Three mining multinationals companies are among a dozen companies which allegedly violate the United

Three mining multinationals companies are among a dozen companies which allegedly violate the United Nation's Global Compact - even while the UN profits from investments in them.

UN Ignores Own Standards in Investing $29 Billion Pension Fund

Bloomberg News Service

Oct. 31 2005

The United Nations, which urges the world's companies to follow anti-pollution, labor rights and other standards of corporate responsibility, often ignores those aims when investing its own $29 billion employee pension fund.

A copy of the world body's investment portfolio includes at least a dozen companies that don't adhere to principles in the UN's "Global Compact'' for corporate behavior, according to rights groups and pension managers who reviewed the list of almost 400 companies. Fund managers who screen for social responsibility say they would reject those dozen companies as assets in their portfolios.

One is London-based Rio Tinto Group, the world's third- biggest mining company, in which the UN has a $22 million investment. The UN spent the past eight years working to end a civil war in Papua New Guinea that began over complaints about pollution from Rio Tinto's copper mine on the island of Bougainville. Rio Tinto declined to comment.

"There are a lot of companies on this list that would not meet our criteria,'' says Julie Gorte, director of social research at Bethesda, Maryland-based Calvert Group, the largest U.S. manager of a mutual fund that focuses on socially responsible investing. "I can tell that if they have any screen, it is extremely minimal and does not involve criteria such as indigenous peoples' rights, human rights, product safety and integrity.''

Christopher Burnham, a former investment banker and U.S. State Department official appointed in May to the UN's top management post, says the pension portfolio is managed "not that much different than a bank.'' He says the UN will hire a consulting company next year to review its strategy, including the question of whether to set new criteria.

'Highest Return'

In an interview at his UN office, Burnham said that while he "takes into account'' a company's environmental and labor practices, the world body's "primary responsibility is to earn the highest return at the lowest risk'' for the fund's 142,245 participants and beneficiaries.

UN management practices are under broad scrutiny in the wake of investigations that turned up evidence of widespread corruption in an aid program for Iraq. World leaders who met in September in New York pushed for the UN to become more accountable.

Secretary-General Kofi Annan, who has encouraged closer ties between the UN and business throughout his almost nine-year tenure, in 2000 created a program to encourage companies to embrace 10 "universal'' environmental, labor, human rights and anti-graft principles. More than 2,400 corporate chief executives have agreed to adopt and promote the Global Compact aims.

Credibility Questioned

The UN's failure to make the principles a factor in investments erodes its credibility, attorney Karen Burstein, a former judge and New York state and city official and now a consultant to the UN Department of Management, concluded in a February report requested by Annan.

"The UN is in the intellectually problematic position of asking Global Compact partners to follow practices that it does not itself fully observe,'' she said in an analysis of the compact's role in investment strategy.

Calvert's Gorte questioned the UN's investment in Wal-Mart Stores Inc., the world's largest retailer, based on a lawsuit accusing the company of denying meal breaks to 115,919 current and former employees. The UN has $183 million invested in Bentonville, Arkansas-based Wal-Mart, according to the portfolio list.

'A Very Strict Policy'

Wal-Mart spokesman Bill Wertz said the company has "a very strict policy to pay our own associates for every minute they work.'' A manager found to have violated the policy by not paying someone for overtime or breaks "would be subject to disciplinary action, including dismissal,'' he said.

Four of the 10 Global Compact principles deal with labor standards, including one calling for recognition of the right to collective bargaining. Wal-Mart shut a Quebec store in April after it became the company's first North American outlet to be unionized. The company said the store was unprofitable and the closure had nothing to do with the union.

Kert Davies, head of global warming policy at the U.S. offices of the environmental group Greenpeace, says the UN shouldn't have $275 million invested in Exxon Mobil Corp., the world's biggest publicly traded oil producer. Irving, Texas- based Exxon has been fighting the Kyoto Protocol, a UN treaty mandating reductions in emissions of "greenhouse gases'' linked to global warming. The Global Compact calls for a "precautionary approach to environmental challenges.''

'Ironic'

"It is ironic, to say the least, that a company that is this active working against one of the major UN treaties is this heavily invested by UN employees,'' Davies says.

Exxon spokesman David Gardner says the company's opposition to the Kyoto Protocol "does not equate to a lack of concern about the environment.'' He calls Exxon a "leader in advancing state-of-the-art pollution control technologies.''

Two companies in the portfolio -- London-based Anglo American Plc, the world's second-biggest mining company, and Brussels-based Fortis, Belgium's biggest financial-services company -- were involved with rebel groups in the Democratic Republic of the Congo who were stealing the country's diamonds, gold and other natural resources, according to a 2002 report by a UN panel monitoring sanctions on the country.

Paying for Security

Additionally, Anglo American said in February that it paid $8,000 for security at a Congo facility to a rebel group under UN Security Council sanctions. The UN has almost 17,000 peacekeeping troops in Congo to quell rebels trying to destabilize the nation and steal its riches.

Anglo American and Fortis wrote letters to the UN panel in 2003 denying the allegations. Anglo American says in an e-mail statement that it had "unavoidable encounters'' with the rebel group and paid the money only because of "extortion.''

Fund managers and rights advocates, citing violations of internationally accepted environmental, labor and ethics standards, also questioned the portfolio inclusion of Archer Daniels Midland Co., Newmont Mining Corp. and Phelps Dodge Corp.

Phoenix-based Phelps Dodge, the world's second-biggest copper producer, paid $1.4 million in fines last year for what the U.S. Environmental Protection Agency said was the illegal discharge of 1,000 tons of sulfur dioxide at the site of an Arizona mine.

Phelps Dodge said it acquired the Arizona mine after the violations had occurred. The company began negotiations with government officials immediately after the 1999 acquisition, spokesman Peter Faur said. "We acted as quickly as we could,'' Faur said. "Once the property came under our ownership, we worked very diligently to get the matter resolved.''

Price-Fixing Suit

Decatur, Illinois-based ADM paid $400 million last year to settle a lawsuit brought by customers who said the world's largest grain processor conspired to fix prices of high-fructose corn syrup. ADM declined to comment.

Denver-based Newmont, the world's biggest gold miner, is on trial in Indonesia, accused of polluting the sea with arsenic and mercury. The company didn't return phone calls seeking comment.

Georg Kell, the Global Compact's director, says the UN can't make investment decisions based on accusations and lawsuits filed against a company and must consider the sensitivities of all 191 member governments.

"For example, tobacco is a livelihood in many developing countries,'' Kell says. "Many socially responsible investment funds are based on ethical orientations that are culturally oriented.''

Few Always 'Superior'

Kell says some of the companies that rights advocates questioned have developed policies to address problems with Global Compact principles. Few companies are "superior performers non-stop all the time,'' he says.

The UN is also concerned about the fund's recent performance, according to an August report. It said payouts exceeded contributions last year by $68.1 million, and that in the future, the fund would have to "rely more heavily'' on investment income.

Burnham says screened portfolios have done "quite well.'' Fund managers such as Timothy Smith, vice president of Boston- based Walden Asset Management, an investor in companies deemed socially responsible, points to Teachers Insurance and Annuity Association-College Retirement Equities Fund as a prime example.

New York-based TIAA-CREF's $7.28 billion Social Choice Account, the largest screened fund, reported a one-year return of 6.8 percent for the year ended June 30, 2005. The UN earned a 7.3 percent return from its pension fund in the year ended Dec. 31, 2004.

"They cannot base their arguments on return,'' says Chris Avery, director of the London-based Business and Human Rights Resource Center, which analyzes corporate social responsibility. "It is not easy to draw the line, but I would have expected to see evidence that the UN is trying. They have a responsibility to set the standard on investment.''