The Government Fund of Norway (also known as the Petroleum Fund) was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund. The resigned Chief Executive Officer Yngve Slyngstad has written a farewell document about the challenges a new leader will face. Read more about responsible investing in Norway.
“In the course of 20 years, we have become a global leader in responsible investing. Along the way, we have learned and adjusted our course. I am proud of what we have achieved over the last two decades, and I am convinced the fund will continue to evolve to safeguard the interests of future generations,” writes Slyngstad in his introduction.
The book that was published last month sums up the enormous transformation of the Petroleum Fund under his leadership. “Ownership comes with both rights and responsibilities. The fund’s investments are held up against Norwegian values and, more specifically, Norway’s international obligations,” writes Slyngstad.
Already, shortly after the 1997 election, the newly established coalition government under Kjell Magne Bondevik announced that it wanted the fund to consider environmental and human rights issues in its investments.
At the end of 2019, the fund had 79 billion kroner invested in 77 companies and green bonds under dedicated environment-related mandates, amounting to 0.8 percent of the value of the fund. In 2019, the government decided to add renewable energy infrastructure to the fund’s environment-related mandates.
In the spring of 2001, the Stoltenberg government found that a mechanism to exclude individual companies was needed. This led to an arrangement that proved to be durable over the following two decades. To this day, the mechanism seeks to treat companies individually, to apply a high threshold for exclusions, and to require a high probability of future violations based on thorough, independent research.
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The interplay between exclusion and ownership was first demonstrated in connection with preventing child labor. Back in 2002, the Petroleum Fund Advisory Commission on International Law had pointed to child labor as a human rights violation where Norway might have obligations to contribute outside its own territory, as a signatory to ILO conventions.
The Council on Ethics quickly experienced how difficult it could be to interpret an overlapping consensus among Norwegians and to apply it to companies operating in foreign markets. In November 2005, the Council recommended excluding the US retail corporation Wal-Mart Stores Inc on account of serious violations of human rights. The recommendation was approved by the Ministry of Finance, and the decision was published in June 2006 when Norges Bank had completed its divestment.
By the end of 2006, seven producers of cluster munitions and eight companies involved in the production of nuclear arms had been excluded. As the fund grew in size and the investment strategy developed, investment in emerging markets raised further questions about Norway’s international obligations. Some of these countries were under public scrutiny for their human rights record, and some were under international sanction regimes.
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In November 2007, the Council on Ethics recommended the exclusion of the German industrial conglomerate Siemens under the criterion of serious corruption. Norges Bank, however, found that the company had already taken steps to reduce the risk of corruption in the future and decided not to exclude the company, but to impose a four-year observation period.
According to amended guidelines effective from 2010, the Council on Ethics would be able to recommend observation if there was no basis for exclusion, and the Ministry would be able to choose observation even if the Council had recommended exclusion. Observation would, as a rule, be made public.
In 2014, this restriction was lifted for Myanmar, as Burma by then was known, after the UN Security Council had revoked its sanctions. Following new UN sanctions on Iran, North Korea and Syria, these countries also became subject to the government bond exemption.
The objective for the management of the fund is to ensure that future generations will benefit from Norway’s petroleum wealth. In 20 years, the fund has grown to become the largest single owner in the world’s stock markets. The question for the fund has been what to do about the rights and responsibilities that come with ownership.
“We have gone from pushing companies for reporting on basic sustainability data, to integrating a growing database into our risk management, to contributing to more rigorous and nuanced reporting standards,” writes Slyngstad and continues, “We are therefore encouraged by the uptake of certain reporting frameworks and note that several sustainability metrics have become well recognized and increasingly integrated into company disclosures. Further development of good corporate reporting will help all our responsible investment activities as described in this review. We will continue to push for more data and better risk management, and we will continue to promote market-wide rigor and consistency in the way companies manage and account for the environmental and social aspects of their business activities.”
You can download the whole book (PDF) here.
All images © The Norwegian Petroleum Fund
Responsible Investing in Norway, compiled by Tor Kjolberg