Norway Oil Fund Ejects Rio Tinto on Ethical Grounds

Norway's sovereign wealth fund has sold its entire $850m stake in mining group Rio Tinto , blaming it for environmental damage in Indonesia, the government said on Tuesday.

The finance ministry excluded the company from Norway's $375bn fund as part of a drive for ethical investment, selling in the first half of 2008 Rio Tinto stock that was worth 4.85bn crowns ($855.5m) at end-2007, officials said.

Norway's Government Pension Fund - Global, known as the "oil fund", invests under ethical guidelines set by the government. In the past it has excluded companies producing nuclear arms or cluster munitions and ones deemed to have caused environmental damage or abused workers' or other human rights.

The fund funnels Norway's oil and gas wealth into foreign stocks and bonds. It is Europe's biggest equity investor and holds on average over 1% of European listed shares.

Finance Minister Kristin Halvorsen said the problems with Rio Tinto, the world's second-largest iron ore miner, concerned a joint venture with Freeport McMoRan, a group excluded by the fund in 2006, at their Grasberg mine in Indonesia.

Rio Tinto owns 40% of the copper and gold mine, which is operated by Freeport McMoRan, a Rio Tinto spokesman said.

"We do not want to contribute to serious environmental damage," Halvorsen told a news conference.

"The Grasberg mine discharges very large amounts of tailings directly into a natural river system; approximately 230,000 tons or more per day," the finance ministry said in a statement, adding that it did not foresee any change.

It said the dumping of tailings was set to increase and that the mine was deemed by its owners to be profitable to 2041.

Rio Tinto spokesman Nick Cobban said: "We have an exemplary record in environmental matters, world-leading in fact, and they are given the very highest priority in everything we do."

"The current system of tailings is unquestionably the most appropriate given the high rainfall and seismically unstable geology in the area," Cobban said.

"We are very comfortable they (Freeport) do indeed have very high standards and that the accusations that are being put across are not accurate," he said.

Rio Tinto's shares traded down 3.8% at 4320 pence in London by 13.38 GMT.

Fund keeps Monsanto

Norway also considered, but rejected, a 2006 recommendation from the fund's Council of Ethics to exclude biotech seed maker Monsanto due to the use of child labour at its supplier farms in India, the finance ministry said. It was the first time the government went against the council's recommendation.

The government chose to keep its Monsanto shares - amounting to a 0.15% stake in the company - and had worked with the company to bring about a "significant reduction in the use of child labour" in cotton seed production in India.

Shares in Monsanto fell 5.4% to $99.90 in New York.

"We wanted to use our active ownership to try to change the situation," Halvorsen told Reuters. "And we have achieved results, we can see that the situation for the children is better now than it was."

She said the reduction in the numbers of children working on farms supplying Monsanto were estimated at 90% in one Indian state and 70% in another.

Gro Nystuen, who chairs the Ethics Council, said she was satisfied even though the fund did not sell its Monsanto shares. "This demonstrates that the system as it was envisaged works."

No one at Monsanto could be reached immediately for comment.

So far, 24 companies, including defence industry groups such as Boeing and Lockheed Martin and the world's biggest retailer, Wal-Mart, have been shut out of the fund under recommendations by the council.

by John Acher, Reuters.