The Ministry of Finance has concluded its deliberation of eight recommendations from the Council on Ethics about observation and exclusion of companies from the Government Pension Fund Global’s (GPFG) investment universe. In five of the cases the Ministry has decided to follow the Council on Ethics’ recommendation to exclude the relevant companies. In three of the cases the Ministry has decided to ask Norges Bank to include the cases in its active ownership activities.
Decisions to exclude five companies
The Ministry of Finance has decided to exclude the companies WTK Holdings Berhad, Ta Ann Holdings Berhad, Zijin Mining Group and Volcan Compañia Minera from the investment universe of the GPFG. The companies are excluded based on an assessment of the risk of severe environmental damage. The Ministry has furthermore decided to exclude the company Zuari Agro Chemicals Ltd. The company is excluded based on an assessment of the risk of contributing to the worst forms of child labour.
The Ministry’s decision to exclude the above mentioned companies is made on the basis of the recommendations from the Council on Ethics. The Ministry has not made an independent assessment of every aspect of the individual recommendation in question, but is satisfied that all the recommendations establish with reasonable certainty that investments in the companies above represent an unacceptable risk of violating the Guidelines for observation and exclusion.
Decisions about active ownershipThe Ministry of Finance has decided to ask Norges Bank to raise issues about mining related environmental damage with the company AngloGold Ashanti as part of its active ownership efforts. The Council on Ethics has recommended that the company is excluded from the investment universe of the GPFG. The Council says that it has had comprehensive dialogue with the company, and that the company in recent years has introduced standards and implemented measures to improve the situation. Norges Bank has in a letter to the Ministry of Finance announced that it is considering enhancing its active ownership efforts aimed at the mining sector. Norges Bank considers that active ownership can contribute positively in this case. The Bank writes that AngloGold Ashanti has recently taken steps in the right direction, but that a process of active ownership must take place over a minimum of five years. The Ministry will ask Norges Bank to report on the exercise of ownership through the five-year period. At the end of the period the Ministry will ask the Council on Ethics and Norges Bank to assess the situation and the company.
The Council on Ethics has advised that the companies Royal Dutch Shell Plc. and Eni Sp.A.’s operations in the Niger Delta are placed under observation. The Ministry of Finance has decided to ask Norges Bank to include oil spills and the environmental conditions in the Niger Delta in its ownership efforts for a period of between five and ten years. The Ministry will ask Norges Bank to report on its exercise of ownership. The Ministry has therefore decided not to follow the recommendations from the Council on Ethics to place the two companies under observation.
The Government Pension Fund – Global 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 March 31st 2013 its total value is NOK 4.397 trillion ($729.2 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.
The fund is managed by Norges Bank Investment Management (NBIM), a part of the Norwegian Central Bank on behalf of the Ministry of Finance. It is currently the largest pension fund in Europe and is larger than the California public-employees pension fund (CalPERS), the largest public pension fund in the United States. The Norwegian Ministry of Finance forecasts that the fund will reach NOK 4.3 trillion ($717 billion) by the end of 2014 and NOK 6 trillion ($1 trillion) by the end of 2019. In a parliamentary white paper in April 2011 the Norwegian Ministry of Finance forecast that the 2030 value of the fund would be NOK 7.4 trillion ($1.3 trillion). A worst-case scenario for the fund value in 2030 was forecast at NOK 2.7 trillion ($455 billion) and a best case scenario at NOK 19.6 trillion ($3.3 trillion).
Since 1998 the fund has been allowed to invest up to 40 percent of its portfolio in the international stock market. In June 2009, the ministry decided to raise the stock portion to 60 percent. The Norwegian Government planned that up to 5 percent of the fund should be invested in real estate, beginning in 2010. A specific policy for the real estate investments was suggested in a report the Swiss Partners Group wrote for the Norwegian Ministry of Finance.
Norway’s sovereign wealth fund is taking steps to become more active in proxy voting. In the second quarter of 2013, the sovereign fund voted in 6,078 general meetings as well as 239 shareholder proposals on environmental and social issues. Norway’s Government Pension Fund Global (GPFG) has the potential to greatly influence the corporate governance market in Europe – possibly China as well.
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.