The Norwegian oil fund’s Council of Ethics should be integrated into Norges Bank Investment Management (NBIM), allowing the asset manager to exclude companies in violation of its investment policy, according to a wide-ranging report on the Government Pension Fund Global (GPFG)’s responsible investment policy.

The report, commissioned by the previous government earlier this year, was overseen by London Business School academic Elroy Dimson.

It also recommended that NBIM be required to draw up a precise RI policy and engagement framework, detailing which steps would be taken prior to exclusion.

Alongside Dimson, former PRI director Rob Lake, Hermes Fund Managers senior adviser Hege Sjo, Laura Starks of the University of Texas and Idar Kreutzer, chief executive of Finance Norway, drafted the report.

Explaining the rationale behind drawing up explicit guidelines on exclusion, the strategy council’s report said: “The decisions to divest or exclude companies affect the investable universe, and criteria for these decisions should be explicitly stated in the mandate to Norges Bank.

”The mandate should also include requirements about reporting on the application of the responsible investment principles, as well as an impact assessment of the ownership strategies.”

It added that Norges Bank itself should commission further research to “elevate understanding of the impact of responsible investment on portfolio performance”.

The report said it accepted that some of the recommendations, if approved, would see NBIM take decisions that might adversely impact portfolio performance, and noted that the cost of research required to monitor companies would also have to be accounted for and weighed against the financial return.

“In order to make sure Norges Bank has the right incentives to follow the owner’s instructions effectively, the owner should make adjustments in how the asset manager is measured with respect to this work,” it said.

As part of the changes, it said NBIM should be able to amend the indices employed by the fund, but also called for internal controls to ensure all decisions are in line with the then-established RI guidelines.

“Increased transparency about how Norges Bank works with investment principles and subsequent ownership strategies will in itself provide accountability to the owner and to the public,” the report added.

Siv Jensen, Norway’s minister of finance, said the report would contribute to the debate surrounding the future of the fund, but appeared to fall short of endorsing its findings.

“I note that it is the strategy council’s view that gathering all the tools/instruments in one place and considering exclusions as an integral part of these ownership strategies will make the fund more influential and improve the overall efficiency of our responsible investment efforts,” he said.

He said the ministry would now launch a “thorough and open process” to follow up on the report’s recommendations.