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  4. Episode 35: Handling Shipping Risks: The Mauritius Oil Spill & Lessons for ESG Investors

Guest speaker:

Jeanett Bergan, Head of Responsible Investments at the Norwegian pension fund KLP.

Handling Shipping Risks: The Mauritius Oil Spill & Lessons for ESG Investors

Episode 35 | Duration: 12 minutes

What are the key implications of the recent Mauritius Oil Spill Disaster? And how to manage the shipping risks associated with events of this kind?

  • Keesa Schreane [00:00:01] Hello, everyone. This is Keesa Schreane. And today we're going to talk about the shipping industry in the context of the environment. Specifically, we'll look at the oil spill and Mauritius. As you may have seen by now, a Japanese ship ran the coal reef on the eastern coast of Mauritius. And this is having a devastating impact on the island's environment and economy. More broadly, what is the role of sustainable finance in preventing these disasters that have such a tremendous environmental impact? Today with us is Jeanett Bergan, head of Responsible Investments at KLP, the largest pension fund in Norway. And she's going to help us sort through this. So, Jeanette, we know the island was a huge tourism spot. About one point three million people live there. And right now the government seems to be responding by temporarily closing schools. And they gave the people who fish there a small compensation.  

    Keesa Schreane [00:00:57] What else is going on and how can this be a use case for the sustainable finance industry as it relates to shipping?  

    Jeanett Bergan [00:01:07] Yes. And thank you for having me. And yeah, the accident on the coast of Mauritius, it's devastating. And as a pension fund, we manage pensions for a lot of people in Norway, and it's invested into 17000 companies in 50 countries. So very often when there is an accident or problems are happening around the world, we very often have invested in companies involved in this. And in one way or another, also in this particular case, we are the investor in the operator of the ship and currently trying to follow up on what is happening in Mauritius.  

    Keesa Schreane [00:01:55] So can this really be a use case in terms of what can be done to prevent it or what we need to be aware of? Well, to prevent these sorts of things from happening, what do you see the lesson learned looking back on it several weeks to several weeks later?  

    Jeanett Bergan [00:02:11] Yes, I think it can. It can absolutely be a good use case. I mean, we are always following up when there are serious accidents like this. And we are contacting the companies asking, you know, first of all, making sure that they are doing everything they can to take responsibility for the accidents and the consequences. And then second, making sure that they have policies and principles in place to ensure that this is not happening again in the future. And all of that, we need to also ensure that what the company is saying, what they're doing, is actually kind of echoed by the local government, the local people, those affected by it, by the accident. And I think for the companies, it's good that they have investors and owners that are following up and asking these questions because they give them more leverage to do it as well.  

    Keesa Schreane [00:03:11] And what role do you think the pension funds have here? Clearly, you'll have a great deal of leverage, if you will, to influence. So specifically, how does that influence play out? How does that leverage play out?  

    Jeanett Bergan [00:03:24] I think that investors are one stakeholder important to companies and they have a lot of pressure, of course, and a lot of stakeholders asking questions. And I think we are part of that important environment around corporates that want to engage and make them develop in the right direction. And it is an important voice because, you know, there is always in the company... there will always be a difference of opinion. There will be people wanting to do more, people wanting to do less. So it's important to have investors asking about this, demanding this, because that will give it more attention, I think.  

    Keesa Schreane [00:04:13] So let's talk about the government's role. So is there an opportunity to mobilize finance, be a green bond to help out with redevelopment here? Have you seen that with this specific example or have you seen that with other similar examples?  

    Jeanett Bergan [00:04:27] That's an interesting, interesting question. I haven't seen it in this particular case. I mean, we do we have had a lot of engagements on deforestation in Brazil and now there are some serious and various things happening there as well. And there we've seen more kind of initiative been taken around green financing and to create opportunities there. But I haven't seen it in this case. And I think what we'll see, that could be something that could evolve going forward.  

    Keesa Schreane [00:05:00] And you talk about some of the things that you can work with companies to do beforehand to really be preventative measures. We know that these types of oil spills can have major social as well as health implications in terms of people who are exposed. Could you let us know how we can work through those situations, I guess, as more S with ESG? But how can we work through those situations? Do you see a partnership with the funds, with the government, and with the company? And if so, what does that partnership look like to really manage and reduce the social as well as the health issues that could happen afterwards?  

    Jeanett Bergan [00:05:38] Well, I mean, I don't think KLP as an investor in listed companies globally, that wouldn't be our role to take on such kind of engagement like that. We are invested in companies and we are holding them responsible for them, their actions, their practices. And we're trying to follow up and make sure that we are doing everything we can to, as an owner of companies, to create an environment for responsible business practice. And I think that it has to be our role in this particular case.  

    Jeanett Bergan [00:06:16] But at the same time, I think it's important that investors ask these questions to the companies, because still there are very many uncertainties around what happened, what kind of policies and practices and principles do they have in place when things like this happen? I mean, the ship went aground, I think, 14 days before they started leaking. There were a lot of unanswered questions. And why did they sail so close to shore when, you know, they got a lot of the ship guards of Mauritius trying to reach out and say they were going to too close to shore. So there is a lot of unanswered questions still. And very early to say who's gonna be responsible and where are the weak spots.  

    Keesa Schreane [00:07:07] Absolutely. And clearly, one of the ways that that KLP and any fund of this nature, an institutional investor could have influence or as you say, really reduce these things from happening is when they divest. Sounds like you are in a position to make an example out of firms who, for whatever reason, do not comply. So tell us about that process. When would you choose to divest?  

    Jeanett Bergan [00:07:32] Yes. So, I mean, we follow up, as I've described, when there is a serious accident or something is in breach of our guidelines and we have to divest from companies if there is an unacceptable risk of contributing to environmental degradation, human rights violation, etc. And so in this particular case, if we don't get the answers or a company is unwilling to give information and we think there is a continued risk of environmental degradation or accidents, if they won't improve policies or principles, if they don't take responsibility for the action, then we will decide to divest from companies. And an example of that is the Brazilian mining company Vale that had two very serious accidents where tailings dams have breached in Brazil over the last five, six years. And we did engage in dialog with them after the first accident and had a lot of good answers. But then after the second, we which was very similar and where they had revealed this high risk, but they hadn't done anything about it. And we just said, sorry, but this is not acceptable. And we thought still the risk is still high because they have still had a lot of these unstable tailings dams. So we decided to divest from the company. But that's the last resort.  

    Jeanett Bergan [00:09:07] And we would rather engage companies and have improved practices because we see that that's where we really can contribute to positive change, which we've done with another example with the ship recycling practices in Bangladesh, Pakistan and India, as there was an opportunity to really engage companies.  

    Keesa Schreane [00:09:27] So finally, Jeanett, tell us in a few words, why is Norway such an important player here?  

    Jeanett Bergan [00:09:32] I think one of the most important reasons why we are such an in such a, I would say, clear voice is because of the transparency we have in Norway, particularly in the investment industry. We very transparent about the holdings in our pension fund. All the holdings are publicly available. So the people of Norway can see the investments and know where their pensions are invested. And also because we have very strict ethical guidelines. And at the same time, we're transparent when we divest the company.  

    Jeanett Bergan [00:10:09] Another example is the last exclusion we published yesterday - it's a company that produces all this swimwear for Speedo, which is accused of human rights violation. And there is a very thorough report from the Norwegian government. The ethical counsel for the Norwegian Government Pension Fund Global, which is a sovereign wealth fund of Norway, and where they document that through visits on the factories of this producer of swimwear, that Speedo is involved in this human rights violation.  

    Jeanett Bergan [00:11:01] Jeanett, thank you. So. We see investors working with companies to evaluate policies as being a really key factor here. And in fact, the preferred way to move is to engage in solutions and engage in policies. Number one, to prevent accidents or after the fact to identify where the risks are and then moving to make sure that those risks are mitigated. Sounds like divesting is a last resort, but one that many investors are willing to make after the conversations have been had. And there just hasn't seemed to be changes made at that point. And also, transparency is an important component in Norway, which really makes it a global player and average, and that we're seeing transparency as a keyword in many parts of the world. So hopefully that will continue. Jeanette, thank you so very much for your time.