Norway fund drops Rio Tinto on ethical grounds

OSLO (Reuters) - Norway's sovereign wealth fund has sold its entire $850 million 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 $375 billion fund, selling in the first half of 2008 slightly more than a half percent stake in Rio Tinto that was worth 4.85 billion crowns ($855.5 million) at end-2007, officials said.

It also considered but rejected advice from the fund's Ethics Council that it exclude U.S. biotech seed producer Monsanto due to concerns about use of child labor at supplier farms in India, the finance ministry 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 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, a group excluded by the fund in 2006, at their Grasberg mine in Indonesia.

Rio Tinto owns 40 percent 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 dropped 5.0 percent at 4265.73 pence, underperforming a soft London market.

FUND KEEPS MONSANTO

Norway went against a 2006 recommendation of the fund's ethics council to sell a 0.15 percent stake in Monsanto and instead chose to work with the company to bring about change in the incidence of child labor in India, officials said.

The ministry said the work led to a "significant reduction in the use of child labor" in cotton seed production in India.

"We have achieved results. We can see that the situation for the children is better now than it was," Halvorsen told Reuters.

She said the reduction in the numbers of children working on farms supplying Monsanto was estimated at 90 percent in one Indian state and 70 percent 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."

Monsanto said in a statement it was committed to eliminating child labor and gave financial incentives to farmers who do not engage underage workers. "We are encouraged by the Norwegian Government Pension Fund's decision," it said.

It said a multi-stakeholder effort had "dramatically reduced the incidence of child labor to less than 1 percent in the fields owned by Monsanto-contractor growers of cotton seed, according to independent monitors in 2007 who make ongoing unannounced inspections."

Shares in Monsanto were down 3.1 percent at $102.66 on the New York Stock Exchange by 1704 GMT.

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

(Additional reporting by Eric Onstad in London; Editing by Paul Bolding)