The Work of the Council on Ethics

1. The Work of the
Council on Ethics
Oslo
30 May 2016
Eli Lund

2. GPFG is among the largest funds in the world
7 471
0%
50%
100%
150%
200%
250%
300%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Fund size as share of
GDP for Mainland
Norway (rha)
Market value development 1996 – 2015.
NOK billion and per cent of GDP Mainland Norway
Fund performance
Sources: Norges Bank, Statistics Norway
and Ministry of Finance
2
 Market value of
7000 billion NOK,
approx. 850 billion USD
 Invested in 9000 companies
abroad
 75 countries
 1,3% of the World’s listed
companies
 2,4 % of Europe’s listed
companies

3. The Norwegian petroleum sector, 2015
3
Share of GDP Share of State
revenues
Share of total
investments
Share of total
exports

4. 4
Strategic Benchmark Index
Global Equities
(60 %)
Global Fixed Income
(35-40 %)
Global Real Estate
(0-5 %)
Index provider
FTSE Group
Index provider
Barclays
Index provider
IPD
Benchmark Index Composition

5. Governance structure marked by clear
lines of responsibilities
The Storting – Norwegian Parliament
Ministry of Finance
Norges Bank (NBIM)
Operational manager of the GPFG
Government Pension Fund Act
National Budget
Annual Report to the Storting
Material changes presented to Parliament prior to implementation
Management mandate
Regulation on risk management and reporting
Guidelines for observation and exclusion
Quarterly and annual reports
Investment strategy advice
Governance 5

6. 6
GPFG’s Ethical Guidelines
It started with a question about landmines in 1999-2000 …
Norway was signatory to the 1999
Landmine Treaty, and the Fund was
invested in a Singaporean company
that produced landmines.

7. Tools employed by the Fund
as a Responsible Investor
 Voting
 Engagement and follow-up of individual
companies
 Shareholder resolutions
 Cooperation with other investors
 Industry initiatives
 Improvement of market standards
 Communication and expectation documents
 Exclusion or observation
of individual companies
NBIM
Council on Ethics

8. 8
The Council on Ethics
 Advices Norges Bank on the observation and exclusion
of companies from the Fund
 Independent council of experts (five members)
 Chaired by Mr. Johan H. Andresen
 Supported by a secretariat of eight people

9. 9
Some areas of ongoing work

10. Guidelines for Observation
and Exclusion
 Issued by the Ministry of Finance
 Endorsed by Parliament
 A high threshold for exclusion
 An integrated part of the Fund’s responsible
investment strategy
10

11. 11
Exclusion Based on Products
Number of excluded companies
Antipersonnel mines 1
Cluster munitions 5
Nuclear weapons 12
Production of tobacco 21
Production or use of thermal coal 52
Sale of military equipment to certain states 0

12. 12
Exclusion Based on Conduct
Number of excluded companies
Serious or systematic human rights violations 3
Severe environmental damage 17
Other particularly serious violations of
fundamental ethical norms.
3
Serious violations of the rights of individuals in
situations of war or conflict
3
Gross corruption 1
Unacceptable climate gas emissions 0

13. 13
Observation of Companies
Number of companies under observation
Corruption 1
Severe environmental damage 1

14. 14
Exclusion based on conduct
– a typical evaluation process
Identification of companies
Initial assessment
In-depth assessment
Recommendation for exclusion
or observation
News monitoring
Suggestions by organizations or others
Sector studies
What is the company’s responsibility?
Are the violations severe or systematic?
Is the information credible?
Contact the company
Establish the facts
Engage consultants and experts
Analyze future risk
A draft recommendation is sent to the
company for comments
Draft recommendation
Examples of responses to draft recommendations:
Some companies don’t respond.
Some companies dismiss the basis for the case as being wrong.
Many companies wish to enter into a dialogue with the Council to
discuss the issues raised.
In some cases, this process can run over several years.

15. 15
New criteria on climate and coal
1 January 2016
Mining companies and utilities
with more than 30 % of revenues
from or activities based on coal
Exclusion based on
products
Exclusion based on
conduct
Acts or omissions that lead to
unacceptable levels of green house
gas emissions on an aggregate
company level
Norges Bank (NBIM)
and Council on Ethics
Council on Ethics

16. 16
Environmental Damage
 Is the damage serious and enduring?
 Is the damage due to a
contravention of international
norms or national laws?
 What effects will the company’s
activity have on people’s health?
 Has the company failed to act to
avoid the damage?
 Has the company done enough to
reduce the damage caused by its
actions?
 Is it probable that the practice will
continue in the future?

17. Sources of Information
• Concessions and permits
• Environmental and social impact Assessments
• Environmental Management Systems
• Tailings management
• Emissions
• Sanctions
17

18. 18
Environmental Damage

19. 19
Human Rights
 What is the connection between the
company’s activities and the
violations?
 Has the company actively
contributed to the violations?
 Has the company known about the
violations but failed to stop them
from taking place?
 Are the violations currently taking
place, or is there an unacceptable
risk of said violations taking place in
the future?

20. What are the biggest challenges for the Council’s work?
20
• Establishing reasonable boundaries for the application of the different
criteria.
– To what extent can we hold companies accountable for violations of norms?
• Acquire information and establish the facts.
– Companies operating in countries where there is limited access to
information.
– Especially difficult in e.g. corruption cases.
• Consistency in the application of the Guidelines.
– Similar occurrences should be treated similarly, but few cases are the same.
• Predicting future risk
– We try to establish what has happened in the past, but our recommendations
are forward looking. How well can we predict future risk?

21. www.etikkradet.no
Guidelines, recommendations and other
relevant documents are available on the
Council’s website in Norwegian and English
Eli.Lund@etikkradet.no