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Ethical exclusions dented NBIM equity return by 1.1% since 2006

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Norway’s Government Pension Fund Global (GPFG) missed out on an additional 1.1% gain on its equity portfolio over the past 11 years through excluding stocks on ethical grounds, according to the fund’s manager Norges Bank Investment Management (NBIM).

In its 2016 return and risk report, NBIM said in the context of its ethical investment: “Over the last eleven years, the equity benchmark index has returned 1.1 percentage points less than an index which is unadjusted at constituent level.”

Between 2006 and 2016, product-based exclusions – such as bans on tobacco and weapons manufacturers – reduced the return on the equity index by close to 1.9 percentage points, NBIM said in the report.

“This effect has to some extent been mitigated by the positive contribution of the conduct-based exclusions, primarily the environmentally based exclusions of mining companies,” the report said. Other exclusion criteria, meanwhile, had only a minor effect on the return on the benchmark index, NBIM said.

In its report for the previous year, the investment manager had said exclusions and the associated re-weighting had detracted 1.17 percentage points from performance since 2016.

Norway’s Ministry of Finance first issued guidelines for the observation and exclusion of companies from the NOK7.8trn (€856bn) sovereign wealth fund in November 2004. The guidelines involved one set of criteria relating to specific product types, such as tobacco and weapons, and another based on corporate behaviour that risked, for example, human rights violations, environmental damage, and gross corruption.

The first set was broadened to include coal last year, and the second set widened to include greenhouse-gas emissions.

In December, the California Public Employees’ Retirement System decided to remain out of tobacco investments, despite a study from one of its consultants that showed the ban had cost it $3bn (€2.8bn) in lost returns between 2001 and 2014.

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