Friday 9 December 2016

Fine tuning and tweaks keep the world's biggest ethical investor in clover

Joachim Dagenborg

Published 13/03/2016 | 02:30

Johan H Andresen, head of the Council on Ethics at the Norwegian sovereign wealth fund
Johan H Andresen, head of the Council on Ethics at the Norwegian sovereign wealth fund

The ethics watchdog for Norway's €765bn wealth fund will focus this year on identifying corruption in telecoms, arms and energy companies and expects to recommend that an increasing number of firms across all sectors be barred from investment.

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By the end of 2016, the fund, which invests income from Norway's oil and gas production, could add companies to its blacklist for emitting too much climate-changing gas, said the chairman of its independent ethics panel, Johan H Andresen.

The ethics panel will also look into allegations of human rights abuses in Qatar's building sector, Malaysia's electronics goods industry and textile factories in some Asian countries.

The fund is the world's biggest sovereign wealth fund, owning 1.3pc of all listed company equity on earth. As of the end of last year, it owned shares in 9,050 firms worldwide.

Last week, it posted a 2.7pc return on investments in 2015 - its lowest return since 2011.

The Norwegian central bank, which manages the fund, said that last year "was a volatile year, with negative interest rates, currency turmoil, falling oil prices and weaker growth expectations for emerging markets".

The fund, which is officially called the Government Pension Fund Global, is forbidden by law from investing in firms that produce nuclear weapons or anti-personnel landmines or which are involved in serious and systematic human rights violations, among other ethical criteria.

Norway's parliament has set a new mandate from this year to restrict investment in companies that emit excessive climate-changing gases.

Mr Andresen said his panel was still looking into the criteria for such judgements but that its first recommendations on climate criteria could come by the end of the year.

Some 66 companies have so far been excluded from the wealth fund on ethics grounds - including San Leon Energy, the Dublin-based oil and gas explorer. Another two are under observation, including Brazil's state oil company Petrobras (which is under scrutiny for alleged corruption).

"Most of the corruption cases come from the industry studies within defence, telecoms and energy. Those three sectors seem to keep us very busy," said Mr Andresen.

"We will, of course, look into other companies, should we be made aware of them."

The Council on Ethics makes recommendations to the central bank on firms which may be in breach of the fund's ethics guidelines. It is now examining 14 corruption cases, including Petrobras.

Based on the council's recommendations, the central bank board instructs the fund's management whether to exclude companies from the fund.

The board can also put firms under observation to allow them to fix the problem. A key factor is the risk that an ethics breach will be repeated in future.

The risk of corruption increases in the energy, defence and telecoms sectors as they more often involve large contracts between parties that can withhold information based on internal national security directives, Mr Andresen said.

© Reuters

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