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Norway Government Pension Fund Global Excludes Three Companies for Ethical Reasons

The Ministry of Finance has decided to exclude the companies Sesa Sterlite, Africa Israel Investments and Danya Cebus from the Government Pension Fund Global (GPFG).
Norway Government Pension Fund Global Excludes Three Companies for Ethical Reasons
Photo : André Clemetsen | Yngve Slyngstad, Chief Executive Officer of Norwegian Government Pension Fund (NBIM)

On the 13th of September 2013, the Ministry of Finance received a recommendation from the Council of Ethics to exclude the company Sesa Sterlite from the GPFG. The recommendation builds on an earlier recommendation to exclude the company Vedanta Resources Ltd. (Vedanta ) and two of its subsidiaries, which operate in India. The Ministry followed the Council’s recommendation to exclude Vedanta and its two subsidiaries in 2007.

Sesa Sterlite is a newly established subsidiary of Vedanta. The Council’s assessment is that the relevant operations in India, which are currently run through the company Sesa Sterlite, present an unacceptable risk of environmental damage and serious violations of human rights. The Council has regularly updated its assessment of Vedanta and the basis for exclusion is still considered to be present. The Ministry of Finance, in accordance with the Council’s recommendation, has decided to exclude Sesa Sterlite from the Fund’s investment universe, as well as to maintain the exclusion of Vedanta.

On the 1st of November 2013, the Ministry of Finance received a recommendation from the Council of Ethics to exclude the companies Africa Israel Investments and Danya Cebus from the Fund due to contribution to serious violations of individual rights in war or conflict through the construction of settlements in East Jerusalem. The companies were excluded during the period August 2010 to August 2013 on the basis of similar activities. The Ministry of Finance has decided to follow the Council’s recommendation.

The Ministry’s final decision on whether or not to divest from a company is made on the basis of the Council’s recommendation. The Ministry has not made an independent assessment of every aspect of the Council’s recommendation but is satisfied that the recommendation document establishes with reasonable certainty that an investment in the company represents an unacceptable risk of violating the Ethical Guidelines.

Changes to the exemption on government bondsIt follows from the mandate from the Ministry of Finance to Norges Bank that the GPFG in exceptional cases may be barred from investing in fixed income instruments issued by governments or government-linked issuers. The GPFG is not a foreign policy instrument, and it is only in exceptional cases with large-scale international sanctions or restrictive measures, that such restrictions apply to investments in government bonds.

The government bond exemption previously applied only to bonds issued by Myanmar. As international sanctions and restrictive measures change over time, it is appropriate to regularly assess which states are faced with the most extensive sanctions or measures and therefore may be affected by the exemption. The Ministry of Finance, in consultation with the Ministry of Foreign Affairs, has made ​​such an assessment and concluded that the exemption should no longer apply to Myanmar, but that North Korea, Syria and Iran should now be covered by the exemption. The Ministry of Finance has informed Norges Bank and the Council of Ethics of its decision. So far as the Ministry is aware, none of the countries issue government bonds today.

About Government Pension Fund Global

The Government Pension Fund – Global (Norwegian: Statens pensjonsfond – Utland, SPU) is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. The fund changed name in January 2006 from its previous name, The Petroleum Fund of Norway. 

The fund is commonly referred to as The Oil Fund (Norwegian: Oljefondet). As of the valuation in June 2011, it was the largest pension fund in the world, although it is not actually a pension fund as it derives its financial backing from oil profits and not pension contributions. As of September 30th 2013 its total value is NOK 5.11 trillion ($828.66 billion), holding one percent of global equity markets.

The purpose of the petroleum fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, generated mainly from taxes of companies, but also payment for license to explore as well as the State’s Direct Financial Interest and dividends from partly state-owned Statoil. Current revenue from the petroleum sector is estimated to be at its peak period and to decline over the next decades. 

The Petroleum Fund was established in 1990 after a decision by the country’s legislature to counter the effects of the forthcoming decline in income and to smooth out the disruptive effects of highly fluctuating oil prices.

The Petroleum Fund’s Advisory Council on Ethics, established 19 November 2004 by royal decree, observes the activities of the fund according to ethical guidelines.

According to its ethical guidelines, the Norwegian pension fund cannot invest money in companies that directly or indirectly contribute to killing, torture, deprivation of freedom, or other violations of human rights in conflict situations or wars. Contrary to popular belief, the fund is allowed to invest in a number of arms-producing companies, as only some kind of weapons such as nuclear arms, are banned by the ethical guidelines as investment objects.

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