Strengthening of the ethical framework for the Government Pension Fund Global

The Government strengthens the ethical framework for the Government Pension Fund Global. The proposed modifications are largely in line with the recommendations of the Ethics Committee.

– The ethical framework for the Government Pension Fund Global (GPFG) has worked well. In response to developments in both the Fund and ethical norms over the last 15 years, we propose modifications to strengthen the framework in certain areas, says Minister of Finance Jan Tore Sanner (Conservative Party).

In April 2019, the Government appointed a Committee tasked with reviewing the ethical framework for the GPFG. The Ethics Committee submitted its report, the NOU 2020: 7 green paper; Values and Responsibility, on 15 June 2020. The Ministry of Finance received about 50 consultative comments on the report.

The general ethical framework

The framework is based on two ethical obligations. The Fund shall be managed with a view to generate long-term wealth for current and future generations. We shall at the same time avoid investing in companies that contribute to or are   responsible for serious violations of ethical norms, says the Minister of Finance.

Observation, exclusion and active ownership will be maintained as tools under the ethically motivated guidelines. The tools shall be applied in a cohesive manner, and the threshold for exclusion shall remain high. The overarching objective is that the most appropriate tool is applied in each individual case. Active ownership may be effective in reducing the risk of violating ethical norms by influencing companies to change their conduct.

An objects clause is proposed added to the guideline provisions in order to highlight the purpose of the Guidelines for Observation and Exclusion.

Criteria for observation and exclusion of companies

– The Government proposes the introduction of a new criterion for the sale of weapons, and to expand the corruption criterion to include «other serious financial crime». A new criterion will be added to target producers of cannabis as a recreational drug, says the Minister of Finance.

A new criterion on the «sale of weapons to states in armed conflict using such weapons in ways that constitute serious and systematic violations of the international law of armed conflict» is also proposed. This is in accordance with the Committee’s proposal. It is also proposed to omit the examples currently listed under the human rights criterion, which is also in line with the Committee’s proposal.

The Ministry has attached importance to wording the criteria such as to enable application to new issues that may arise over time. The white paper does at the same time identify key issues that are intended to fall within the scope of the various criteria. It is emphasised, inter alia, that «other serious financial crime» shall encompass tax evasion, money laundering and the facilitation of such activities, and that the human rights criterion shall encompass both labour rights and the rights of indigenous populations.

The Government supports the Committee’s view that there are fundamentally problematic aspects of lethal autonomous weapons. However, there is no clear definition of lethal autonomous weapons as yet, and such weapons have according to the Committee not been entered into use thus far. The Government is to that end not proposing such a criterion at this time. The Ministry will continue to examine a potential criterion in this regard, in view of current international efforts to develop guidelines on the use of such weapons. As far as nuclear weapons are concerned, the Government is proposing that the guidelines shall apply also to platforms produced exclusively for the delivery of nuclear weapons.

In proposing to introduce a criterion targeting producers of cannabis as a recreational drug, the Government attaches weight to the production of this product being prohibited in Norway, as well as to Norway having ratified the international drug control conventions. The Government also supports the Committee’s view that there is no broad consensus in Norwegian society that would justify exclusion of gaming companies, producers of alcohol or producers of weapons in general.

Investments in countries posing elevated ethical risk

– When making investments in countries and industries posing elevated ethical risk, extra vigilance with regard to potential norm violations will be required in the management of the Fund. We agree with the Committee’s assessment that company pre-screening would not be appropriate, says the Minister of Finance.

Norges Bank and the Council on Ethics should use information from multiple sources to identify matters that require attention, including information obtained from so-called ESG indices. The white paper does at the same time discuss why such indices are not suited for pre-screening of the Fund’s investment universe. Assessments of markets and companies should continue to be made by Norges Bank and the Council on Ethics, within the general framework defined by the Government and the Storting.

The management mandate requires Norges Bank to approve markets before investments are made. The Ministry proposes to specify that the Bank upon market approval shall pay heed to different types of risk, including country risk and political risk, and that it shall be feasible to adhere to responsible investment practices in the markets approved.

The Ministry intends to implement the Committee’s proposal to include the UN Guiding Principles on Business and Human Rights (UNGP) in the management mandate of Norges Bank. This will serve to clarify the normative basis for the Bank’s responsible investment practices regarding human rights.

Responsible investment practices support the UN Sustainable Development Goals

– The GPFG has a clear financial objective. The Fund therefore cannot be a policy tool for attainment of the UN Sustainable Development Goals. However, the Fund’s ability to achieve satisfactory long-term return is considered to depend on sustainable development. The responsible investment practices promote sustainable long-term growth in the companies and markets in which the Fund is invested, and thereby support the Sustainable Development Goals, says the Minister of Finance.

Norges Bank uses a range of tools in its responsible management efforts, targeting both companies and standard setters. The Bank’s expectations documents which address, inter alia, climate change, ocean sustainability, children’s rights, human rights, etc., form the basis for much of the Bank’s responsible investment efforts. Moreover, the Bank has in separate publications advocated its views on corporate sustainability reporting and the UN Sustainable Development Goals.

Transparency and efficient information exchange between the Council on Ethics and Norges Bank

– Transparency is of key importance to the Fund’s legitimacy. Transparency is practised at present, and this needs to continue. Moreover, we must continue to facilitate smooth and efficient cooperation between Norges Bank and the Council on Ethics, says the Minister of Finance.

The Ministry is proposing to implement the Committee’s proposals on highlighting transparency and reporting requirements. The Ministry also supports the Committee’s proposals on clarifying the provisions in the guidelines to ensure efficient interaction between the Council on Ethics and Norges Bank. This will be carried out in a manner that preserves the independence of the Council on Ethics.