Aruna Chandrasekhar

Kalahandi, Odisha, 2011. Lado Sikkaka, leader of the Niyamgiri Surakhya Samiti, leads a drum procession around a shrine built for Niyamraja, atop Niyam Dongar. Arbitrary arrests against members of his community, the Dongria Kondh tribe, have been on the rise, with three persons booked under the charges of being Maoists recently. Credit: Aruna Chandrasekhar

Niyamgiri, Odisha 

While Vedanta’s plans to mine in Odisha’s Niyamgiri hills were shelved in 2013, following a historic referendum in which 13 village councils voted against the company’s mining plans, the council has taken note of developments since. These include the Odisha Mining Company’s recent attempts to challenge the referendum in the Indian Supreme Court. The council noted the Odisha government’s MoU with Vedanta to supply it 1.5 million tonnes of bauxite and observed “should it source bauxite from the Niyamgiri Hills, Vedanta could still be complicit in human rights violations perpetrated by its business partner.” It also pointed to civil society concerns that should Vedanta source from the Karlapat mine, also in the protected Adivasi district of Kalahandi, indigenous communities there would face similar risks in the future.

Lanjigarh Alumina, Odisha

Issues around consulting affected communities continue to plague Vedanta. The council of Ethics noted Vedanta’s misrepresentation of the outcome of a public hearing, in which it claimed that people were “largely in favour” of the four-fold expansion of its aluminium refinery in Lanjigarh, Odisha, at the base of the Niyamgiri Hills. Evidence and objections shared by communities, journalists and civil society groups including Amnesty International did not prove to be a barrier for the Ministry of Environment, Forests and Climate Change (MoEFCC). It granted the mammoth expansion an environment clearance in November 2015, even as looming questions remained about where the bauxite for the refinery would come from, existing pollution and community forest land within the refinery’s premises and rehabilitation. The refinery’s expansion is currently being challenged in India’s National Green Tribunal, with the next hearing on April 17. But as the council points out, the fault lies not just with Vedanta. The Odisha government continues to sideline the 2010 observations of the National Human Rights Commission on rehabilitating displaced communities and setting up an expert committee to monitor pollution impacts on public health. Meanwhile, Dongria Kondh communities protesting the expansion continue to face harassment and arbitrary arrests as militarisation in the region is on the rise.

Kalahandi, Odisha, 2011. Dongria Kondh women dance atop Niyam Dongar, at the annual festival to pray tribute to their mountain and gods Dharini Penu and Niyamraja, and to commemorate another year of resistance. While Vedanta's mining plans here were cancelled in 2013, there has been a renewed bid by the Odisha Mining Company to mine in these parts. Credit: Aruna Chandrasekhar

Kalahandi, Odisha, 2011. Dongria Kondh women dance atop Niyam Dongar, at the annual festival to pray tribute to their mountain and gods Dharini Penu and Niyamraja, and to commemorate another year of resistance. While Vedanta’s mining plans here were cancelled in 2013, there has been a renewed bid by the Odisha Mining Company to mine in these parts. Credit: Aruna Chandrasekhar

BALCO, Chhattisgarh 

In BALCO, Vedanta’s sister aluminium concern in Chhattisgarh, issues persisted around worker safety, rehabilitation of displaced families and Vedanta’s failure to seek the consent of the Baiga tribe, which is on the government’s list of Particularly Vulnerable Tribal Groups. The council noticed that while BALCO continued to expand its Bodai Daldali bauxite mine in Kawardha, Chhattisgarh, it was yet to fully resettle 261 families displaced by the mine. The council also wondered why the MoEFCC thought it fit to exempt such a large expansion from a public hearing, without which it would have been impossible to freely obtain the consent of Baiga Adivasis living around the mine. Reports by independent journalists and by the Mine and Communities network observed that Baiga workers at the mine – mostly daily wage contract labour – “splinter rocks with sledgehammers, gather the pieces bare-handed in kitchen bowls”.

Bauxite mined from BALCO’s Mainpat and Bodai-Daldali mines makes its way to its smelter in Korba, Chhattisgarh. Even here, the council found that Vedanta has actively tried to wash its hands off the collapse of a chimney which led to the death of 40 workers in September 2009. Vedanta had previously communicated to the council that the chimney collapse was found to be a “meteorological phenomenon not related to design flaw of chimney design”. In 2012, when the enquiry commission found that BALCO was responsible for constructing the chimney and all safety measures, Vedanta fought to have the report stayed in the Chhattisgarh’s High Court. “In the council’s view,” the correspondence reads, ”it is peculiar that what appears to be the only action Vedanta has taken in response to the accident is to hinder the publication of the inquiry report.”

For both its Lanjigarh and BALCO operations, the council was dismayed that forced displacement continued to be an issue, especially stemming from its practice of discriminating against families without land titles, which could particularly harm indigenous communities. “Although this may not be unlawful, it causes serious harm to vulnerable groups who have no alternative sources of income, and is not consistent with Vedanta’s assurance that it makes every effort to minimise and mitigate the impact of unavoidable resettlement.”

Korba, Chhattisgarh, 2014. Signboards outside BALCO's aluminium smelter read out Vedanta's CSR successes. In 2009, a deadly chimney collapse left over 40 persons dead. Credit: Aruna Chandrasekhar

Korba, Chhattisgarh, 2014. Signboards outside BALCO’s aluminium smelter read out Vedanta’s CSR successes. In 2009, a deadly chimney collapse left over 40 persons dead. Credit: Aruna Chandrasekhar

Sterlite Copper, Tamil Nadu 

Vedanta’s Sterlite Copper operations in Tuticorin received flak for its disposal of hazardous wastes, impacts on ground water and public health over two decades, besides its disregard for government rules and regulations. The 4 MTPA plant is located next to the ecologically sensitive Gulf of Mannar region on Tamil Nadu’s coast. In 2010, the Madras high court ordered the closure of the copper smelter, on the grounds of excessive pollution, poor mitigation and waste disposal, and for violating directives of the Pollution Control Board (PCB). On March 28, 2013, the Tamil Nadu Pollution Control Board shut down the factory after reports of a gas leak comprising extremely high levels of sulphur dioxide in the air, which led to the death of a 35-year-old migrant factory worker. India’s Supreme Court, however, stayed the high court’s decision to shut down the plant. It instead imposed a penalty of Rs 100 crore on the company as a deterrent and directed the PCB to impose stricter mitigation measures. Vedanta informed the council that it was complying with all these new directives. However, the council still outlined a host of unaddressed issues – from overstating the land available for pollution control measures to failing to dispose of large quantities of gypsum still contained in its waste pond (corroborated by Google Earth Images from 2016 and interviews with local communities). It found that BALCO had yet to follow up on its own 2008 epidemiological health study, which found that people around the factory site were suffering from skin and respiratory disorders.

Why responsible government makes for good investment

Despite organisations such as Greenpeace and German urgewald pointing out that the GPFG still has significant investments in coal, the council’s recommendations on companies in India stand out for several reasons. One, whether companies like it or not, ethical investment, along with fossil fuel divestment, is increasingly on the rise. This stands in sharp contrast with the Indian investment universe, where highly indebted companies have been financed by public sector banks and insurers for projects with serious impacts, both at home and abroad. A case in point that raised eyebrows globally was State Bank of India’s Memorandum of Understanding with the Adani Group to finance its Carmichael mine, despite other merchant banks pulling out. The bank is believed to have given the group $800 million for seven years to partially finance the purchase of the Abbot Point coal terminal that lies in close proximity to the Great Barrier Reef.

In a similar vein, India’s Life Insurance Corporation picked up over 50% of the shares on offer as part of Coal India’s disinvestment, even as foreign merchant bankers stayed away, citing environmental and human rights concerns. While Indian government touted this disinvestment a resounding success, experts argued that instead of leveraging public assets and exposing Indian shareholders to further risk, there should have been re-investment in addressing environmental and rehabilitation concerns, yielding in greater value for Indian citizens in the long run. In the first ever public-ranking of human rights performance Corporate Human Rights Benchmark, Coal India ranked at the bottom of the pool of 98 publicly-traded companies evaluated for performance, human rights due diligence, remedy and responding to serious allegations.

The more glaring takeaway is that the council seems to have gone much further than India’s own environment arm – MoEFCC – and state governments in investigating and acting on violations and risks to communities and investments alike. For instance, a report by India’s Comptroller and Auditor General tabled in parliament last week found that the MoEFCC had imposed no penalty on those found violating environment clearance conditions, while its regional offices were understaffed and disempowered to punish violators. Even more disturbing is a new notification introduced on March 14 that can potentially provide safe passage for violators operating without statutory environmental clearances. India has yet to come up with a National Action Plan on Business and Human Rights, recommended by the UN Working Group on Business and Human Rights.

“It’s important for investors to look at events on the ground and go by the impact, which is why we reach out to a large number of civil society actors and communities to corroborate company disclosures,” said Hilde Jervan, from the council of Ethics. “It’s a challenge for the finance sector. But there is a long-term profitability if you consider the long-term impact of projects.”

Latehar Jharkhand, 2014. An Oraon Adivasi woman carries firewood from the forest, having to walk through Coal India's Tetariakhar mine. The mine has restricted her family's access to common property resources, without adequately rehabilitating her. Credit: Aruna Chandrasekhar/Amnesty International India.

Latehar Jharkhand, 2014. An Oraon Adivasi woman carries firewood from the forest, having to walk through Coal India’s Tetariakhar mine. The mine has restricted her family’s access to common property resources, without adequately rehabilitating her. Credit: Aruna Chandrasekhar/Amnesty International India.

Far from reaching out to communities and civil society to monitor its many blind spots, the Indian government has instead run a campaign against rights defenders who raise concerns about corporate accountability and natural resources. An Intelligence Bureau report in 2014 accused rights groups of setting back India’s GDP by a staggering “2-3 %”. While groups across the board are being barred from accessing funding from international sources, political parties found guilty of receiving over Rs 17 crore in donations from Vedanta’s subsidiaries were quietly absolved of funding violations. This was achieved through a retrospective amendment to India’s Foreign Contribution (Regulation) Act (2010), pushed through without debate as part of India’s budget proposals in February 2016. The Home Ministry’s lack of swiftness to prosecute parties in this case has been telling.

One thing is for certain: the Indian government cannot hope to court foreign investment for its Make in India manufacturing thrust, while turning a blind eye to its rights obligations and its role as a custodian of public wealth. It is vital that companies, banks, insurers and the Indian government sit up and take notice of red flags raised by the Norwegians. That the Indian government continues to clear, finance and safeguard damaging projects mired in litigation and reputational risk, is deep but also known cause for concern. It’s just that now, even the financial costs of doing ‘business as usual’ are also too real to be ignored.

Aruna Chandrasekhar is a researcher and photojournalist, working on issues of development, land alienation, indigenous rights and corporate accountability in India for the last six years. Follow her at @aruna_sekhar.

  • Rohini

    This is the MOST ABSURD position that the Norway Soevreign Fund can take. Isn’t it ironic-er than ironic that a fund,, especially THIS fund should be making empty hollow clacking noises about ‘environment’ and rights violations of companies like Vedanta – which are small fish in comparison to the impact that Norway itself (and indirectly, the Norway Fund) has had on the environment.
    For those who do not know, the Norway Fund is called a Pension fund but it is NOT A FUND CREATED FROM CONTRIBUTIONS BY SALARIED PEOPLE TOWARDS PENSIONs. IT is a fund created from the supra normal profits from DIRTY FUEL – the oil & Gas value chain in Norway- both upstream and downstream – Norway has rights over a large part of the seas around it which are rich in oil deposits lading to revenues from oil exploration, drilling licenses + % tax on profits from refined products sales of its state owned oil major StatOil .i.e., sales of dirty fuel which has harmed the environment leading to the crisis in global warming. Not to mention the destruction of the ecosystem in the seas from drilling for oil
    In fact, till about 20 years ago, it was explicitly called The Petroleum fund. And guess what? This fund – from destructive drilling and exploration, which created dirty fuel like petroleum and destroyed the environment leading to high levels of Co2 – is worth a whopping 900 Billion USD. The fund is meant to create secure pensions for generations of Norwegians.

    This fund invests in global stocks, bonds and real estate. This fund apparently has ethical considerations and has debarred investments in tobacco firms, arms firms and ‘environment-destroying’ firms. Many global companies are debarred and reinstated.
    But, to see a fund that GREW ON THE BACK OF ENVIRONMENTALLY DESTRUCTIVE OIL & GAS EXPLORATION & SALES (which contributed to increased use of petroleum based products, thus leading to high emissions and global warming), talking about tobacco, or coal or other so- called environmentally destructive companies is FALLACIOUS and hypocritical, to say the least.
    THIS fund, built on unimaginably high oil profits is one of the largest in the world and is meant for pensions for the 5 mn norwegians – this then makes norwegians one of the most secure people from a pension perspective, for generations to come. THANKS TO OIL AND ENVIRONMENT DESTRUCTION.

    And how big is Vedanta?12 bn – miniscule wrt to the Norway Fund.

    Now, how we take them seriously? They are hypocritical..it’s convenient to grow on the back of dirty energy, build up the most giant corpus in the world on the back of dirty fuel and then, arm twist poorer nations and their companies about the ‘environment’!

  • Rohini

    I would like to add to my comment below. I looked up their equity investments in which about 60% of their funds are invested. Their top ten investments include 2 gigantic oil & gas majors – exxon Mobil (>34 bn $) and Shell. last year, the max returns came from mining (Glencore), Shell (OIl & Gas) And exxon (Oil and Gas). So, now, the reader can judge for themselves how serious these people truly are about the environment.
    ANd Norway itself faces aa lawsuit under its own constitution for the licenses it has granted several large oil majors inlcuding StatOil to drill in the Norwegian Arctic – the Barrents Sea. This is the most nortehrly point ever explored and activists for the Arctic are up in arms against the hollow noises about the environment made by Norway while exploiting the Arctic and adding to fossil fuel use.

    Here’s a link to an article – there are several.
    https://www.theguardian.com/environment/2016/oct/18/norway-faces-climate-lawsuit-over-oil-exploration-plans

  • Rohini

    “You can simply not compare a developing country like India with a history of a disregard for human rights and environment to a highly developed country like Norway.”
    Er..I HAVEN”T. READ my comment and please stop the condescending posturing. The word INDIA appears NOWHERE in my comemnt because that was NOT the thrust of my argument.
    I HAVE called out Norway’s hypocrisy, though, in enriching itself on the back of environmentally destructive dirty fuel and then playing holier-than thou:-)

    what laws that Norway has can protect the environment AFTER production – i.e, when StatOil sells its dirty fuel to consumers who then USE it …which has now contributed in no small way to the rise in earth’s temps leading to a crisis in global warming?

    Any light you can throw on that? I am sure we can all be thankful to the likes of StatOil for helping us by protecting the environment DURING production of one of the DIRTIEST forms of fuel humans currently know of and use..by the gigaton 🙂