POLITICS & INSTITUTIONS - ECONOMY

Government told to clean up sovereign investing



greenpeace.jpeg

Protesters outside the Cercle Cité on 3 December while lawmakers discussed sovereign investing (Photo: Greenpeace) 

Lawmakers have demanded the government review the legal framework and investment strategies of its sovereign funds to make them more sustainable and environmentally friendly. 

Activists have long demanded that the country’s pension fund divest from carbon companies like Shell and Exxon Mobil but also stop funding nuclear power, for example through shares in EDF, which operates plants across France, including nearby Cattenom.

“It is a blatant contradiction,” said MP Marc Baum (déi Lénk) of the pension fund’s investments and the government’s climate goals and anti-nuclear stance. Baum had requested the topic to be discussed in a plenary session in parliament.

During his speech on 3 December, Baum cited other problematic investments. The so-called Fonds de Compensation (FDC) invests in palm oil company Wilmar. Amnesty International in 2016 reported child and forced labour at Wilmar plantations and the company’s subsidiaries and suppliers.

Other investments include mining companies Newmont (criticised for excessive use of force during protests in Peru), Glencore (which displaced indigenous people for a mine in the Philippines) and Rio Tinto (among many scandals accused of poisoning rivers in Papua New Guinea) as well as defence firm Rheinmetall (accused of supplying weapons to Saudi Arabia in the Yemen conflict through a subsidiary).

None of these businesses appear on an exclusion list adopted by the FDC as part of responsible investment principles introduced in 2010.

Future fund

The motion passed by lawmakers on Thursday calls on the government to analyse how environmental, social and governance (ESG) criteria could be implemented more consistently in the fund’s investment strategy.

The FDC has argued that its current legal framework does not allow it to exclude entire branches of industry, such as fossil fuel companies. This, too, should be investigated, the motion said.

The review will also include a second sovereign fund, the Fonds souverain intergénérationnel du Luxembourg (FSIL), also known as the future fund. Created in 2014, it aims to stockpile savings to be used for projects benefitting future generations once it reaches a portfolio of €1bn. It currently holds around €380m in assets.

Unlike the pension fund, the FSIL invests indirectly, placing money in exchange-traded or mutual funds. Because it cannot control individual placements within these funds, the FSIL profits from around two dozen companies blacklisted by the pension fund, including defence contractors Lockheed Martin and Raytheon, both Saudi arms suppliers linked to the war in Yemen.

Finance minister Pierre Gramegna (DP) during the debate said around 0.6% of investments--equivalent to around €2.5m--were problematic. The fund should be 100% responsible within the coming year, he said, after it previously began shifting assets into socially responsible indices.

The government could also soon move the fund into more active management, Gramegna said, explaining that a critical mass of assets was required to warrant this shift in investment strategy.

Climate risks

Greenpeace late on Thursday in a statement welcomed the motion. “Parliament has sent a strong signal to the government today,” said climate and finance campaigner Martina Holbach. “The majority of parliament has recognised that there is no reason to continue investing public money into companies that destroy the environment and disregard human rights.”

The environmental organization last year had taken social security minister Romain Schneider (LSAP) to court over failing to answer questions over the finance risks associated with the pension fund’s carbon assets. A study by insurer AXA estimates that annual returns of oil and gas companies are expected to fall by 40% over the next decade.

Judges said Schneider couldn’t be expected to possess the information Greenpeace demanded to see. The FDC in response pledged a climate risk assessment, which is due to be presented to lawmakers on 10 December, Schneider said during the plenary session.

The motion voted on Thursday was supported by the DP, LSAP, déi Gréng and Pirate Parties (33 votes). The ADR voted against the proposals while déi Lénk and the CSV abstained over a final clause in the document asking the government to increase its contributions to the FSIL.

The government spends €50m on the fund annually. The opposition parties argued that funds the government has at its disposal should be invested directly in housing or climate measures rather than being added to the fund.

Baum during the debate submitted a proposal to reform the law regulating the pension fund. It calls on the creation of an ethics committee to oversee the fund as well as a legal basis for the exclusion list and adding the possibility to exclude entire sectors, such as fossil fuels, tobacco or nuclear energy.

Already in 2016, MPs had agreed that the legal framework should be reviewed, Baum said. With nothing having happened since, he urged his fellow lawmakers to consider the party’s proposal to move forward.