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Guidelines for the observation and exclusion of companies from the Government Pension Fund Global’s investment universe, 2004. [English]

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The Ethical Guidelines deal with a variety of “unethical conduct,” but it is the divestment from a particular group of weapons of mass destruction which makes this an interconnected exemplary policy in nuclear disarmament too. Until 2015, the policy had been critiqued for a failure to divest from fossil-fuel interests, the same interests upon which the fund had made its wealth. This changed however, with the announcement that the Government Pension Fund – Global had divested from a number of coal-based companies, becoming one of the most high profile institutions to have done so to date.

The potential effects of using ethical guidelines for investment, and divestment, policies should not be underestimated. Divestment is a powerful tool to disarmament initiatives, and critical to de-legitimising certain types of weapons, as well as encouraging a transition to 100% renewable energy.

Divestment schemes are relatively easily transferable, and can multiply the financial and normative impact of such schemes, building pressure on systems invested in maintaining the status quo, i.e. the military-industrial complex and the carbon-based economy.

Our “Best Policies” are those which meet the Future-Just Lawmaking Principles and recognise that interrelated challenges require interconnected solutions. The World Future Council’s unique research and analysis ensures that important universal standards of sustainability and equity, human rights and freedoms, and respect for the environment are coherently considered by policy-makers.

Sustainable use of natural resources

• The ‘Norwegian Government Pension Fund Global‘, the largest in Europe, derives its very wealth from the country’s offshore oil and gas revenues. It was previously named ‘The Petroleum Fund of Norway.’
• The Guidelines specify that companies will be excluded from the portfolio if there may be a risk of contributing to severe environmental degradation.
• However, the interpretation of ‘severe environmental degradation’ has so far been narrow, mostly relating to domestic situations only and not taking into account wider impacts of environmental instability or climate change.

• In March 2014, the Norwegian Ministry of Finance commissioned a report from an expert group as to whether the ‘Norwegian Government Pension Fund Global‘  should divest from fossil fuel companies. By the end of the year it was however concluded that the fund should not be used as a climate policy instrument.
• However, fears of stranded assets with regards to coal investments, means that this model is now viewed as financially instable hence the announcement in February 2015 of divestment from such companies having taken place by the Fund. Since then, the Norwegian Parliament endorsed a decision to divest an estimated $10bn worth of coal-related investments.

Equity and poverty eradication

• The Guidelines stipulate that the Fund should not contribute to unethical acts, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption, or severe environmental degradation in its investment decisions.

• The Guidelines are seen as a tool to make investment sustainable and ensure investment benefits future generations – not just by saving the wealth of the Fund for the coming Norwegian generations, but also by making sure the Fund does not adversely impact the lives and prospects of people anywhere in the world.

Precautionary approach

• The Guidelines take the “precautionary principle” into account when it comes to the humanitarian impacts of certain types of weapons (leading to its divestment scheme), but it does not deal with the threats to and/or arising from damaged and unstable ecosystems, declining biodiversity, and rampant climate change.

Public participation, access to information and justice

• The Ethical Guidelines were the result of a public debate in Norway about how the country should invest the wealth of its Pension Fund. Civil society groups were consulted during the development of the Guidelines and the Council on Ethics liaises continuously with NGOs.
• Open hearings about how the Guidelines can be improved have been held.
• All the recommendations of the Council on Ethics and all subsequent decisions by the Ministry of Finance are published.

• There are many examples of communities appealing to the Council on Ethics or the Ministry of Finance to divest from a certain company because their interests have been negatively impacted through the company’s operations.
• The Fund’s Chief Executive announced in April 2015 that the Fund will begin to reveal in advance how it intends to vote at selected companies it has invested as a measure of improved transparency.

Good governance and human security

• Through the Fund’s institutional infrastructure and working methods, the Guidelines are applied in a transparent, prompt, effective and fair manner.
• Parliament and its members (across the political spectrum) played an active role in the formation of the Guidelines, including the unanimous approval of the Guidelines by Parliament.

• Parliament is kept involved and updated on the implementation of the Guidelines, and individual parliamentarians occasionally advocate expansion of the divestment scheme.

Integration and interrelationship

• The Guidelines were not just supposed to bring Norway’s investment behaviour in accordance with its international obligations – they were supposed to be reflective of the sentiments and values of Norwegian society today and in the future.

• Although the Guidelines provide against “severe environmental degradation,” there exists some concern among civil society that in their implementation, environmental issues are largely neglected.

Common but differentiated responsibilities

• It is widely believed the Guidelines go a long way in reflecting Norwegian society’s cultural values and traditions, but their scope must be broadened to address concerns of biodiversity and climate change if it is to truly take a 100-year perspective (as the Fund’s investment behaviour is supposed to).

The Norwegian Government Pension Fund Global (formerly known as the Government Petroleum Fund) is the world’s largest sovereign wealth fund and the repository of the Norwegian peoples’ excess oil and natural gas wealth.

After a sharp increase in the Fund’s value throughout the 1990’s, a public debate began to take place as to whether its investment and management should be governed by ethical principles. In 1999, it was brought to light that the Fund had invested in a Singaporean company (Singapore Technologies Engineering) which manufactured anti-personnel mines – in spite of Norway’s role as a key player in achieving, and party to, the 1997 Mine Ban Convention, prohibiting the use, development, stockpiling, production and transfer of anti-personnel mines.

To address concerns about this apparent contradiction, in 2002, a governmental committee (the Graver Committee) was established to propose ethical guidelines for the Fund. The Committee’s report and subsequent discussions in the Norwegian Stortinget (Parliament) led to the adoption of the Ethical Guidelines for the Fund in November 2004. In addition, a Council on Ethics for the Fund was established.

At the core of the Ethical Guidelines lies the belief that investments which carry an unacceptable risk of contributing to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages, should not be made. The criteria set out in the Guidelines prohibit investment in companies which either by themselves, or through entities which they control, produce weapons which violate fundamental humanitarian principles in normal use, produce tobacco or sell weapons or military material to Myanmar.

Although other countries have adopted similar divestment policies, at the time Norway’s scheme was unique in that it included divestment from companies involved in “the development and production of key components for nuclear weapons”, based on the provision that the Fund shall not invest in companies that produce weapons that “violate fundamental humanitarian principles through their normal use.”

The Graver Committee and the Norwegian Stortinget considered that nuclear weapons and cluster munitions, though not indisputably prohibited under international law, might be considered to violate fundamental humanitarian principles, and should thus also fall under the Fund’s divestment scope. The exhaustive list of weapons that were considered to violate humanitarian principles includes: chemical and biological weapons, blinding laser weapons, munitions with fragments not detectable by X-ray, incendiary weapons as referred to in the UN Conventional Weapons Convention, anti-personnel mines, cluster weapons and nuclear weapons.

In addition, the principle that the Fund should not invest in companies that “develop and produce key components for nuclear weapons” has been interpreted by the Council as encompassing more than just the actual production of nuclear warheads. The exclusion criterion also covers delivery mechanisms, such as missiles carrying the warhead (ICBM), and certain forms of testing as well as maintenance of nuclear weapons.

More recently, international attention has been drawn to whether the fund should divest from fossil fuel interests and become the most high profile institution to have done so to date. It would be a particularly symbolic decision given the origins of the Fund’s wealth in the first place. In March 2014, the Norwegian Ministry of Finance commissioned a report from an expert group as to whether the ‘Norwegian Government Pension Fund Global‘  should divest from fossil fuel companies. By the end of the year however, it was concluded that the fund should not be used as a climate policy instrument.

Nonetheless, fears of stranded assets with regards to coal and gold mine investments, brought an announcement just a few months later in February 2015 that the Fund had divested from a number of such companies after concerns about the future viability of their business models. Then, in May 2015, there was a unanimous recommendation by the Finance Committee of the Parliament of Norway to divest from coal – a decision endorsed by the Norwegian Parliament the month after and resulting in the exclusion of up to $10bn of coal-related investments from the fund.

• To ensure that the Fund does not make investments which carry an unacceptable risk that the Fund may contribute to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages.
• The Ethical Guidelines are intended to implement the values of the Norwegian people and to invest public funds in accordance with Norway’s obligations under international law (e.g. as party to Mine Ban Treaty, Cluster Munitions Treaty etc.).

The Guidelines prohibit investment in certain companies:

Section 2. Exclusion of companies from the Fund’s investment universe

(1) The assets in the Fund shall not be invested in companies which themselves or through entities they control:

a) produce weapons that violate fundamental humanitarian principles through their normal use;

b) produce tobacco;

c) sell weapons or military material to states that are affected by investment restrictions on government bonds as described in the management mandate for the Government Pension Fund Global Section 3-1 C).

The Ministry of Finance makes the final decision regarding exclusion of companies according to these criteria, based on the recommendation from the Council on Ethics (Section 2.2). All of the Council’s recommendations –regardless of whether the Ministry follows their advice – must be published (Section 5.7).

Ethical investment is carried out in 3 ways:

(1) The Norwegian Bank Investment Management (NBIM) manages the fund on behalf of Norges Bank (the Norwegian Central Bank) and by exercising its ownership rights and voting power aims to strengthen corporate governance. The aim is to influence companies’ behaviour by engaging in a dialogue with them. This is all done confidentially.

(2) Negative screening – selling the shares in companies that produce weapons which may violate humanitarian principles. The focus here is on the products the company makes, not on how the company is run.

(3) Exclusion of companies where there may be a risk of contributing to serious or systematic human rights violations, severe environmental degradation, gross corruption, or other particularly serious violations of fundamental ethical norms.

The Ministry of Finance publishes a list of companies that have been excluded from the Fund or put under observation (Section 8).

Following the application of the Ethical Guidelines to the Fund’s investment portfolio, 1 company involved in the manufacture of landmines, 7 companies involved in the manufacture of cluster munitions, and 10 companies involved in the production of nuclear weapons have been excluded since 2005.

Norway is seen as the global leader when it comes to ethical investment and the global investment community follows its decisions closely. 
As the Fund is so large, being excluded has an actual financial impact on the company concerned. The financial implications are compounded by the fact that many smaller funds – both in Norway and abroad – which don’t have ethical guidelines or a council on ethics, follow the exclusion decisions of the Fund.

Other countries have initiated legislation to ensure divestment from companies involved in the manufacture of cluster munitions and landmines (Belgium, Ireland, Italy, Luxemburg and New Zealand). However, Norway’s scheme at the time was unique, due to its inclusion of divestment from companies involved in “the development and production of key components for nuclear weapons” (Report of the Graver Committee, November 2003).

Section 2.1 of the Guidelines states that the Fund shall not be invested in companies that produce weapons that “violate fundamental humanitarian principles through their normal use.” As Norway was a State Party to the conventions banning chemical weapons, biological weapons and anti-personnel mines, it was a relatively straightforward assumption by both the Advisory Commission on International Law and the Graver Committee to ban the Fund’s investment in companies that produce these types of weapons.

However, the Graver Committee, supported by the Parliament, considered that nuclear weapons and cluster munitions, though not clearly prohibited under international law (at the time, the Convention on Cluster Munitions had not yet been adopted), might be considered to violate fundamental humanitarian principles, and should thus also fall under the Fund’s divestment scope.

However, the Ethical Guidelines and the Fund are not free of criticism and controversy. Although the divestment scheme, as it relates to weapons manufacturers is considered ‘best in class,’ the application of the Ethical Guidelines fails to take into account other important issues, such as biodiversity, energy security, and climate change, and continues to invest in fossil fuels.

There is an ongoing public debate in Norway about how the Fund and (application of) the Ethical Guidelines could be improved and calls for exclusion of specific companies are quite common. Moreover, the fact that the source of income for the Fund is Norway’s ever-growing oil industry (the world’s third largest oil exporter) is seen by some as a problem – especially by those calling for a new Climate/Energy policy. The Fund aims to be to the benefit of future generations, and the Ethical Guidelines are meant to ensure investment takes a long-term view, so to simultaneously contribute on such a large scale to fossil fuel-reliance is certainly seen as a contradiction in terms. This may be changing though as fossil fuel-based models are becoming viewed as financially unstable, with  the Fund recently divesting from coal and gold mining assets.

The Ethical Guidelines for the Norwegian Government Pension Fund Global  can be fairly easily replicated in so far as they relate to divestment from certain weapons manufacturers, i.e. companies that produce weapons that “violate fundamental humanitarian principles through their normal use.” The establishment of a Council on Ethics, with its transparent working methods, is another key aspect to implementation.

Other countries have already followed the Norwegian model, confirming its potential for transferability. In New Zealand, a coalition of members of parliament and NGOs approached the Government Superannuation Fund and requested that it follow the Norwegian example. The Fund has since adopted guidelines which include divestment from corporations involved in the testing or manufacture of nuclear weapons.

Recently, Switzerland made it clear that investing in companies producing nuclear weapons is prohibited by the Swiss Federal Act on War Material (which also covers biological and chemical weapons, cluster munitions and landmines), enacted in February 2013.

Meanwhile, other major financial institutions in Scandinavia are also considering divestment from fossil fuel stocks. Denmark’s largest pension fund, PFA, excludes tar sands companies while six funds are now being asked to dump coal investments by 2018 and exclude other high-risk oil and gas projects. In addition, the city of Oslo became the first capital to divest from fossil fuels in early March 2015 following the example of other cities worldwide such as Boxtel in the Netherlands, Dunedin in New Zealand and Oxford in the UK.

Website of the Council on Ethics (including reports).

Nystuen, Gro, The Implications of the Ethical Guidelines for the Norwegian Petroleum Fund for the Application of International Humanitarian Law to Nuclear Weapons, Nuclear Abolition Forum, Issue No. 1: International Humanitarian Law and Nuclear Weapons, October 2011 .