Norway Wealth Fund Drops Bharat Heavy on Environmental Risk

(Bloomberg) -- Norway's $940 billion sovereign wealth fund excluded Bharat Heavy Electricals Ltd. on environmental grounds, placed PetroChina Co. and Leonardo SpA under observation and said it will follow up with Eni SpA and Saipem SpA on the risks of corruption.

Bharat Heavy, based in New Delhi, was excluded from the fund “based on an assessment of the risk of severe environmental damage” after a recommendation from the Council on Ethics, the central bank, which oversees the fund, said in a statement. BHEL officials couldn't immediately be reached for a comment.

The company is building a coal-fired power plant close to areas with “universally unique environmental qualities in the Sundarbans, the world's largest mangrove forest, in southern Bangladesh,” the council said in a separate statement. “There's an unacceptable risk of the company contributing to or being responsible for severe environmental damage.”

The world's largest wealth fund takes into account ethical rules encompassing human rights, some weapons production, corruption, the environment, coal and tobacco when deciding on its investments. The fund sells its stakes before it announces an exclusion.

PetroChina and Leonardo were placed under observation, a preliminary step before a potential exclusion, based on an “unacceptable risk that the companies contribute to, or are responsible for, severe corruption,” the bank said. The ethics watchdog had recommended the fund exclude the companies. 

The bank also went against the council's recommendation to put Eni and Saipem under observation, saying it will follow up with “active ownership” and “raise the issue of the risk of severe corruption” with the companies.

“The Executive Board concludes that it is appropriate to use other measures, and that they probably will be better suited to reduce the risk of continued norm violations in these cases,” the bank said in the statement.

--With assistance from Rajesh Kumar Singh

To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net.