Finance Minister Siv Jensen revealed plans on Friday to effectively disband an ethics council (Etikkråd) that has guided investments made by the country’s huge sovereign wealth fund for years. She insists that ethical values will still play an important role, but more responsibility for managing the vast fund fueled by Norway’s oil revenues will go to Norway’s central bank and its unit in charge of the so-called “Oil Fund,” Norges Bank Investment Management (NBIM).
The changes are likely to spur political debate, coming at a time when NBIM has been under fire over questionable investments in Formula One racing and criticized for investing too heavily in companies not viewed as being environmentally friendly. Calls have gone out, for example, for the fund to invest less in companies involved with coal, oil and gas and more in renewable energy.
Finance Minister Jensen, who also leads the conservative Progress Party (Fremskrittspartiet, FrP), mostly concentrated on what she called efforts to “strengthen” the fund’s management of “responsible investments.” Writing in a commentary in newspaper Dagens Næringsliv (DN), Jensen claimed that the current division of responsibility involving the ethics council, her finance ministry and the central bank was not the best for strengthening socially responsible foreign investment of the oil money.
Taking some strategic advice
She revealed that the ministry basically intends to follow the advice of a strategy council asked last year to examine how to best use the combined resources of the ethics council, the finance ministry and the central bank. The latter, Norges Bank, will take over responsibility for recommending which companies the fund should invest in and which companies the fund should pull out of. Earlier decisions to pull out of companies like Wal-Mart, for example, have attracted international attention.
“We recommend that Norges Bank should now get responsibility for both corporate governance and the exclusion mechanism, while it still will be a political decision to determine the mandate of Norges Bank and the criteria for exclusion,” Jensen wrote.
She said it was important to link observation and the decisions to keep companies out of the fund more closely with corporate governance principles, and that Norges Bank would have greater weight when it came to the related rules, practices and processes. In general, though, Jensen believes it’s “better to get companies to change their practices than to pull out of them.” That means NBIM is likely to become a more active shareholder in companies in which it has invested oil fund money.
Jensen said that openness and ethical awareness should influence the fund’s management, so a review was undertaken last year into the best possible use of the management resources. It found that changes in 2009 designed to improve cooperation between corporate governance and the way companies were excluded hadn’t been successful under the fund’s current structure. The goal had been to consider alternative measures before dropping a company from the fund, and only exclude businesses that lacked the will or the ability to improve practices.
Under the current system the finance ministry, ethics council and central bank have different roles and mandates, but the central bank’s and ethics council’s work have broadened over time. Now their roles are increasingly overlapping, according to Jensen. “We believe it is important that the fund acts with one voice externally to achieve greater impact in its work,” wrote Jensen.
Jensen said the decision to exclude companies should not lie with a government ministry because of the danger of it being viewed as a part of foreign policy, weakening the fund’s legitimacy locally and internationally. “I believe it is important that decisions about exclusion are taken at arm’s length from political authorities,” she wrote. “The government therefore supports the strategy council’s recommendation that the criteria for exclusion of companies is incorporated into the mandate of Norges Bank and that operational responsibility transfers from the ministry to the bank.”
Under the changes, ethical criteria would still be approved in Parliament and must be followed by the central bank. The bank’s responsible investment strategies must be transparent, exclusion of companies must be disclosed and justified, reporting requirements would increase, and an independent expert adviser would assess the bank’s work.
An assistant professor at the University of California at Davis, meanwhile, noted in newspaper Aftenposten on Friday that Norway’s Oil Fund still ranks highly in terms of international practice for fund investment despite its current challenges with the Formula One stakes. The fund could report high returns of 15.9 percent last year and has received the highest possible ratings from analysts and credit rating bureaus.