Norway oil fund exits Rio Tinto on ethical grounds

A tipper truck is parked above the main pit at a Rio Tinto iron ore mine at Tom Price, about 1,300 km (800 miles) north of Perth May 28, 2008. Picture taken May 28, 2008. Norway on Tuesday excluded iron ore miner Rio Tinto from its $375 billion (212.5 billion pounds) sovereign wealth fund due to environmental concerns over its activities, as part of its drive for ethical investment.

OSLO (Reuters) - Norway on Tuesday excluded iron ore miner Rio Tinto (RIO.AX)(RIO.L) from its $375 billion (212.8 billion pounds) sovereign wealth fund due to environmental concerns over its activities in Indonesia, as part of its drive for ethical investment.

Norway's Government Pension Fund -- Global, familiarly 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 invests Norway's oil and gas wealth in foreign stocks and bonds, is Europe's biggest equity investor and holds on average over 1 percent 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 (FCX.N), a group excluded by the fund in 2006, at their Grasberg mine in Indonesia.

Rio Tinto has a 40 percent stake in the 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 tonnes or more per day," the finance ministry said in a statement, adding that it did not foresee any change.

Rio Tinto's spokesman Nick Cobban in London said: "Our immediate response is one of surprise and disappointment."

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

"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.

At the end of 2007, the oil fund held shares worth 4.42 billion crowns (443 million pounds) in Rio Tinto Plc and 430 million in Rio Tinto Ltd, all of which have now been sold.

Rio Tinto's shares traded down 1.3 percent at 4431 pence in London at 1112 GMT.

FUND KEEPS MONSANTO

The finance ministry also said it had considered but rejected a 2006 recommendation from the fund's Council of Ethics to exclude biotech seed maker Monsanto (MON.N).

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

"The ministry of finance has therefore decided not to exclude Monsanto Co from the portfolio," it said.

Halvorsen said the magnitude of the reduction in the numbers of children working on farms supplying Monsanto was uncertain, but estimates put it at 90 percent in one Indian state and 70 percent in another.

"The Norwegian people's savings are making a difference for children," she said.

No one at Monsanto was immediately available for comment.

So far, 24 companies, including defence industry groups such as Boeing (BA.N) and Lockheed Martin (LMT.N) and the world's biggest retailer, WalMart (WMT.N), have been shut out of the fund under recommendations by its Council on Ethics.

(Additional reporting by Eric Onstad in London; Editing by Will Waterman and Quentin Bryar)