News / DSV investors uneasy over involvement in Saudi mega-city project

Photo: Neom

Several Danish investors in DSV have expressed environmental, social and governance (ESG) concerns over the logistics giant’s $10bn joint-venture in Saudi Arabia, supporting the Gulf state’s futuristic Neom mega-city project.

Last month, DSV said that, “under the agreement, the joint-venture will provide end-to-end supply chain management, development and investments in transport and logistics assets and infrastructure, as well as transport and delivery of goods and materials within Neom”.

CEO Jens Bjørn Andersen added: “Neom is one of the largest and most complex projects in the world.”

An initiative of crown prince Mohammed bin Salman – Saudi Arabia’s de facto ruler – and largely bankrolled by the kingdom’s Public Investment Fund, Neom is a swathe of territory in the north-west earmarked for development and set attract hundreds of billions of dollars in investment. It forms part of Saudi Vision 2030, a plan to diversify the economy to reduce its dependence on oil.

Neom will encompass cities, resorts and developments including The Line, a 170km east-west complex housing 9m people, and Oxagon, an octagon-shaped port city on the Red Sea coast.

Neom has generated controversy, apart from consternation over its impact on the environment, the project has led to allegations of human rights violations, including forced eviction of residents and even the threatened execution of those opposed to it.

Apparently surprised by the negative reaction by some shareholders to the JV, DSV has held meetings “at which we have repeated and elaborated on the information we gave in our company announcement about Neom,’ Flemming Ole Nielsen, DSV’s EVP investor relations, told The Loadstar.

‘We have explained to investors that ESG factors are an important part of the JV agreement and we have performed thorough due diligence related to these matters. DSV’s human rights policy and code of conduct will be applicable for the JV. Furthermore, DSV will appoint the managing director of the JV and be responsible for the daily operations, so we will be in direct control.”

The company has been operating in Saudi Arabia for 20 years and employs 1,000 staff in the kingdom.

Asked whether the JV has a ‘get-out’ clause, he replied: “We cannot disclose details about the contract, but we can confirm that if DSV and Neom cannot agree on matters related to, for example, ESG, then we will have the opportunity to exit the JV.”

 AkademikerPension, a pension fund for academics, is one investor which has raised questions about DSV’s involvement in Neom. Its chief information officer, Anders Schelde, told the publication Responsible Investor it was “a project with significant challenges and risks both in relation to the climate, labour rights and human rights, so DSV is sticking its hand into a hornet’s nest with this investment. It is well-known that Saudi Arabia has a strained relationship with human rights and the Paris Agreement”.

Troels Børrild, head of responsible investments, added that DSV’s answers to questions about the Neom JV “have not provided sufficient comfort” and that AkademikerPension planned to meet DSV’s management to discuss its reservations.

Eric Pedersen, head of responsible investments at Nordea Asset Management, confirmed to The Loadstar comments he had made to RI: that he was satisfied DSV was committed to ensuring the ESG risks “which the company can control within the joint-venture itself and the related value chain are in line with the company’s policies”.

However, given the broad scope of the Neom project, he added, “there are risks that may be outside of the company’s control. This we will stay in contact with the company about”.

Another DSV shareholder expressing concerns is Danske Asset Management. Its head of active ownership, Oshni Arachchi, told The Loadstar: “It is encouraging that DSV is demonstrating an openness and transparency in its engagement with shareholders”.

UBS issued a note at the end of October, analysed by Loadstar Premium, saying that DSV had reassured investors.

It said: “DSV’s share price has underperformed peers and the broader market by ~12% over the past 30 days. Part of this underperformance is explained, we believe, by investors’ concerns around the Neom JV project. DSV management organised an analyst/investor teach-in on this project. We found the overall message reassuring and the incremental details offered provide strong arguments why the project should be at least value neutral for DSV shareholders, we believe.”