the work of the council on ethics
TRANSCRIPT
The Work of the Council on Ethics
Oslo30 May 2016
Eli Lund
GPFG is among the largest funds in the world
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
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1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0%
50%
100%
150%
200%
250%
300%7 471
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 performanceSources: Norges Bank, Statistics Norway and Ministry of Finance
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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
The Norwegian petroleum sector, 2015
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Share of GDP Share of State revenues
Share of total investments
Share of total exports
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Strategic Benchmark IndexGlobal Equities
(60 %)Global Fixed
Income(35-40 %)
Global Real Estate(0-5 %)
Index providerFTSE Group
Index providerBarclays
Index providerIPD
Benchmark Index Composition
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 BudgetAnnual 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 reportsInvestment strategy advice
Governance 5
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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.
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 observationof individual companies
NBIM
Council on Ethics
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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
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
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Exclusion Based on Products
Number of excluded companies Antipersonnel mines 1Cluster munitions 5Nuclear weapons 12Production of tobacco 21Production or use of thermal coal 52Sale of military equipment to certain states 0
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Exclusion Based on ConductNumber 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
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Observation of Companies
Number of companies under observation Corruption 1Severe environmental damage 1
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Exclusion based on conduct – a typical evaluation process
Identification of companies
Initial assessment
In-depth assessment
Recommendation for exclusion or observation
News monitoringSuggestions by organizations or othersSector studies
What is the company’s responsibility?Are the violations severe or systematic?Is the information credible?
Contact the companyEstablish the factsEngage consultants and expertsAnalyze 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.
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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
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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?
Sources of Information
• Concessions and permits• Environmental and social impact Assessments• Environmental Management Systems• Tailings management• Emissions • Sanctions
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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?
What are the biggest challenges for the Council’s work?
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• 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?
www.etikkradet.no
Guidelines, recommendations and other relevant documents are available on the
Council’s website in Norwegian and English