State-owned investors' push for divestment from Myanmar over human rights abuses by the military junta could set the bar for ESG policies towards other markets in the future.

In February, the civilian government was overthrown by the Tatmadaw, Myanmar’s military, which detained State Counsellor Aung San Suu Kyi and President U Win Myint and stands accused of killing hundreds of civilian demonstrators. Amid international outcry, human rights organizations are pressing SOIs to exclude investments with exposure to the Southeast Asian nation – mostly indirectly via public equity positions.

Norges Bank Investment Management (NBIM), manager of the world’s biggest sovereign fund Government Pension Fund Global (GPFG), last month put Japan’s Kirin Holdings on a watch list for possible exclusion over its brewery partnership with the Myanmar Economic Holdings Ltd (MEHL), which is under the control of the Tatmadaw; Kirin has a US$1.7 billion stake in the partnership. While GPFG’s shareholding in Kirin is just 1.3%, NBIM is pushing the Japanese firm to carry out its promise to end its commercial ties with MEHL. The Norwegian fund’s ESG exclusions are regarded as a standard for many other investors who will be guided by its actions against companies investing with the Tatmadaw.

Indeed, Dutch public pension fund APG has also expressed concerns over steelmaker POSCO’s human rights responsibilities and is examining its next move as a shareholder. Steel plate manufacturing joint venture POSCO Coated & Color Steel is 30% owned by MEHL. POSCO claims that the JV has not paid dividends to MEHL since 2017 and therefore is not a source of cashflow to the military. South Korea’s National Pension Service (NPS), which is POSCO’s largest shareholder with an 11.75% stake, has yet to issue an ultimatum to the steelmaker, but is under increasing pressure to act.

Meanwhile, members of New Zealand’s Green and National parties have called on the country’s sovereign wealth fund NZ Super to face the Foreign Affairs, Defence and Trade parliamentary select committee over its investments in India’s Adani Group, which has close ties to the Myanmar military. NZ Super holds just under NZ$2mn in Adani Ports and Special Economic Zone in a passive index fund. Adani is building a port in Myanmar with leasing fees paid to the junta. The calls for scrutiny come amid an ongoing review of the fund’s responsible investment framework, which is due for completion in mid-2021.

SOIs’ indirect exposure to Myanmar is likely to decline as foreign investors withdraw from the country amid a likely descent into civil war with ethnic separatists and as international sanctions start to bite. Yet, if Myanmar’s human rights become a benchmark for divestment, SOIs will be pressed to apply the same standards elsewhere, particularly in joint ventures with companies owned by states accused of human rights abuses. The search for a consistent ESG standard could end up becoming a minefield for SOIs that in democratic countries are seen as accountable to the public and expected to meet high ethical standards.

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Related funds APG NBIM NZ Super Fund
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