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At its recent biannual meeting with DG Internal Market, UNI-Europa Finance presented its concerns for future investments in Europe by Sovereign Wealth Funds (SWF) to the European Commission. New Sovereign Wealth Funds have begun to invest in employment sensitive investments and little is known of the motivation behind these investments.



UNI expressed its concerns for the protection of employment and fundamental workers rights when SWF invest in the finance sector and indeed other sectors in Europe. SWF have deviated from their normal investment pattern and UNI along with the IMF, OECD, member nations of the European Union (EU) and other nations are wondering what they will do next. Some SWF, particularly non pension reserve funds, have not declared their investment strategy including their view on fundamental labour rights.



One example of recent SWF expansion is the acquisition by the Industrial and Commercial Bank of China (ICBC) of a 20 per cent share of Standard Bank, resulting in a $5.5 bn equity investment into the South African bank. The deal is welcomed by Sasbo, the finance union, as it holds no negative consequences for employees. On the contrary, staff with Tutuwa shares will benefit from the premium that the Chinese bank is paying. Standard Bank, which has significant operations in Africa, and ICBC have agreed to be preferred mutual partners across their respective product sets. This transaction allows Standard Bank to have preferred access to the largest fast-growing economy in the world.



This example illustrates how SWF have been viewed as the white knight in the finance sector at present, having come to the rescue of several global banks in the midst of this credit crisis. Indeed this has been good for workers in UNI Finance and potentially saved many jobs. However, what is the strategy of the funds and what are the intentions? How long will the SWF hold its interests in the banks they have saved and what if they choose to pull out all of a sudden? UNI asked the Commission its view on these funds.



The European Commission has issued a Communication stating its view on SWF. Essentially the concern of the Commission regards accountability of some of these funds, a common approach by all member nations relating to SWF investment and transparency. The Commission is also concerned about upholding its principles in remaining open to investment. Referring to this Communication, the Commission reiterated that it would follow the lead of IMF and OECD guidelines and develop its own principles by the end of the year. The Commission also pointed out that the EU was bound by WTO obligations on free movement of capital that it must also adhere to.



Since the matter has not been investigated specifically, the Commission was unable to answer questions on the labour codes of conduct of SWF. The Commission suggested in the discussion that these issues could be covered by national labour legislation in the Member State where an SWF investment is based. Equally, concerns that investments are being carried out for political reasons could be mitigated by Member State’s use of national instruments to control and condition investment.



President Barroso and Commissioner McCreevy have both been expressing their concern for transparency and accountability of SWF investment. The EU will monitor the adherence by SWF to the envisaged European principles, once developed and implemented. The Commission went on to say that to date SWF continues to operate largely as they always have, and there was little concern or evidence for their motivation being anything other than for commercial reason. Legislation would not be ruled out at this stage, however it was not deemed necessary at present.



UNI Global Union has been following the financial movements by the alternative asset classes, namely private equity, hedge funds and sovereign wealth funds. UNI has been engaging private equity firms to sign up to its global principles in aid of protecting workers fundamental rights. The European Union’s view on private equity and hedge fund investment is that they are not a priority in terms of combating the financial crisis and should at the moment remain unregulated, with any accountability for investments falling back on their sophisticated investors.



UNI believes the EU should require private equity and hedge fund investments to disclose their investment intentions. There are regulations in place that could require these funds to disclose their operational intentions and consult with employees, that is yet to be tested within the parameters of the European Works Council Directive. UNI believes the EU could go further to support workers falling under the employment of these capital strategies in Europe. UNI will continue to engage the European Union on SWF, particularly in the development of the code of conduct for SWF.