NORWAY - The decision to exclude companies from the investment universe of a sovereign wealth fund (SWF) should not be seen as "undue political interference", the Norwegian minister of finance has claimed.
In a speech to a forum organised by the Organisation for Economic Co-operation and Development (OECD) Kristin Halvorsen admitted SWFs and other state investors should recognise it is legitimate for individual countries to retain the right of protecting essential national security interests.
However, she warned "maintaining an open global investment environment is vital to the world economy" and as such "restrictions on foreign investments, either privately or by governments, on the basis of national security concerns must not be a cover for financial protectionism".
Halvorsen's comments follow guidance published by the OECD last month for countries on the receiving end of foreign investment, which was designed to complement additional work by the International Monetary Fund (IMF) on a set of voluntary principles for SWFs.
The minister of finance claimed "transparency is a key issue" in the continuing debate on SWFs as transparency "builds trust - both internationally and domestically", and she highlighted although some funds "may seem reluctant about providing information" overall there is an "increased willingness to address the concerns raised by recipient countries".
That said, Halvorsen warned there is a limit to what SWFs, as investors, can disclose on the basis of pure business considerations, and pointed out a balance has to be struck between the need for transparency and being put at a market disadvantage.
In addition, she warned "institutional funds in general, and funds owned by governments in particular, face specific challenges" particularly in relation to ethical investments.
Halvorsen pointed out individual shareholders can easily sell holdings of assets or funds which they find ethically unacceptable, while in the case of the Norwegian Government Pension Fund - Global, the Norwegian people have to accept they are the ultimate owners of the companies the fund invests in.
She claimed to preserve the "legitimacy" of the fund it is important ownership in the various companies is acceptable for most citizens, so the SWF avoids investment in firms that constitute an unacceptable risk or in activities which might be deemed grossly unethical by that population.
Although the decision to exclude companies ultimately rests with the Norwegian ministry of Finance, Halvorsen claimed exclusion should "not be misrepresented as undue political interference".
Instead, she pointed out the decisions are based on recommendations from an independent council of ethics, but admitted while the process aims to be transparent and fair, "ensuring investments are ethically acceptable to most stakeholders may be a necessary measure to maintain support and legitimacy for a fund which is a cornerstone of macroeconomic policy".
In addition, in her speech Halvorsen argued "transparency also has to run both ways", particularly where countries have set up screening processes to address national security concerns, "there must be transparency with respect to how such screening decisions are made, by whom and under which criteria".
In this context, the minister said the recent guidance outlined by the OECD "provides a useful benchmark". (See earlier IPE story: OECD agrees 'restraint' on SWF security fears)
The comments by Halvorsen on ethical investments follows a decision by the Swedish pension fund AP7 to disinvest from 10 companies involved in the manufacturing of cluster bombs. (See earlier IPE story: ESG push sees AP7 withdraw weapons)
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