Report from a Committee tasked with reviewing the ethical framework for the Norwegian Government Pension Fund Global

Values and Responsibility

– The Ethical Framework for the Government Pension Fund Global

Today, the Committee mandated to review the ethical guidelines for Norway’s sovereign wealth fund publishes its proposals for amendments to the Guidelines for Observation and Exclusion from the Government Pension Fund Global and to the Management Mandate for the Government Pension Fund Global. The Committee presented its report to the Norwegian Finance Minister Jan Tore Sanner.

“Our proposals build on the existing ethical framework for the Fund,” says Professor Ola Mestad, chair of the Ethics Committee. “Overall, the ethical framework has worked well. Nevertheless, we are proposing some adjustments in order to reflect the evolution of ethical norms over the past 15 years and to catch up with certain new issues that have emerged.”

The point of departure for the Committee has been that the GPFG constitutes the national savings fund of Norway. It is an ethical obligation unto itself to manage the Fund in ways that secure lasting value creation for current and future generations of Norwegians. Correspondingly, the GPFG must avoid being invested in companies that cause or contribute to serious violations of ethical norms. Violations may be linked to certain products or to companies’ conduct.

“Most of the criteria for observation and exclusion are construed to facilitate adjustment to emerging issues,” says Mestad. “Hence, their application must keep up with developments as they materialise. Notwithstanding, we do point to certain areas where particular attention is due by the Council on Ethics and Norges Bank, notably indigenous peoples’ rights and the use of surveillance technology. The Committee proposes changes in the criteria relating to arms production and corruption. Finally, the Committee suggests introducing a new conduct-based criterion on the sale of arms.”

Norges Bank’s responsible investment management compliments the work carried out by the Council on Ethics and Norges Bank collectively under the Guidelines for observation and exclusion of companies. Underpinning the Bank’s activities in this area are internationally recognised standards. The Committee proposes to introduce the UN Guiding Principles on Business and Human Rights (UNGP) into Norges Bank’s mandate in order to further clarify the foundational norms for the Bank’s work. The UNGP were launched in 2011 and have since become the prevailing standard in the area of human rights.

Responsible management of the Fund has evolved since 2004.and generates increased reciprocity between the applied measures. Good coordination between Norges Bank and the Council on Ethics is therefore important. The Committee proposes to expressly stipulate the requirements for this coordination. Transparency is another imperative component emphasized by the Committee.

The Committee has been tasked specifically with examining ways to handle investments in countries with divergent norms. In the view of the Committee no existing indexes are suitable for creating a general, ethical rules-based system in order to limit investments in designated countries or business sectors. Existing indexes have other objectives, and their reliability and accuracy for this purpose will hence be inadequate.

“The challenges that arise with diverging norms relate particularly to local companies with limited latitude for adjustments. For such companies, the measures must be tailored to the conditions under which the companies operate. The Committee underlines the importance for companies to be assessed against the same ethical standards and with the same level of thoroughness as today”, says Mestad.

Further details may be found in the summary.