Thursday, 15 November 2007

Investment concerns intensify in Burma

A shameless lift from the SHARE website:

The violent military crackdown on recent democracy protests in Burma have once again raised concerns for investors about social and financial risks associated with investments in Burma.

Foreign companies play a pivotal role in maintaining a steady flow of capital to the military dictatorship, and by extension, in upholding military rule and brutal repression in the country. Companies with ties to Burma face significant financial, reputational and legal risks operating in the country, which has been condemned internationally for its use of slave labour, forced displacement, and repression of ethnic minorities.

The recent violence has put the spotlight on companies operating in Burma’s oil and gas industries. The sale of natural gas is the single largest source of revenue for the military government, accounting for half its exports in 2006.

French company Total - the world’s fourth largest oil company – is the single biggest foreign investor in Burma, acting as the operating partner of the offshore Yadana gas field and pipeline. US oil company Chevron is a 28% owner of Yadana as a result of its 2005 purchase of UNOCAL, and remains in Burma under a grandfathering clause despite the US sanction regime. Construction of the 63-kilometer pipeline last decade was closely associated with serious human rights abuses - including forced labour, forced relocation, beatings, torture, and rape. Today, it is estimated that the Yadana consortium contributes US$250-450 million in royalties annually to the military regime. It is also estimated that the military government allocates over 50% of its total budget to military spending, compared with under one percent to national public health.

Recent shareholder initiatives on Burma have focused on the energy sector. In early October, the international labour movement – through the Global Unions Committee on Workers’ Capital – agreed to push for coordinated shareholder action on Burma. Some investors have responded by divesting their shares in companies that operate in Burma. ATP - the C$80 billion universal Danish labour market fund - announced its divestment from Total and all oil and gas companies dealing directly with the state-owned Myanmar Oil company, including South Korea’s Daewoo, which operates another, smaller offshore gas field. The Dutch trade union movement has recently issued a call to pension fund trustees to review investments in companies with ties to Burma. The Dutch healthcare sector fund PGGM, with C$130 billion under management, announced it was actively engaging companies in its portfolio on Burma, and would divest if necessary.

In the US, a shareholder coalition including trade union funds is engaging Chevron, asking the company to withdraw from countries with systematic violations of human rights. The company’s management has agreed to meet with concerned shareholders later this month to discuss their concerns.

In Scandinavia, Swedish governance group GES Investment Services has announced “enhanced engagement services” due to the increased demand from clients such as the Church of Sweden, Swedish mutual insurance group Folksam, and Norwegian life insurance KLP. The Norwegian Pension Fund Advisory Council on Ethics has determined there are no grounds for excluding companies on the basis of their current presence in Burma. However, the Advisory Council did find that an “imminent danger” of human rights abuses, such as the construction of another pipeline in Burma as envisaged by PetroChina, would be grounds for immediate exclusion of such companies from the fund.

At home, the Canadian Labour Congress (CLC) has written the Canadian Pension Plan Investment Board requesting that it publicly report on its exposure to companies with operations in Burma, actively engage them, and divest unless business ties to the military regime are ended. The CLC also wrote Prime Minister Stephen Harper in October calling for a ban on all new and existing Canadian investment in Burma. The Canadian Government has since announced new sanctions, which include a ban on all exports to and from Burma, and a ban on all new investments. It is expected that the US ban on imports and investments in the countrywill be tightened further, and the European Union has already increased restrictions on Burmese investment, however the EU restrictions glaringly exclude the oil and gas sector.

Canadian companies are not off the hook. BC-based CHC Helicopter operates five helicopters in Burma, providing transportation services for offshore oil and gas exploration and extraction. Until recently Ivanhoe Mines operated the Monywa Copper Mine through a joint venture agreement with a Burmese state-owned company. Ivanhoe has transferred its Monywa assets to an independent Trust, pending the sale of its stake in the mine, and the company has stated that it no longer receives revenues from Monywa. Critics argue however that the details of the Trust’s structure and its financial ties to Ivanhoe are unclear.

Investors should be concerned with the reputational, political and legal risks for companies operating in Burma. With an unstable regulatory framework, endemic corruption and gross violations of human rights, the country is subject to increasingly stringent international sanctions and heightened public and media scrutiny. Trustees, pension activists, and all concerned investors should consider the risk this may pose to the companies in their investment portfolio.

As an example, trustees can ask their investment manager to report on their fund’s exposure to companies with ties to Burma, the risks this may pose to the fund and the manager’s strategy for addressing such risks. To assist in this process, SHARE has created an information site along with an action toolkit.

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