Sustainable investing yields good financial returns

Finance Minister Johnsen today sent a letter to the World Economic Forum (WEF) upon the publication of the paper ”Accelerating the Transition towards Sustainable Investing” during the annual meeting in Davos. The paper shows how sustainable investment practices may not just lead to positive effects in terms of reduced economic, environmental and social risks, but may also contribute to better financial return. The paper is particularly interesting because it looks at challenges and solutions across the financial system, from owner to corporation.

A broad-based working group consisting of global asset owners, asset managers, corporations and individual experts has given input to the paper. The Ministry of Finance has taken part in the working group.

Report with broad support
As the owner of the Government Pension Fund the Ministry of Finance is concerned with securing a good long-term return and we view this to be dependent on sustainable development, economically as well as environmentally and socially. The Ministry’s approach to responsible investments includes cooperation with other financial actors and participation in the international debate on the subject. Taking part in the WEF working group is one of many ways to achieve this. In the letter to the WEF the Minister, amongst others, states  how important it is that the WEF has shown leadership in this area through developing a paper with input from a diverse group of economic actors and individual experts. As well as describing the current status for sustainable investment practices and different leading initiatives, the paper builds a bridge between corporations’ and investors’ perspectives on how one can achieve more sustainable solutions along the entire investment chain. This gives the paper an extra perspective compared to many existing papers, where the focus has often been on single groups of players.

Beneficial to investors with a long horizon
A cross-industry approach is necessary to reduce many important obstacles to sustainable investments. The paper outlines challenges and solutions along the entire investment chain from asset owner to corporation. The paper highlights how incentive structures and factors that traditionally have not been viewed as financially relevant but that may affect return in the long-run must be examined further to achieve more sustainable market outcomes. The paper also highlights the importance both of asset owners being active owners and that asset owners work together with corporations to achieve sustainable business practices. Finally the specific relevance of sustainable investing to long-term investors is emphasised.
Many of the challenges and solutions, which are presented in the WEF paper, are already addressed through the GPFG’s approach to responsible investment. In the new mandate (in force from Jan 1 2011) it is stated that a good return in the long term is regarded as being dependent upon sustainable development in economic, environmental and social terms, as well as well-functioning, legitimate and effective markets and that these factors shall be integrated in all asset management processes.

The GPFG is a responsible investor
The aim of being a predictable owner who secures return over the long-run is also the basis for Norges Bank’s approach to active ownership. In this spirit, the bank has published concise expectations on companies with regards to key questions related to corporate governance, the management of climate risk, water management and children’s rights – all of which are factors that may impact on our financial returns over time. It is the aim of the Ministry of Finance that the Government Pension Fund shall be a responsible investor. This entails both that the fund provides a good financial return but also that it maintains the values of the owners of the fund, the Norwegian people.  For the fund, as a universal owner, it is the general economic development which determines the asset values in the long-run, rather than the performance of individual sectors and companies. It is also important to support initiatives, which can contribute to the development of a clearer common understanding of best practice for responsible investments. It is such an understanding that the WEF paper, with a broad cross-industry participation, contributes to.

Letter from Minister of Finance 
WEF paper