NORWAY - The Ministry of Finance has excluded 17 tobacco-producing companies from the investment universe of the Government Pension Fund - Global, and there is the possibility that still more could be removed.
The decision to begin excluding tobacco producers from the fund was first announced in April 2009, following a review of the existing ethical guidelines to the fund. The ministry claimed an international convention on tobacco control and a tightening of the Norwegian Tobacco Act meant earlier doubts about removing these companies had been resolved. (See earlier IPE article: Norway global to exclude tobacco and target environment)
Sigbjørn Johnsen, minister of finance, said: "We have taken these changes on board and believe - in light of the consultative input in connection with the evaluation of the ethical guidelines - that it is timely to exclude tobacco from the fund. It is important that the ethical guidelines reflect at all times what can be considered to be commonly held values of the owners of the fund."
The Council of Ethics for the NOK2.6trn (€320bn) Government Global pension fund had recommended 17 companies be excluded on the basis that they cultivate and process tobacco and/or manufacture tobacco products.
Using the industrial classification of companies in the pension fund's reference indices - FTSE All-Cap and Barclays Global Aggregate - the Government Global fund has divested approximately NOK14.5bn from the following companies:Alliance One International Altria Group British American Tobacco BHD British American Tobacco Plc Gudang Garam tbk pt Imperial Tobacco Group Plc ITC Ltd Japan Tobacco Inc KT&G Corp Lorillard Inc Philip Morris International Inc Philip Morris Cr AS Reynolds American Inc Souza Cruz SA Swedish Match AB Universal Corp VA, and Vector Group Ltd.
Of these companies, the largest holdings by the pension fund at the end of December 2009 were in British American Tobacco Plc with a value of NOK4.78bn; Phillip Morris International with a holding of NOK3.34bn; Imperial Tobacco Group with NOK2.43bn and Japan Tobacco with investments of NOK1.47bn.
That said, while the new rule for screening companies means all production of tobacco will result in exclusion, regardless of the percentage of business involved in this work, it does not include associated products such as filters and flavour additives.
The Council on Ethics therefore noted there are some issues with the new screening requirement, as some businesses classified as tobacco companies by index providers may only produce associated products which do not qualify for exclusion. In addition, there may be companies that do make tobacco products without being classified as such because these activities are not the main source of income.
It added: "The council will therefore introduce monitoring of the fund's portfolio with the aim of identifying such companies. Based on this, the council may submit additional recommendations in the future."