NORWAY - The Norwegian government has hinted the country's sovereign wealth fund (SWF) could divert assets into a separate fund to invest in clean energy and environmental funds.
In speech on the role SWFs can play in financing clean energy, Henriette Westhrin, secretary of state for the Ministry of Finance, said as part of the current review of the SWF's ethical guidelines the government had raised the possibility of "earmarking a part of the fund for special investment purposes".
The review of the guidelines began in June when a consultation paper was issued discussing several subjects relating to the existing ethical guidelines and responsible investments.
Westhrin pointed out the NOK1.992trn (€252bn) pension fund has already adopted environmental damages as a criteria for exclusion from investments, with several companies already excluded.
However, she admitted because of the way "this criterion is constructed and understood, climate change issues will fall outside of the scope".
As a result, she said, "it makes good sense" to address climate change issues through ownership activities and Norges Bank has identified environmental sustainability as a "priority area" for ownership work.
In addition, Westhrin pointed out while the pension fund is now allowed to invest in real estate, the Norwegian government has made it clear Norges Bank should "adhere to and contribute to" the development of best practice within environmental concerns in real estate management including energy efficiency, water consumption and waste treatment.
But looking to the future, she confirmed the government has raised the question of setting aside a part of the pension fund specifically for certain investments, and added "environmental investments are one possible object for a special mandate".
Westhrin noetd until 2004 the pension fund had allocated part of its assets to an "especially designated Environment Fund", but this was dissolved on the introduction of the current ethical guidelines that were effective across the whole portfolio.
"Now in our efforts to keep an eye on best practice in the field of responsible investments, we believe we see a trend developing amongst large institutional investors in the direction of setting up smaller funds earmarked for special purposes," she said.
The minister admitted "there are certain important premises we must maintain if we should go in a direction like this", as the overall objective is to ensure a "sound financial return" for future generations, which means "there must for such investments be an obligation to ensure financial returns over time".
However, Westhrin claimed "we have some special characteristics attached to our role as investor", regarding its size and the long-term investment horizon that could mean it should "apply more long-term approaches in our assessment of which investments may be seen as commercially interesting".
She added: "Some might also assert that low levels of investment in for instance clean energy are a result of market failure. Changing conditions relating to pricing mechanisms, new regulatory regimes or changes in subsidy-structures, might lead to early investments in clean energy giving a sound return on a long-term basis."
In addition, she suggested the smaller specialist fund could explore opportunities in other investments, including new asset classes that the larger fund is not allowed to invest in or that are in regions outside of the scope of the SWF's current investment universe.
The Government Pension Fund - Global is currently increasing its allocation to equities from 40% to 60% with the remaining assets invested in fixed income although the fund has appointed a real estate manager and adviser ahead of its introduction of real estate as a new asset class. (See earlier IPE article: Norway appoints Partners Group for real estate advice)
However, the latest figures for the second quarter showed the pension fund lost €4.9bn on investments following a return of -1.9%, as equities returned -1.6% and fixed income yielded -1.72%. (See earlier IPE.com article: Norway Global loses €4.9bn in Q2)
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