October 14, 2021 | Policy Brief

Western Governmental Funds Divest From West Bank While Investing in China

October 14, 2021 | Policy Brief

Western Governmental Funds Divest From West Bank While Investing in China

In September, Norway’s Government Pension Fund became the third major Western governmental investment fund since March to divest from companies doing business in West Bank settlements. Participating in Palestinian efforts to boycott Israeli firms has exposed these funds to accusations of hypocrisy for continuing to invest in other conflict zones.

The Norwegian Government Pension Fund, a $1.3 trillion sovereign wealth fund that owns 1.5 percent of all publicly traded shares worldwide, said in a statement that it divested from the Israeli firms “due to unacceptable risk that the companies contribute to systematic violations of individuals’ rights in situations of war or conflict.” The fund divested from two other Israeli companies four months earlier, citing similar reasons.

The fund’s rationale for divesting from these companies references international law. But international law does not prohibit business in disputed territories. Nor is doing such business inconsistent with the non-binding principles of corporate social responsibility. That is the official view of the United Nations, expressed in its Global Compact document titled “Guidance on Responsible Business in Conflict-Affected and High-Risk Areas: A Resource for Companies and Investors.”

These divestments are also inconsistent with U.S. law and policy. U.S. law states that Congress “opposes politically motivated actions that penalize or otherwise limit commercial relations specifically with Israel, such as boycotts of, divestment from, or sanctions against Israel.” The law defines “boycott of, divestment from, and sanctions against Israel” to include such politically motivated actions against “persons doing business in Israel or in any territory controlled by Israel.”

Meanwhile, the Norwegian fund continues to invest in other countries responsible for grave human rights violations. Five percent of the fund’s investments are in Chinese companies. China has detained up to 1 million Uyghurs, suppressed democracy in Hong Kong, and continues to occupy Tibet.

Separately, KLP, which is partially owned by various Norwegian municipalities, for which it manages some $95 billion in pension funds, announced in July its divestment from 16 companies due to their operations in Israeli West Bank communities. This appears to be the first time a major Western public-sector financial institution has based a divestment decision squarely on the controversial UN blacklist of businesses operating in West Bank settlements. Yet even a February 2020 report by the Office of the UN High Commissioner for Human Rights explicitly states that the blacklist “does not purport” to characterize as illegal the listed companies’ settlement-related activities.

In 2020, the Australian Strategic Policy Institute listed 82 global companies with supply chains that reportedly use forced labor by China’s Uyghur population. As of the date KLP published its 2020 annual report, it had over $435 million invested in 28 of those companies. A U.S. government commission has published a similar list. Yet KLP has apparently never divested from any company for its use of forced Uyghur labor.

In March, New Zealand’s sovereign wealth fund divested from five Israeli banks because of their West Bank operations. Meanwhile, the fund holds nearly half a billion dollars’ worth of investments in 625 Chinese companies, including two blacklisted by the United States for direct involvement in “human rights violations.”

A September 2021 report by the UK-based nongovernmental organization Hong Kong Watch highlighted the New Zealand fund’s investments in China. A spokesperson for the body that sets the fund’s policies responded, “If we exited every company facing conduct concerns, all we’d achieve is to sell our stock to someone who cares less about these issues and is more willing to turn a blind eye.” The fund has not applied this standard to Israel.

The recent divestments based on Israeli settlement ties provide a troubling precedent for other fund managers who might be tempted to participate in Palestinian efforts to boycott Israeli firms as well. In addition, so long as these funds continue to divest from West Bank-related firms while investing in other conflict zones, the funds will rightfully be exposed to accusations of having a double standard.

Orde Kittrie is a senior fellow at the Foundation for Defense of Democracies (FDD), where David May is a senior research analyst. They both contribute to FDD’s Center on Economic and Financial Power (CEFP) and Israel Program. For more analysis from the authors, CEFP, and the Israel Program, please subscribe HERE. Follow the authors on Twitter @ordefk and @DavidSamuelMay. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


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