Norwegian pension fund dumps Petrobras over corruption


Concerns that bribery scandal at Brazilian state-controlled oil company will spread

by: Madison Marriage and Joe Leahy/FT

Norway’s largest pension fund has blacklisted Petrobras over concerns that the state-controlled oil company at the centre of a Brazilian bribery scandal is prone to further corruption problems beyond its home market.

KLP, which oversees NKr553bn ($67bn) of assets, said it would no longer invest in Petrobras due to the “unacceptable risk” of future problems at the company.

KLP is the first large investor to publicly blacklist Petrobras since a vast bribery scandal emerged at the company in 2014, costing it at least R$6.2bn ($1.7bn) in corruption-related losses.

Separately, the Norwegian oil fund, the world’s largest sovereign wealth fund, with $850bn of assets, said in January it was reviewing its holdings in Petrobras because of the continued risk of “severe corruption”.

The scandal involved directors at Petrobras collaborating with the company’s contractors, including some of Brazil’s largest construction companies, to embezzle money from the group. Some of the directors accumulated more than $100m in Swiss bank accounts, while others put the money into art collections.

The scandal has also significantly undermined public confidence in Dilma Rousseff, who was last month suspended as president of Brazil over allegations she manipulated public accounts to disguise the deteriorating state of public finances.

Ms Rousseff was president of the board of directors of Petrobras. Its share price fell 27 per cent over the past 12 months, when details of the bribery emerged.

Jeanett Bergan, head of responsible investment at KLP, which sold its NKr34m of equity and fixed income investments in Petrobras in June, said: “The scale of the case, the size of the amounts involved and the length of time this has been going on are without parallel anywhere in the world.”

“There are still several initiatives we would like to see the company implement, including an investigation into potential corruption in its operations outside Brazil, a robust and tailored anti-corruption training programme, due diligence investigations of suppliers, [and] a strengthening of executive management’s anti-corruption competence.”

Ms Bergan added that Petrobras has operations in many countries, such as Venezuela, Nigeria and Angola, where the risk of corruption remains “exceedingly high”.

A spokesperson for Petrobras said it has informed KLP about the “measures the [oil] company has taken to strengthen its governance and improve its internal controls to mitigate the risk of fraud and corruption”.

To date, KLP has excluded 159 companies for violating its guidelines for responsible investment, mostly for damaging the environment, producing controversial weapons or tobacco, and violating human rights.

Only three companies, including Petrobras, ZTE, the Chinese telecommunications company, and China Railway Group, a construction company, have been blacklisted by the Norwegian pension fund for corruption-related issues.

The Norwegian oil fund has only ever blacklisted one other company, ZTE, over corruption concerns. The wealth fund’s council on ethics will decide by the end of the year whether to place Petrobras on its exclusion list.

A spokesperson for the council on ethics said: “Should further cases of gross corruption be revealed in Petrobras’ operations in the future, and the company cannot satisfy that the anti-corruption programme is being complied with and effectively improved, the condition for exclusion may be met.”

Copyright The Financial Times Limited 2016.

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