In September the asset management arm of the Central Bank of Norway, Norges Bank Investment Management (NBIM), which is responsible for the management of Norway’s NOK1.184bn (e151.5m) State Petroleum Fund appointed a new corporate governance group in response to the petroleum fund’s policy to intensify work on corporate governance.
Norges Bank is responsible for exercising ownership rights for the State Petroleum Fund. “The primary objective of the exercise of ownership rights is to safeguard the fund’s financial interests,” says Henrik Syse, who heads the group. “We oversee the corporate governance principles and develop them, and we engage with companies on issues of importance to our fund.”
What makes the example of the Petroleum Fund interesting is that the functions of governance on the one hand and SRI-based exclusion on the other are separated. The choice of SRI policy for Norway’s State Petroleum Fund was made by the government and parliament based on the 2003 Graver report which concluded that the government has a moral obligation to introduce ethical guidelines for the management of the Petroleum Fund.
The Graver report led to the establishment of the Petroleum Fund’s Advisory Council on Ethics and the implementation of ethical guidelines in November 2004. The council provides an evaluation of whether investments in specified companies are inconsistent with the ethical guidelines, which it then submits to the ministry.
The ethical guidelines (for exclusion as well as for governance) are based on moral principles that enjoy widespread support in the Norwegian population, but they are also inspired by international documents such as the UN Global Compact and the OECD guidelines for corporate governance and multinational enterprises. The guidelines recommend the exclusion of companies that produce weapons whose normal use is in violation of fundamental humanitarian principles; they also specify that the threat of becoming complicit in gross or systematic violation of human rights, such as the deprivation of liberty and the worst forms of child labour, should lead to exclusion.
The ministry of finance makes the final decision on exclusion of companies from the Government Petroleum Fund’s investment universe based on the recommendations of the council. “The system is two-tier,” says Syse: “On the one hand there’s exclusion based on advice from the ethical advisory council; on the other, there is active engagement with companies by us at the bank.”
As to what he thinks of this separation of functions, Syse is philosophical: “The best neighbours have high fences, so we respect each other’s turf and the division of responsibilities. I think it makes sense that the finance ministry follows up on the decision to avoid certain sorts of investment, since that is after all an explicitly political decision; and that we at the bank, as the professional investment organisation, are responsible for executing corporate governance in the companies that we do invest in.”
Active engagement is the underlying principle: “We perform the governance work by looking at active ownership and how we can take part in processes that can change companies.”
The investments of the fund are limited to 3% of any one company, although this will now, most likely, be raised to 5%. In practice, however, the investments comprise an average of 0.3% of each company, so the investments are widely spread.
“As the individual investments are so small we are not represented on the boards of companies,” Syse explains. “This and the large number of companies in which we invest means that it is extremely difficult to have direct contact with all boards. So we ensure active voting – that the voting right is secured and used. The bank has strengthened voting procedures, and we are trying to vote consistently in a way that secures the long-term interests of our owners. That obviously means that we also have to look at social questions and sustainability issues.”
NBIM plans to build further influence among companies by networking with other investors. “This is important if we want to have real clout among the companies we invest in,” Syse stresses.
He adds: “Extending our networks is a priority, since many institutional investors, like ourselves, have similar long-term interests. Also, as investors we have different fields of expertise in various sectors and geographical areas, so it makes sense to help each other.”
Having so many companies to deal with raises the question regarding where to start. “It is difficult to be really active with all of them so we have to set priorities,” says Syse. “Not least through the voting process we try to identify companies with problems in areas about which we feel strongly and where we believe we can have an influence. Areas of importance to us as owners are board independence and accountability, transparency, and executive remuneration.”

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