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Norway's Pension Fund Global to shift exclusion powers to Norges Bank

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The Norwegian government is to shift responsibility for excluding investments from the Government Pension Fund Global (GPFG) to Norges Bank, which runs the fund, and disband the 10-year-old Council on Ethics.

In its annual report today to Parliament on the NOK5.1trn (€621bn) former oil fund, the Finance Ministry said it was presenting plans in the report to “strengthen the strategy for responsible investments”.

The move is in part an effort by the Norwegian government to make sure decisions to exclude particular investments from its high-profile sovereign wealth fund are not seen by the outside world as being politically motivated.

While the Council operates independently from both Norges and the government, it is the finance ministry that ultimately needs to sanction any exclusions.  

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Finance minister Siv Jensen said: “Based on the recommendations from the 2013 Strategy Council and advice received through the public consultation process, we plan to reorganise the work. 

“We will integrate the current ethical exclusion criteria in the management mandate to Norges Bank.”

The change means the Council on Ethics will be disbanded, a ministry spokesperson confirmed.

The council was set up in 2004 as an independent body to advise on firms that should be excluded from the fund’s investment universe.

Jensen said openness about the ethical exclusions of companies would still be key in the management of the fund, and said the ministry was appointing a new group of experts to assess Norges Bank’s work in this particular area.

“I think the changes will give better results and a more efficient and consistent use of available resources,” she said.

“At the same, we take steps to strengthen the legitimacy of the ethical side to the management.”

In the report to Parliament, the Finance Ministry said: “There is a risk, as noted by the strategy council, that the decisions of the ministry are perceived as expressing the position of the Norwegian state with regard to a company or a country.”

Such risk would probably increase in the coming years, it said.

Integrating all responsible investment tools into Norges Bank might show clearly that exclusions were just the result of the ethical restrictions governing asset management, the report said. 

“This will also reduce the risk that the actions of the fund are interpreted as reflecting a desire to exercise political influence over companies or markets in which the fund is invested,” it said.

The new expert group, which has been set up at the request of Parliament, is to assess whether excluding coal and petroleum companies from the GPFG is a more effective way in addressing climate issues than engagement with the companies.

Up to now, the ministry said the prevailing view was that there had been no need to exclude such companies.

“The exercise of ownership and exertion of influence have been the preferred strategies for addressing climate-related issues in the management of the fund,” it said.

The group is to be chaired by economist Martin Skancke and will include Elroy Dimson, Michael Hoel, Laura Starks, Gro Nystuen and Magdalena Kettis.

Separately, in the report to Parliament, the Finance Ministry said it had decided there was no reason to exclude oil and gas equities from the fund’s portfolio to mitigate the Norwegian economy’s already significant vulnerability to oil and gas prices.

The ministry had been re-assessing the issue following a decision made in 2009.

“The analyses of the relationship between the oil price and financial market investments do not justify changing the current benchmark index,” it said in today’s report.

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