Bringing human rights into pension finance. Interview with Gro Nystuen, Norway Govt Pension Fund

The chair of the Council of Ethics talks about exclusions, international norms and why Norway’s fund giant has become an ethical pensions leader.

Do you consider the work of the Council on Ethics as a step towards civilizing capitalism?

Gro Nystuen Capitalism is a function of the way the world is organized and structured financially and politically and so we are not thinking that we are civilizing capitalism. If we are really lucky, we might civilize a couple of companies or maybe more than a couple. And perhaps we may eventually have a positive influence that is more far-reaching than the impact we may have on those companies that we have dealt with concretely. But this is difficult to assess.

How can we regulate corporate conduct on an international level?

Gro Nystuen As a point of departure: international laws do not regulate company behaviour, national law does. There are some solid international agreements and some elements of international law that do specifically apply to corporate behaviour. An example is the UN anti-corruption treaty. To a certain extent human rights treaties have the same effect. For example child labour is prohibited in most countries. But to get a company to respect specific human rights, you have to go via national legislation. The states, in which the company operates, must have legislative prohibitions of child labour that allow the police and other public authorities to act against and hopefully eradicate child labour.
Enforcement of such legislative prohibitions often remains a problem. India, for example, has very good general legislation on child labour, but implementing it is difficult in many areas. We have to be specific about who is responsible and who has obligations andabout the source of these responsibilities and systems. Companies do not have obligations under international law.

The Council’s first recommendations were issued only three years ago. Since then the reputation of the Norwegian Pension Fund as an international leader in ethical investment has been acknowledged rapidly all over the world. How do you explain your leadership?

Gro Nystuen I think our international reputation for ethical investment turns on the robust system that we have developed. The Council consists of five persons who are all experts in the different areas covered by our guidelines. This expertise means that we know what we are talking about. It is not a “prominent-persons-have-been-politicians” kind of council, as it could easily have been. We have our own office space and a secretariat of six full time employed people. So we really have the time and the resources to think things through properly. The biggest difference between us and anybody else is the amount of resources we use and the level of distrust we have when we screen companies. We do not just rely on service providers who claim they can make sure that our portfolio is ethical. We think that nobody actually can do this better than ourselves. So although we use initial information from screening companies, we always check the quality of the information ourselves. Another reason why we are leaders in the field relates to the fact that we are a public institution and therefore have a very transparent system. All the sources and all the references we use are public. That means everybody else can use our knowledge. If other ethical investors want to exclude producers of nuclear weapon systems, they are invited to

read our recommendations for free! It is all out there!

On the other hand you are not publishing the names and data of all the companies you have scrutinised, but for different reasons did not exclude. What is the reason for this? Your work could obviously be even more helpful to other ethical investors if they could also share your knowledge about acceptable companies.

Gro Nystuen Well, there are many problems with that. We have discussed it, obviously, many times. One problem is that publishing a list of companies that we are looking at causes itself reputational hazard for a company. It shows that they are under our scrutiny. And if we then publicized the details of all the companies we have looked at and decided not to exclude them from our investment programme, it would mean that we gave them a seal of quality, which we do not want to do. Some companies can be really bad, we know that but we just can’t get the documentation. And we do not want to give those companies a quality seal. And some companies, on the other hand, are falsely accused of things, for a number of reasons. Many people out there have very specific agendas. They are using companies to push forward their own causes. We have had accusations against very famous companies like Coca Cola. If you have Coca Cola in your headline you will almost automatically receive attention. Many companies are named to us in this manner and when we look at them, we discover that there is no story at all. In those cases, it would be very unfair to that company to make public that they were in our search line.

You make it clear that the ethical guidelines of the work of the Council on Ethics are not primarily rooted in a separate Norwegian culture or policy, but rely largely on internationally accepted principles. Which principles are these?

Gro Nystuen According to our mandate, we recommend exclusion of companies roughly for two reasons; either because of the goods they produce, which mostly pertains to the production of specific weapons; orbecause of their conduct regarding human rights, the environment and corruption. Our mandate highlights three items in this regard. The first concerns violations of human rights treaties. The second concerns the rights of individuals in situations of war and conflict. At issue here are humanitarian law and treaties that pertain to armed conflict, but not exclusively. It is a somewhat vaguer point, which is good, because it allows us to exclude companies involved in unethical behaviour in areas of armed conflict without having to invoke violations of a specific treaty. It is sufficient to state that their conduct is unethical. The third point concerns environmental damage. The environmental criteria are absolutely not attached to any treaty, because if they were, they would be very narrow. For example there is no international prohibition against cutting down every tree in Norway, although it would be clearly bad to do it. So we are not constrained by the absence of treaties when it comes to the environment. The same is true with regard to corruption. We can and do of course rely on the UN anti-corruption treaty when we are dealing with corruption. But the definition of corruption in the UN treaty might be too far reaching in some cases and then we might want to make it narrower. We nevertheless rely on it as a point of reference. Some of our guidelines refer to treaties, some don’t. The first part of our mandate concerns manufacturers of weapons where the normal use is likely to violate fundamental human rights principles such as the principle of distinction and the principle of proportionality. The principle of distinction allows for a clear distinction between civilians and military targets. Since 2005 we have been excluding all manufacturers of weapons that violated it. Chemical weapons and biological weapons, of course, also do not allow for a distinction between civilian and military targets. We also listed cluster weapons which were still then not prohibited and nuclear weapons, which are also not prohibited for the permanent members of the Security Council, for political reasons. The nuclear weapons were politically particularly controversial, because Norway is a member of NATO. We are under the nuclear umbrella, so it was difficult for our Ministry of Defence to explain in
the NATO-context why we were throwing out large companies like Lockheed Martin who produce nuclear weapons. After all, they are producing something that is perfectly legitimate for them to produce, as long as they deal with the permanent members of the Security Council.

Why was your Council and the Norwegian Government Pension Fund – Global the first institution to pursue these concerns so purposefully?

Gro Nystuen It costs money to have us do the work that we are doing, even though it is not a huge amount. And it causes a lot of extra work for others as well, for the Central Bank, for the Minister of Finance. It requires a big effort. One of the reasons why many Norwegians feel that we should administer our pension fund in an ethical manner is that we do not really feel comfortable with having all this money. We want to make sure that it is at least not being spent in ways that make people’s lives worse. If you asked anybody on the street if they were for or against child labour in India, they would obviously answer that they were against it. Even if you asked them directly whether they would be willing to have their governments use tax money to prevent child labour, they would still agree because they think that child labour is a very bad thing. They would not hesitate, even if it were to cost them something. But the problem is they are not asked directly!

Investment concerns with ethical investment and ethical corporate practices appear to be very fragmented. Can you think of a structure or initiative that could unite all these fragmentary concerns?Gro Nystuen I think the structure or initiative that might unite these concerns must at the end of the day come from concerned people themselves. Ordinary people whose money we are talking about must make it clear that they are not going to allow their money to be used for unethical purposes. A good example of such an initiative recently came from the Netherlands. The two biggest pension funds in the Netherlands, the Stichting Pensioenfonds ABP and the Stichting Pensioenfonds Zorg en Welzijn PFZW, had to change their policies regarding cluster bombs radically a couple of years ago because there was a documentary on Dutch television which featured our ethical guidelines. Paying into these pension funds is obligatory for everybody working in the public sector of the Netherlands, but these people did not really own their investment. I think it has to come from the bottom-up, so to speak. It has to be the people who have their money invested who have to say: we do not accept these practices anymore we want to be sure that our money is not invested in cluster weapons, we want to be sure that our money is not invested in child labour. This was the starting point for the Norwegian pension fund as well. Not for the fund, but for the ethical guidelines. It really started in 1999 or 2000. Journalists dug up a story about how the pension fund was invested in the production of anti-personnel land mines. And this happened at a time that Norway had a very high profile in the work on landmines, the ban was already in place since 1997. So this was an excellent newspaper headline! Double standards! And this is what started the debate.

Dr Sibylle van der Walt who carried out this interview is Adam Smith Research Fellow at the University of Glasgow
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