Government Pension Fund: Developing and strengthening the ethical guidelines

After a broad evaluation of the ethical guidelines for the Government Pension Fund – Global, the Government is now planning a more active and more cohesive perspective on the ethical management: consideration of environmental and social aspects and good corporate governance are going to be integrated to a greater extent as relevant factors in all aspects of the management of the Fund.

The Government has carried out an evaluation of the ethical guidelines for the Government Pension Fund – Global in 2008.

“It has been a demanding process, with high expectations, and we have received much good input. We have tried to create a cohesive whole that helps further clarify the Fund’s role as a responsible investor,” says the Norwegian Minister of Finance Ms Kristin Halvorsen.

The Government Pension Fund – Global is one of the largest sovereign wealth funds in the world, and the Fund is constantly growing. The Government wants the Fund to act as a responsible investor, which means that the Fund shall be managed in a way that promotes better functioning, legitimate and efficient markets and sustainable development in the broadest sense. Previously, there have been two tools to help ensure compliance with the Fund’s ethical commitments: exercise of active ownership in the companies in the portfolio and exclusion of companies from the investment universe of the Fund. One of the changes being introduced now is adoption of a broader perspective: consideration of environmental and social aspects and good corporate governance are going to be integrated to a greater extent as relevant factors in all aspects of the management of the Fund.

“We have already done a lot, and the foundations that were laid through the Graver Report have proven to be robust. The Fund has received much praise in the consultation process, from at home and abroad. In order to retain our high level of ambition, we are planning to introduce more tools and new measures, at the same time as we are maintaining the existing instruments,” says Kristin Halvorsen.

The Government wants the Government Pension Fund – Global to take an even stronger stance in its role as a responsible investor. The Ministry of Finance is signing up to the UN Principles for Responsible Investment (PRI) and is going to participate directly in other international initiatives, so as to be involved in putting on the agenda how the concerns of environmental and social responsibilities and good corporate governance can be safeguarded by financial investors. The Government is clarifying that the overarching goal for its work as a responsible investor is to contribute to positive changes in issues such as sustainable development and corporate conduct in terms of attention to social and environmental aspects and good corporate governance.

Central new measures that the Government is intending to introduce include:

• Exclusion of tobacco-producing companies from the portfolio.
• Introduction of a watch list as a new measure vis-à-vis companies that are in the grey zone in terms of exclusion.
• Strengthening of the active ownership effort, among others by asking Norges Bank to formulate more documents outlining their expectations of companies the Fund invests in. One will pertain to environmental issues, for instance concerning the companies’ strategies on climate change. Another will be related to corporate governance, concerning transparency and reporting on payment flows in companies. Clear expectations in this area may help counteract the use of closed jurisdictions (so-called tax havens) to conceal unlawful acts.
• New requirements concerning transparency and reporting linked to the exercise of ownership.
• Establishment of a procedure for how an excluded company can be reincluded in the portfolio.

Climate change has been raised by many of the commenting bodies. As a broadly diversified and long-term investor, the Fund has an interest in avoiding negative economic repercussions of climate change. In addition to seeking an expectations document within the environmental area, other new measures in this area include:

• Initiation of a broad study to assess how the challenges of climate change can affect the financial markets and how investors ought to act in light of this.
• Establishment of an environmental programme aimed at investments that can be expected to yield indisputable environmental benefits, such as climate-friendly energy, improving energy efficiency, carbon capture and storage, water technology and management of waste and pollution (see press release 33/2009).

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Read more:

Press releases:

• Government Pension Fund: Long-term management in turbulent times
• The Government will strengthen Norges Bank’s management and control system
• Government Pension Fund: Broad review of Norges Bank’s active management
• Government Pension Fund: Developing and strengthening the ethical guidelines
• Government Pension Fund: Climate on the agenda

Report no. 20 to the Storting