Norwegian divestment illustrates weakness of campaign to boycott Israel

Norges Bank Investment Management, which oversees the sovereign wealth fund (known formally as Norway’s Government Pension Fund), announced that it was divesting from two Israeli companies “due to an unacceptable risk that the company is contributing to serious violations of the rights of individuals in situations of war or conflict.” The Fund excluded Mivne Real Estate KD Ltd because it “engages in letting of industrial real estate linked to Israeli settlements in the West Bank.” Shapir Engineering and Industry Ltd was excluded because it “engages in the construction of homes in Israeli settlements in the West Bank.”

Mivne and Shapir joined three other Israeli companies from which the Norwegian Fund had already divested due to West Bank activities: Danya Cebus Ltd. (divested in 2013), Elbit Systems Ltd. (divested in 2009), and Shikun & Binui Ltd. (divested in 2012).

These five companies have not been the only targets of divestment. For example, the Fund is currently divested from American defense firms involved in the production of nuclear weapons, including Boeing, Honeywell International, Lockheed Martin and Northrop Grumman.

Divestment decisions by the Norwegian Fund are exceptionally important because its size and vetting processes lead it to be considered the gold standard that other socially responsible investors often follow. The Fund owns about 1.5% of all stocks worldwide.

The Fund is therefore a natural target for, and barometer of the success of, BDS. The campaign’s efforts gained momentum with the February 2020 publication of the UN Human Rights Council’s (UNHRC) blacklist of 112 businesses involved with West Bank settlements. BDS leaders immediately called for divestment from these firms.

Two international trade unions soon urged the Norwegian Fund to divest from companies on the UNHRC blacklist. In addition, the UN Committee on Economic, Social and Cultural Rights criticized the Fund for investing in companies doing business with the settlements.

Mivne and Shapir appear to be the first companies from which the Norwegian Fund has divested for settlement-connection reasons since the UNHRC blacklist’s publication. While Shapir was one of the 112 listed companies, Mivne was not. The two also appear to have been the first two firms from which the Fund has divested for settlement-connection reasons in almost a decade. The Fund reportedly divested itself of approximately $12 million in Mivne stocks and $1 million in Shapir stocks.

As detailed in a 2018 report, the Norwegian Fund invests in several companies operating in the disputed Western Sahara. The fund’s divestment from one conflict zone while maintaining investments in another exposes it to accusations of double standards and unequal application of standards.

Regardless, the Norwegian Fund’s divestment from only two Israeli firms in the year since the UNHRC issued its blacklist of 112 firms may be an indication that the blacklist is having a surprisingly weak impact. In another indication of the Norwegian government’s views, an official clarified that its procurement office will not use the blacklist as a basis for excluding companies.

It will be important to see if the blacklist’s impact is boosted by the new UNHRC commission of inquiry into Israeli activities in the disputed territories, which was approved on May 27.

RECENT FALSE charges, including by Human Rights Watch, that Israeli officials have committed “crimes of apartheid” could, if they gain traction, also tarnish Israel as an investment destination. 

“The more that (term) becomes part of the mainstream, the more difficult it will be for companies and for investment review agencies to physically separate what goes on in Israel from what goes on with its activities in the Occupied Territory,” Michael Lynk, the UN’s Special Rapporteur for the human rights situation in the Palestinian Territories, told Reuters.

Currently, there are no signs of a wholesale global retreat from investments in either Israel or the companies on the UNHRC blacklist. Notwithstanding the Mivne and Shapir divestments, the Norwegian Fund itself currently holds some $1.3 billion in investments across 81 Israeli companies.

Israel has thus far been insulated by factors including its cutting-edge innovation, investment-grade credit rating, and a justified view among many observers that the accusations against it are politically driven, hypocritical and otherwise wrong.

Another factor deterring divestment from Israel is the laws, enacted by a majority of US states that prohibit state investments in or contracts with companies that engage in boycotts of Israel or of Israeli companies. Both Illinois and Texas have divested from Den Norske Bank ASA (DNB), Norway’s largest financial services group, for its boycott of Israeli companies. Texas alone divested $72 million from DNB.

DNB’s list of Israeli companies excluded for settlement connections appears to mirror that of the Norwegian Fund. While US states have little to no leverage over the Norwegian Fund, which is a governmental rather than a commercial entity, private investment managers or other companies that mirror the Fund’s divestments from Israeli companies could find themselves subjected to US state sanctions.

While the BDS campaign has thus far gained only incremental traction with Norway’s sovereign wealth fund, the world’s largest, its massive size and influence will continue to make it a pivotal battleground for Israel’s efforts to avert economic isolation.