Norwegian government fund’s ethics council resists being absorbed into central bank

Panel argues that independence is vital for “credibility and legitimacy”

The Ethics Council of the Norwegian Government Pension Fund, the body which makes exclusion recommendations for the giant fund, is resisting a proposal for it to be integrated into Norges Bank Investment Management (NBIM), the arm of the central bank which manages the fund.

It argues that it is important that the decisions are made independent of financial considerations and for the “credibility and legitimacy of the fund’s ethical work”.

The government-backed Strategy Council, headed by UK academic Elroy Dimson, last year suggested that the Executive Board of Norges Bank should in future make exclusion decisions.

“However, in the Council’s view, it is important for decisions on exclusion to be made independently of financial considerations,” Ethics Council Chair Ola Mestad says in the panel’s new annual report, released today (March 12). This was not “sufficiently safeguarded” in the proposal.

“In particular, the sale of significant shareholdings in large companies may involve a conflict between ethical considerations and financial considerations,” Mestad continues. “Independence is also important for the credibility and legitimacy of the Fund’s ethical work.

“The independence of the fund can be ensured by giving the Ministry of Finance continued responsibility for theappointment of a council on ethics that has its own secretariat and that advises the Executive Board on cases concerning withdrawal. The council argues that the Ministry of Finance must give “more thorough consideration” to the organisation of the work on responsible investment. This was “not sufficiently discussed” in the Strategy Council’s report.

Mestad points out that dialogues with companies require detailed knowledge and expertise. While the Dimson proposal would bring the fund into line with other similar funds, making it more transparent about “strategies and principles” there would be less information on specific companies, Mestad asserts. Thus the “exercise of ownership is to be based on an overarching financial objective”, i.e. removing the explicit ethical dimension.

Mestad resists this “management model” saying instead that the fund should be clear about how ethical considerations are to supplement or take priority over financial considerations in individual situations.

Meanwhile, the fund has reportedly sought to deflect political pressure to explain its stake in Formula 1 by criticizing motorsport chief Bernie Ecclestone. NBIM CEO Yngve Slyngstad told Dagens Naeringsliv that he wished Ecclestone had been “formally suspended” amid his planned bribery trial.