Norway’s Kommunal Landspensjonskasse (KLP) has yet to make a decision on whether to invest in the shares of Saudi Aramco, set to list on the stock exchange for the first time, as the NOK692bn (€68.5bn) pension fund completes a comprehensive evaluation of the oil-rich country.

Jeanett Bergan, KLP’s head of responsible investment (RI), visited Saudi Arabia earlier this year with her team to assess first-hand whether the Gulf state meets the pension fund’s ethical criteria for investment, following its inclusion in the MSCI Emerging Markets index from July 2019.

Bergan told IPE: “There is a lot of positive change in the country in terms of the position of women, with many companies having clear ambitions to increase women in the workplace and management.

“We haven’t decided yet whether to invest, so for that reason Aramco is on hold along with other Saudi companies,” she said, in response to questions from IPE.

Saudi Arabia is set to represent around 2.6% of the MSCI Emerging Markets Investable Market Index (IMI) and its inclusion will add 69 securities to index, according to MSCI’s preliminary calculations.

In the spring, KLP decided to do some initial work in Saudi Arabia before deciding to invest, led by the UN Guiding Principles on Business and Human Rights, Bergan said.

“The inclusion of Saudi Arabia in the index means that a lot of investors, including KLP, should invest in the country if it belongs to a benchmark we are following. We provide tracker funds which include all index components that are not specifically excluded from our investment universe,” she said.

KLP knew from the history of the country that there were potential humans rights and women’s rights issues, she said, and because it became clear there was not enough available data, the pension fund decided to send its RI team to Saudi Arabia to gather information on the ground.

“One of the critical points is there is no free press in the country, so if there were issues, information on these would not normally be available publicly,” she said.

Bergan and her team visited a lot of local institutional investors that are already shareholders in Saudi Arabian companies, as well as the stock exchange.

While some European pension funds are likely to eschew Saudi Aramco for climate reasons, she says this could also be a hurdle for KLP, which has ambitious climate targets and has excluded coal and oil-sands companies from its investments.

“I expect Aramco to be a well-managed oil and gas company, but it’s more on the corporate governance and the Kingdom’s ownership that there will be some concerns,” Bergan said.

When KLP does human rights risk evaluations it looks at the responsibility of each company separately, she said, distinguishing between this and the state’s responsibility.

“If we decide to invest in some Saudi Arabian companies, we will want to be sure they have clear goals to increase women in the workplace. We will be an investor with expectations, though that will be more difficult in Saudi Aramco,” since the government will remain a major shareholder in the company after the IPO, she noted.

KLP is also keeping an eye on possible changes to the ethical guidelines of the Government Pension Fund Global (GPFG), which KLP’s stakeholders expect it to follow.

In April, the Norwegian government convened a commission to review, among other things, whether the guidelines’ current measures were suitable for investments in countries whose legislation and regulatory frameworks went against international conventions and ethical standards as well as those with limited access to information.

The commission is to submit its report by 15 June 2020.