Enhanced ownership strategies and a new climate-related exclusion criterion

We believe active ownership and engagement are appropriate primary tools for the GPFG to use to address climate-related issues. We recommend ways of enhancing the Fund’s efforts in this area. We also propose that the Fund continues to support relevant climate change research. Finally, we propose a mechanism whereby the worst cases of climate offenders can be excluded from the Fund on a case-by-case basis. The ownership efforts should be the primary tool, and the exclusions and engagement processes should work together in a coordinated way.

Enhanced ownership strategies

Energy production constitutes an important basis for our society, and fossil fuels – both petroleum and coal – will remain part of the energy mix for decades to come. The question is thus not whether investors will own these companies, but which investors are “good” owners of these assets from a financial and ethical perspective. As a large, long-term owner with a clearly articulated active ownership and engagement strategy towards climate change and the clout and perseverance to implement it, the Fund has every opportunity to be a “good” owner in this sense.

Active ownership and engagement are therefore in our opinion the appropriate primary tools for the GPFG to use to address climate-related issues. In this report, we recommend ways of enhancing the Fund’s efforts in this area. Given the Fund’s role and characteristics and the clear expectation from Norwegian politicians, the Fund should aim to be a forerunner when it comes to demonstrating how climate change issues can be integrated into the investment strategy. Where appropriate, analysis based on this work should be published.

Increased reporting

It is important that the owner understands climate change risk in the portfolio and how this risk is managed. This leads to the recommendation of more reporting from Norges Bank on climate risk in the Fund and how climate change is integrated into the investment strategy and decision-making of the Fund.

New exclusion criterion

We recommend that a new criterion – “contribution to climate change” – be included in the Guidelines for Observation and Exclusion. This would allow for exclusion of companies on a case-by-case basis where there is an unacceptable risk that the company contributes to or is responsible for acts or omissions that, on an aggregate company level, are severely harmful to the climate. We discuss issues related to the application of such a criterion in the report, but recommend that the interpretation and application of the criterion should be left to the Council on Ethics. We propose enhanced coordination between the Council on Ethics and the Fund.

In our view, fossil fuel companies’ energy production, energy use or CO2 emissions cannot per se be said to be contrary to generally accepted ethical norms. We therefore do not recommend an automatic exclusion of all coal and petroleum producers from the Fund.

Not a climate policy instrument

We believe the use of the Fund as a climate policy instrument beyond what is compatible with its role as a financial investor would be both inappropriate and ineffective.

We look forward to a broad and open discussion of our recommendations.

The expert group has been chaired by economist Martin Skancke, joined by Professor Elroy Dimson, Professor Laura Starks, Professor Michael Hoel, Dr. Juris, Gro Nystuen, and Research Director Magdalena Kettis.

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Read more:

• Press release from the Ministry of Finance
• The report from the expert group