Council on Ethics for Norway’s giant oil fund makes first exclusion recommendations in new role

Since January, the Council advises the fund’s manager NBIM, potentially complicating the fund’s responsible investment strategy.

The Council on Ethics for Norway’s Government Pension Fund Global (GPFG) has made its first exclusion recommendations since assuming its new role as an advisor to Norges Bank Investment Management (NBIM), the manager of GPFG. Until the start of 2015, the Council had been advising the Norwegian Finance Ministry on which companies the NOK6.7trn (€782bn) GPFG, should exclude for ethical reasons. The Ministry created the Council in 2004. But late last year, Norway’s centre-right government said the Council would no longer make its recommendations to the Ministry. Instead, it would advise NBIM, which then could decide whether or not to adhere to them.
The government argued that, in this way, any exclusion decision made by the GPFG would be less political and more financial. The Council itself also underwent a shake-up, with the government appointing a new Chairman, the billionaire investor and industrialist Johan H. Andresen, and four new board members. The Council’s new mandate was the result of a compromise between the centre-right government and left-wing members of Norway’s parliament. The MPs on the left had successfully resisted the government’s original plan to do away with the Council entirely.
NBIM has experts for ESG (environmental, social and governance) risk based both in Oslo and London. It recently published a report that provides detail on divestments due to ESG risk – there were 114 last year – as well as information on the GPFG’s engagement and voting in 2014. The integration of the Council into NBIM could complicate GPFG’s responsible investment strategy, however, because of a difference in motivations. An expert on the GPFG said: “The Council’s job is to continue to make exclusion recommendations based on ethics, while NBIM will exclude companies according to their ESG risk. That’s why, for example, several coal and mining firms were excluded last year.”
Now reporting to NBIM, the Council has recommended that the GPFC divest six companies: Chinese logistics group Noble; China Ocean Resources (COR), a fishing firm; Indian power utility NTPC; China Railway Group (CRG), US phosphate producer, Innophos; and US mining firm Tahoe Resources.As to the reasons for exclusion, the Council said Noble, COR and NTPC were causing environmental damage through their operations. In Noble’s case, it was the destruction of rainforest in Indonesia for palm oil, while NTPC was criticised for building a coal-fired power plant near the habitat of the Bengal tiger, an endangered species. COR should be excluded for engaging in “unregulated fishing and the hunting of threatened species,” the Council said. Corruption was the issue at the CRG, the third Chinese firm that the Council suggested removing. New Jersey-based Innophos, said the Council, was violating human rights of the local population by operating in Western Sahara, which has been occupied for years by Morocco. Human rights violations were also the issue at Tahoe, the Council said, citing as evidence violence that occurred in Guatemala after the company opened a gold mine there. Link to Council’s recommendations, as well as new Council members.

Separately, the Norwegian Ministry of Finance has closed (February 6), a public consultation on a report by an expert group on active ownership advising the GPFG on its investments in coal and petroleum companies. Link to report
In one response seen by RI, the Network for Sustainable Financial Markets (NSFM), makes three main recommendations. First, it says GPFG should invest far more in environmentally beneficial investments, noting that its current investments of NOK 31.4bn in renewables comprise less than 1% of assets. Second, it suggests that GPFG should make carefully considered divestments of the most CO2 intense and economically questionable fossil fuel investments such as coal and tar sands, and use “forceful stewardship” to encourage companies to report on their environmental policies and business strategies. Third, it suggests Norway should consider the GPFG as an important tool to advance its national climate change policy, and use its stewardship influence to ensure corporate transparency of lobbying/political contributions on climate change.

Additional reporting by Hugh Wheelan