GLOBAL - The Organisation for Economic Cooperation and Development (OECD) has managed to secure agreement between governments they will apply investment safeguards considered "proportional to clearly-identified national security risks" where sovereign wealth funds (SWFs) attempt to invest in domestic assets.
A meeting of ministers from its 30 country members was held in Paris earlier this week to discuss the role of SWFs in the global investment community, following the growth of activity in the last 12 months by Middle Eastern and Asian SWFs in particular and what has also been seen in part as the ‘protectionist' move to prevent some funds from investing in assets such as infrastructure.
A report produced by the OECD investment committee on SWFs and recipient country policies was welcomed as part of the discussion acknowledging what the OECD described as "the constructive contribution that SWFs make to the economic development of home and host countries", and eventually led ministers to agree in situations where they feel there is a national security risk in allowing open investment by SWFs, the investment safeguards they apply should also be "transparent and predictable" as well as "subject to accountability in their application".
This move follows earlier guidance issued by the OECD in April suggesting how to treat investment from SWFs fairly, on the back of growing political noise about the growth of SWFs in Russia, China and the Middle East.
Indeed, while no specific references were made in the official document to individual countries of SWFs, the ministers gathered stated in their official declaration they "recognised that if the SWF investments were motivated by political rather than commercial objectives, they could be a source of concern, and that legitimate national security concerns could arise".
This latest agreement means governments are required to ensure they establish ‘principles' which promote open business investment and which do not "discriminate among investors in like circumstances" except where existing policy is not sufficient to address "legitimate legal concern".
While there has largely been quiet discontent about the growth of what are seen as tradition SWFs - with little disclosure about their motivations and total value - sovereign pension funds have been dragged into the debate over the last year, most notably the Norway Pension Fund - Global and the Canada Pension Plan Investment Board, and forced to regularly repeat both their transparency and motivation credentials.
CPPIB was forced to go months of complex negotiations with management and shareholders of Auckland International Airport before reaching an agreement to buy a 39.2% share, and only then had its deal vetoed by the New Zealand government. (See earlier IPE article: Sovereign wealth funds under scrutiny)
And only this week, Kristin Halvorsen, Norway's finance minister, stated at the same OECD meeting applying environmental and social governance to its policy should not be seen as "political interference". (See earlier IPE story: SWF ESG policy is not ‘political interference')
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