Active ownership pays off

Norges Bank’s active ownership activities in Monsanto Co. have contributed to a significant reduction in the use of child labour in the company’s hybrid cotton seed production in India. Norges Bank can still play an important role in achieving further improvements. The Ministry of Finance has therefore decided not to exclude Monsanto Co. from the portfolio of the Government Pension Fund - Global.

In November 2006, the Council on Ethics recommended that the Ministry of Finance should exclude Monsanto Co. from the investment universe of the GPFG. The Council then held the view that continued investment in the company would entail an unacceptable risk of contributing to the worst forms of child labour. The Ministry of Finance decided, based on plans presented by Norges Bank in spring 2007, that it would be appropriate to pursue an active ownership strategy for a limited period of time in order to establish whether this might reduce the risk of contributing to grossly unethical conduct.

We take the view, based on new assessments of the Monsanto case from both the Council on Ethics and Norges Bank this spring, that there is reason to believe that Norges Bank's continued exercise of ownership rights in Monsanto will be an important contribution to achieving actual improvement in conditions.  – I therefore want Norges Bank to continue, as an active owner, to continue to engage with Monsanto for purposes of combating the worst forms of child labour within the company’s hybrid cotton seed production in India, says the Minister of Finance.

Norges Bank has reported on plans for, and, thereafter, the outcome of, its exercise of ownership rights through meetings and correspondence with the Ministry of Finance during 2007 and the first half of 2008. In its contact with Monsanto, the Bank emphasises its expectation that there shall be continuous improvement in the conditions of children involved in the hybrid cotton seed production.
 
The Bank has been informed by Monsanto that the company has effected a significant reduction in the incidence of child labour in its labour force. The Bank has a clear expectation that the company, in light of its commitment towards zero tolerance on child labour, will continue to reduce the number of children in the cotton seed production. At the same time the company should further improve safety for its workers in general, and verify its child labour and safety performance through improved monitoring procedures.

Norges Bank has, in parallel with the dialogue pursued with Monsanto, taken an initiative to establish cooperation between several multinational companies within the hybrid cotton- and vegetable seed production in India. The objective of such an approach is to seek to enhance standards relating to the use of child labour within the sector as a whole, and not only within a single company. Norges Bank takes the view that a joint standard for multinational companies will be the most effective instrument for purposes of achieving continued improvements. It further believes that Norges Bank as an investor is uniquely well-placed to facilitate such a process. An initial meeting between several companies, including Monsanto Co., was held in June this year. 

The Council on Ethics has, on its part, conducted its own survey of the recent situation in various parts of Monsanto's cotton seed production in India. The Council is aware of the efforts pursued by the Bank, and has taken these into consideration in its latest recommendation to the Ministry.

The Council on Ethics concludes, inter alia, as follows in its letter of 10 June 2008 to the Ministry of Finance:

”The Council’s assessment is that the detected violations in this case must be considered ongoing and, seen in isolation, deemed to count as “the worst forms of child labour”, and thus as grave violations which, in principle, qualify for exclusion from the Fund’s investment universe.

At the same time, the Council on Ethics finds that Monsanto has achieved considerable improvements, particularly within certain geographical areas, when it comes to reducing the occurrence of child labour use.”

Furthermore, the Council states that the role of Norges Bank in the improvement effort is of particular importance, not least because no other investors are engaged with the company on these issues at present.

The Council also states the following:
"Given that the improvement efforts are further strengthened and their application extended so that these goals are met, and also that the sector-wide initiative succeeds in reducing the occurrence of child labour in the production linked to MMB and Mahyco in the same way as in the company’s own operations, the risk of future violations may be reduced to a level where the Fund’s investment in Monsanto no longer must be regarded as constituting a breach of the Fund’s Ethical Guidelines.”

Both Norges Bank and the Council on Ethics will closely monitor future developments.

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Read more:
- The recommendations from the Council on Ethics
- Letter from the Council on Ethics
- Final report from Norges Bank concerning Monsanto
- Companies Excluded from the Investment Universe