Soco International's oil activity in world heritage park raises tricky questions for investors
Withdraw, engage or ignore? The oil company's exploration of options in Africa's oldest national park puts its investors, including Aviva and L&G, into a difficult position
A war of words between WWF and UK-listed oil company Soco International about its plans to explore for oil in a world heritage site in the Democratic Republic of Congo (DRC) has come to a head after a ruling by an international tribunal.
Soco, whose preliminary results for 2013 are published tomorrow, has a permit to explore in part of the Virunga National Park, Africa's oldest national park and home to the critically endangered mountain gorillas made famous by the film Gorillas in the Mist.
Some 85% of the park has been allocated as oil concessions by the DRC but WWF says Soco is the only company moving forward with exploration plans. Other companies, such as Total, have committed not to explore within Virunga.
Soco says that the project is in the very early "pre-exploration" phase and any development remains many years away. It adds that "the mountain gorilla habitat is distinctly separate from Soco's area of interest – separated by altitude (as oil exploration does not take place in volcanic mountains, and mountain gorillas do not live in lowland savannah), by distance (approximately 40km) and by the boundary of Block V (the name of its concession) itself".
WWF contends that the company "has breached the most respected global corporate social responsibility standards in its pursuit of oil in Virunga National Park". It complained to the OECD, whose UK National Contact Point published an initial assessment on 14 February which advised further examination by the UK government.
While Soco says that the NCP rejected many of the NGO's allegations, WWF-UK chief executive David Nussbaum responds that the announcement shows "the seriousness of WWF's complaint against Soco's activities". What are investors to make of this? Mark Campanale, co-founder of Carbon Tracker says Soco's presence in the DRC illustrates the collapse of easy oil. "All the new oil is difficult to access – it's in places like the Arctic or rainforests. Companies are having to go to greater and greater extremes to find ever-smaller amounts of oil."
Cases such as this raise an interesting dilemma for the growing number of investors pledging to take environmental, social and governance issues into account and invest more sustainably. Many of the company's investors, which include local council pension funds as well as some of the biggest UK and global financial institutions, are passive investors which invest across the entire market and say they have no choice about what companies they invest in because their mandate is to invest in whatever is in the index. They own shares in Soco because it is a constituent of the FTSE 250 index.
One such investor is Aviva. "Operating in a World Heritage Site is obviously a very serious issue and we are prepared to be pretty robust about it. We have been speaking to the company about the fact that this is a big issue for us," says Stephanie Maier, head of corporate responsibility at the group. Even with its passive investments, Aviva's approach is "to use the ownership leverage we have to seek improvements in the companies we hold."
Craig McKenzie, head of sustainability at Scottish Widows Investment Partnership, says there is a limit to the amount of engagement a passive investor can do. "One thing we can do as a tracker fund is to vote our shares and one of the few issues on which you can do that is remuneration and executive pay ... However, a vote on remuneration is quite a crude instrument, which means dealing with particular controversies through that vote is quite hard," he adds. In an ideal world, all investors should be willing to talk to companies about serious environmental and ethical issues, McKenzie says, but it comes down to the resources of the engagement team.
The problem for passive investors is that they are "exposed to pretty much every controversy in the listed space with limited ability to do anything about it". This leads to situations such as the controversy over Soco, which raises uncomfortable questions for investors such as Legal & General Investment Managers, which says it takes sustainability issues very seriously yet also says (without commenting specifically on Soco) it is not in a position to divest its shareholdings in problematic companies.
"Some people may see that as a sign of weakness but we see it as a sign of strength," says Steve Leach, PR manager at L&GIM. "We are invested in these companies for the long term. Improving governance and getting companies in the best shape possible is how we improve our returns."
He stresses that behind-the-scenes engagement is the best way to achieve results. "Just because you don't hear us shouting from the rooftops it doesn't mean we aren't annoyed with some companies," he adds. And while the group's weapons are limited by the inability to divest, "we own 3.5% to 4% of every company in the FTSE so we have quite a lot of influence in the UK particularly."
Publicly, Soco is taking a robust line to WWF's complaint, saying "our shareholders reported to us that they have been relentlessly lobbied by WWF using sensationalist and inaccurate statements ... Our approach has been to openly and transparently explain the scope and extent of our current and planned activities." But Aviva's Maier says "there has been a change in approach from the company. They now understand the need to engage with this issue directly."
If so, it will demonstrate that even passive investors can have an impact on how individual companies behave. But it doesn't address the larger question of how universal investors can reduce their exposure to carbon risks across the board.
• This article was amended on 5 March to include the following sentence: "Cases such as this raise an interesting dilemma for the growing number of investors pledging to take environmental, social and governance issues into account and invest more sustainably."
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Belgian Emmanuel de Merode shot in DR Congo ambush
The Belgian director of Africa's oldest national park - Virunga in the Democratic Republic of Congo - has been shot and wounded in an ambush.
Emmanuel de Merode's vehicle came under fire as he was travelling from the eastern city of Goma to the town of Rumangabo, according to a statement issued by the park.
Some of eastern DR Congo's numerous armed groups are based in the park.
More than 130 park rangers have been killed in Virunga since 1996.
Lawless region
Mr De Merode was shot in the stomach and legs with four bullets, Cosma Wilungula, the secretary-general of the Congolese Institute for Conservation and Nature, told the BBC.
The park said on its Twitter account that Mr De Merode was "in a stable but critical condition".
Mr De Merode's work attracted him a lot of enemies, Mr Wilungula said.
"He was protecting the resources of the park and preventing people from accessing those resources," Mr Wilungula said.
Mr De Merode was driving unescorted from Goma to Rumangabo when gunmen ambushed his vehicle on Tuesday, he added.
Goma is about 50km (30 miles) from Rumangabo, the headquarters of Virunga National Park.
Several diplomatic sources said Mr De Merode had attended a meeting with a state prosecutor in Goma before he was shot, reports the BBC's Maud Jullien from the capital Kinshasa.
He had apparently handed the prosecutor sensitive information about oil exploration at Virunga, she says.
UK-based oil firm Soco International is exploring for oil at Virunga, despite strong criticism from environmental organisations, our correspondent adds.
The firm condemned the attack on Mr De Merode.
"Soco does not condone violence of any kind and makes it clear that any suggestion linking Soco to this crime is completely unfounded, defamatory and highly inappropriate," it said in a statement.
Last August, Soco denied that its activities threatened the environment of the park.
The company said it was currently only evaluating the resources there.
The park is home to about 200 of the world's 790 remaining mountain gorillas.
It is one of the most ecologically diverse places on Earth and is on the UN list of World Heritage sites in danger.
The east of the Democratic Republic of Congo is a mostly lawless region, hit by conflict between the government and various armed groups.
Congolese protesters demand cancelation of Soco oil permits
Goma, DRC – Over 50 protestors assembled peacefully in the street Monday holding banners proclaiming "no to oil" in Virunga National Park. UK company Soco International PLC says it will begin seismic testing in the Democratic Republic of the Congo (DRC) World Heritage Site next month.
Activists argue that oil exploitation could pose a threat to essential fishing and agricultural jobs, and could enflame conflicts in eastern DRC where peace has been achieved only recently.
Community groups appealed for greater investment to unlock the tourism potential of Africa's most biodiverse protected area, home to critically endangered mountain gorillas, as well as for assistance to bolster the fishery and agricultural industries.
"Virunga National Park could be an engine for sustainable economic development for the country and future generations," civil society groups said in a written statement.
One woman who sells fish caught in Virunga's Lake Edward says her business has enabled her to afford an education she otherwise could not.
"We can't tolerate seeing oil activities destroying our source of income," she said. "What will we become without Lake Edward?"
"I've joined the protest because I want to add my voice to those of many of my brothers who live in fear regarding their future because of the oil project in Virunga National Park," the fish-seller said.
Asked if she was concerned about speaking out publically in protest she said, "I'm not afraid, because I defend my right- the right to a healthy environment."
Police on the scene of Monday's protest ensured participants were able to express safely their opposition to oil exploration in Virunga. The event's organizers noted that threats against some anti-oil activists have been recorded over the previous years.
A declaration issued at the protest complained that Soco did not provide communities with a sufficient amount of information about the risks of its operations, and that civil society views were not taken into account.
"The free, prior and informed consent of communities affected by oil activities in Virunga National Park has not been respected," according to the written statement, which goes on to request the cancelation of Soco's exploration permits.
Activists argue that oil exploitation could pose a threat to essential fishing and agricultural jobs, and could enflame conflicts in eastern DRC where peace has been achieved only recently.
Community groups appealed for greater investment to unlock the tourism potential of Africa's most biodiverse protected area, home to critically endangered mountain gorillas, as well as for assistance to bolster the fishery and agricultural industries.
"Virunga National Park could be an engine for sustainable economic development for the country and future generations," civil society groups said in a written statement.
One woman who sells fish caught in Virunga's Lake Edward says her business has enabled her to afford an education she otherwise could not.
"We can't tolerate seeing oil activities destroying our source of income," she said. "What will we become without Lake Edward?"
"I've joined the protest because I want to add my voice to those of many of my brothers who live in fear regarding their future because of the oil project in Virunga National Park," the fish-seller said.
Asked if she was concerned about speaking out publically in protest she said, "I'm not afraid, because I defend my right- the right to a healthy environment."
Police on the scene of Monday's protest ensured participants were able to express safely their opposition to oil exploration in Virunga. The event's organizers noted that threats against some anti-oil activists have been recorded over the previous years.
A declaration issued at the protest complained that Soco did not provide communities with a sufficient amount of information about the risks of its operations, and that civil society views were not taken into account.
"The free, prior and informed consent of communities affected by oil activities in Virunga National Park has not been respected," according to the written statement, which goes on to request the cancelation of Soco's exploration permits.
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