Norway’s sovereign wealth fund attacked over ethical investment strategy

Norway’s $1 trillion wealth fund has found itself under fire by conservative Norwegian critics. The new conservative coalition in power is particularly alarmed by the number of sectors excluded from the fund’s scope of intervention. The Ministry of Finance will set up a commission to review the sovereign wealth fund’s ethical investment principles, with findings not expected to be released for several months.

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The Norwegian sovereign wealth fund was built from profits earned by exploiting the country's oil reserves.

The transition towards more responsible investment is not a smooth one. The Norwegian sovereign wealth fund’s strategy of exclusion is being criticised within its own government. At the request of the Norwegian Parliament, the Ministry of Finance will set up an expert commission to evaluate the fund's ethical investment policy.

The newly elected conservative coalition in Norway seems to want to investigate the exclusionary practices of certain fund activities. And avoid having new sectors added too frequently. The risk, according to the conservative majority, is that the fund could be used more for political purposes than financial ones. Labour and Conservative MPs remain split on this issue.

Parliament must decide in early 2019 the possibility of adding gaming and betting, and particularly oil and gas, to its list of excluded sectors. This appears surprising for a fund that derives its wealth from the exploitation of Norwegian hydrocarbons, however managers believe that the fund, which is sufficiently exposed to oil and gas-related risks, should not invest in this sector. Such proposals are not to the liking of the conservative majority.

A mandate yet to be defined

This procedure will, nonetheless, take some time. "At the moment, we do not know the exact mandate of this commission, so we do not know what rules will be decided," said Hilde Jervan, Chief Advisor of the Ethics Committee for the Government Pension Fund Global (GPFG). The Ethics Committee is responsible for advising fund managers on their investments’ compatibility with the ethical rules set by parliament.

The Ministry of Finance, also GPFG trustees, should announce the composition of the expert commission and its mandate in the coming weeks. "This commission will work for several months, then report back to parliament, so a change in practice may take two or three years," explained Jervan.

Possible changes to the Norwegian fund's guidelines are scrutinised by other ethical investors and companies. The GPFG is the largest shareholder in the world, with 1.4% of global assets and 2.4% of European assets.

A closely monitored blacklist

Its blacklist includes nearly 150 companies which have been excluded or put under observation due to unethical practices (violation of human rights, severe environmental damage, etc.) or other activities (mining companies and energy producers with more than 30% of activity deriving from coal, etc.). And the impact of its decisions extends far beyond Norway, with many investors following suit.

If questions about ethical investment strategy are beginning to arise in Norway, their Finnish neighbour is following the same course. Varma, the €46.9 billion pension fund under management, has just announced its decision to strengthen its global warming policy. The fund announced it wanted to strengthen auditing on environmental, social and governance (ESG) criteria of companies that emit high levels of greenhouse gases. Activities that depend on more than 30% of coal have also been added to their blacklist, much like the Norwegian sovereign wealth fund did back in 2015.

Arnaud Dumas @Adumas5