Proposed changes to the ethical investment guidelines for Norway’s giant sovereign wealth fund (SWF) would lead to the fund selling off NOK10bn (€910m) of its holdings, according to Norges Bank.
The Norwegian central bank, which manages the NOK10.8trn Government Pension Fund Global (GPFG), gave the estimate in its response to the Finance Ministry consultation on proposals by the Ethics Commission published in June.
The commission, which is led by Ola Mestad, professor at the University of Oslo and former chair of the GPFG’s Council on Ethics, had been appointed in April 2019 to evaluate the ethically-motivated guidelines for the GPFG in the light of developments since the code was established in 2004.
In their letter to the ministry, Norges Bank governor Øystein Olsen and Birger Vikøren, the bank’s executive director and chief of general secretariat, wrote: “The commission writes that the Council on Ethics’ secretariat has identified a handful of companies that could be excluded on the basis of the Commission’s proposals.
“At the end of 2019, the GPFG had invested just over NOK10bn in these companies,” the pair wrote.
Overall, they said Norges Bank agreed with the commission that the framework established 16 years ago had functioned well, and that the new plans represented a continuation of the current model.
Among comments in its lengthy reply to proposals in June’s 283-page report, the bank’s leaders tackled the thorny issue of how the oil fund’s ethical rules for exclusion could be squared with the government’s oft-stated determination that the fund should not be a foreign policy tool.
While they said the guidelines pertained to companies, not countries, Olsen and Vikøren noted that the commission had been asked to assess the line between company and state.
This included ethical considerations relating to the GPFG’s investments in “countries whose statutes and regulations violate internationally-recognised conventions and standards”, they wrote, citing the wording of the report.
“A change to the ethical guidelines that blurs the distinction between company and state may raise doubts about the GPFG’s role”
Øystein Olsen and Birger Vikøren, Norges Bank
In discussing how to deal with investments in countries with divergent norms, the bank said the commission suggested recommendations in such cases could be less comprehensive than usual, with risk assessments of both the country and business sector given weight – meaning there would be less focus on the specific norm violation.
Norges Bank rejected this idea in its consultation response.
“In Norges Bank’s view, there are good reasons to continue to adhere to the principle that the recommendations must be thorough, with specific assessments of companies,” Olsen and Vikøren said.
“A change to the ethical guidelines that blurs the distinction between company and state may raise doubts about the GPFG’s role,” they wrote, adding: “In the event, a considerable risk to the return on the GPFG may arise further out.”
In its report, the commission illustrated the kind of dilemma the GPFG’s manager Norges Bank Investment Management and its Council on Ethics could be faced with under the current guidelines, saying: “For example, in some markets it is not allowed for banks to allow women to open accounts”.