7 Climate and environment
Section 4 of the guidelines states that: “Companies may be excluded or placed under observation if there is an unacceptable risk that the company contributes to or is responsible for: […]
- e. severe environmentaldamage
- f. acts or omissionsthat on an aggregate company level lead to unacceptable greenhouse gas emissions […]”
7.1 Severe environmental damage
Under the environment criterion, the Council has focused particularly on cases relating to the loss of important biodiversity, deforestation and pollution from mining activity. This is a continuation of issues that the Council has previously worked on.
The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) estimates that a million species are threatened with extinction, in part as a result of habitat destruction and loss, as well as direct exploitation through international trade in wildlife and fisheries. Endangered species constitute an important topic for the Council’s environment-related recommendations. In 2023, the Council assessed several companies whose operations pose a direct threat to endangered species’ continued survival. The recommendation to exclude the Power Construction Group of China Ltd was based on the company’s contribution to the severe environmental damage caused by the construction of the Batang-Toru hydropower plant in Northern Sumatra, Indonesia. The project is located in the last part of the critically endangered Tapanuli orangutan’s habitat to remain intact. The Council has concluded that the project will constitute a serious threat to the species’ continued survival.
In 2023, the Council endeavoured to define what counts as unacceptable behaviour in an environmental context and may therefore constitute grounds for excluding companies from investment by the GPFG, on the basis of the Kunming-Montreal Global Biodiversity Framework from 2022. One of the Biodiversity Framework’s main goals is to halt the loss of areas that are important for biodiversity, including complex ecosystems such as old, intact rainforest, by 2030. The Biodiversity Framework has placed greater emphasis on the role of companies in the conservation of biodiversity, and has established an expectation that companies which have or are planning to establish operations in such areas exercise greater care and due diligence. For example, it is expected that major international enterprises will monitor, assess and share information about exposure to nature risk and make this information freely available, so that nature risk and adverse impacts may be reduced. In 2023, the Council focused on companies operating in those areas deemed among the most important for the conservation of biodiversity from a global perspective, irrespective of their protection status. In cases relating to areas of high conservation value and biodiversity, the Council’s mandate permits it to contribute to the definition of limits on what is considered unacceptable with respect to companies’ exploitation of natural assets in the coming years.
The Council has also worked with companies that are responsible for severe pollution, primarily relating to mining operations. In 2021, consultants were commissioned to identify GPFG-invested companies that engage in polluting gold mining activities. The consultants’ final report contained a list of 11 businesses whose operations were reported to be linked to serious environmental and/or social impacts. Water pollution stands out as particularly problematic in relation to these operations. The Council assessed several of these companies in 2023. The review of the gold mining operations has been relatively time consuming, since many of the incidents referred to in the consultants’ report occurred some years ago and are documented only in a few media reports. There is often little tangible documentation that water pollution is actually taking place, while the actual effects of such pollution on biodiversity and local populations is seldom rigorously substantiated. Even in cases where data from water samples exist, establishing a direct causal relationship between mining operations and elevated levels of metals in water has proved challenging, since gold mines are often situated in areas with relatively high natural occurrence of metals.
In 2023, the Council recommended the exclusion of four companies under the environment criterion.
7.2 Shipbreaking
For several years, the Council has focused on environmental and working conditions within the shipbreaking sector. Several shipping companies have been excluded from investment by the GPFG at the Council’s recommendation because they have allowed their decommissioned vessels to be broken up for scrap at shipbreaking yards where environmental and working conditions are extremely poor. The Council has also influenced some shipping companies to change their practice in this area and, in future, ensure their decommissioned vessels are broken up in a safe and appropriate manner. With respect to this topic, the Council recommended in 2023 that the exclusion of one company and the observation of another be revoked. At the close of 2023, two shipping companies are excluded from investment by the GPFG due to the way they dispose of their decommissioned vessels, while one company is under observation.
The value of decommissioned vessels lies in the steel and other materials that can be recovered from them and recycled. From a resource and environmental point of view, it is desirable that as much as possible of these materials are recycled, provided that their recovery is carried out safely. Unsafe practices at shipbreaking yards can lead to serious environmental harm and involve extremely hazardous working conditions.
A milestone in the international effort to improve conditions in this sector was achieved in 2023, when Bangladesh, Pakistan and Liberia ratified the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC), such that it will enter into force in 2025.
The HKC addresses several important aspects of the recycling of decommissioned vessels. For example, the Convention sets minimum requirements for infrastructure and operations at shipbreaking yards. In 2025, all shipbreaking in India, Pakistan and Bangladesh must take place in compliance with the Convention’s provisions. Together, these countries account for a significant proportion of the world’s shipbreaking capacity.
With the entry into force of the HKC, the foundation is laid for improvements in the shipbreaking industry. This presumes that real changes are made in the way the work is performed at a large number of shipbreaking yards. Some yards in India and Bangladesh have already upgraded to a standard that complies with the Convention’s provisions. Shipping companies can help to promote positive developments in this sector by letting their decommissioned vessels be broken up for scrap at yards that have been upgraded to meet the Convention’s requirements.
The Council is aware that, while waiting for the HKC to formally enter into force, classification companies have issued certificates stating that shipbreaking yards operate in compliance with the Convention’s provisions, so-called Statements of Compliance with the HKC. The Council’s investigations into shipbreaking yards in Alang, India, have shown that a large number of the yards there can produce such certificates despite not being technically equipped in compliance with the Convention’s provisions or the underlying IMO Technical Guidelines to which the Convention refers. For example, the majority of the yards did not have adequate facilities for drainage and the collection of liquid effluent. These facilities were either incomplete, defective or lacking altogether. The Council has therefore been concerned that such certificates have been issued to shipbreaking yards that, in reality, are not operated in compliance with the HKC. Another concern has been that even though the yards may be technically equipped to operate in compliance with the Convention, work at the yard does not take place in a way that is compliant with it.
Shipping companies should, at the very least, have a policy for the breaking up of decommissioned vessels that complies with the HKC, and should select shipbreaking yards that operate in compliance with the Convention. Furthermore, after disposing of a vessel for break-up, shipping companies should follow up the process either through their own on-site representatives or a third party, to ensure that the work is performed safely and securely.
Although the HKC establishes an important framework for improvement, demand by the shipping companies will remain a key driver for improvement within the global shipbreaking industry. The Council will pay special attention to this when the work within ship dismantling is continued.
7.3 Unacceptable greenhouse gas emissions
The Council on Ethics’ guidelines have contained a criterion concerning unacceptable greenhouse gas emissions since 2016. The Council has issued five recommendations to exclude, and a total of four companies have been excluded under this criterion. In practice, Norges Bank has assumed primary responsibility for the climate criterion since 2022. The criterion’s wording remains unchanged. For a period going forward, the Council will follow up the companies that have already been excluded, but will not normally assess new companies under the climate criterion.