Norway, North sea oil platform flaring off
A Norwegian oil platform in the North Sea

Norway’s new centre-right government has laid out the biggest structural change in a decade to the country’s sovereign wealth fund by scrapping the ethical council that has excluded the $850bn fund from investing in companies such as Walmart, Boeing and Rio Tinto.

Norway has been seen as a trendsetter by preventing its SWF, which has quintupled in size in the past eight years, from investing in entire industries such as tobacco companies and nuclear weapons producers.

Siv Jensen, Norway’s finance minister, said on Friday that under the new structure the oil fund itself will make the decision whether to stop investing in a company as part of its responsible investment strategy.

The step, endorsing a proposal by a group of experts in November, is the biggest organisational change at the world’s biggest SWF since the council of ethics was founded in 2004. But it disappointed many activists who believe that the exclusion process will become less transparent once it is based within the oil fund, which is managed by an arm of the central bank.

“Every change will always create debate and uncertainty. For me, it is very important that we are actually strengthening the ethical work of the fund,” Ms Jensen told the Financial Times.

An expert panel will be set up to monitor the overall responsible investment strategy and the oil fund will have to give regular reports, justifying its actions including exclusions and use of other “ownership tools” such as engaging with a company’s management.

Samantha Smith, leader of the global climate and energy initiative at WWF, said: “It is hugely disappointing . . . This is the world’s biggest sovereign wealth fund and it has at least in the past tried to portray itself as having some of the most advanced ethical criteria.”

Other companies on the fund’s banned list include Dongfeng Motor for selling weapons to Myanmar, Norilsk Nickel and Vedanta for severe environmental damage, and Walmart for serious human rights violations.

However, despite the scrapping of the ethical council, the new government disappointed activists expecting more radical change after prime minister Erna Solberg raised hopes last month of a big increase in green investments.

Ms Jensen said the fund should nearly double its current investments in renewable sources of energy from the current NKr20bn-NKr30bn ($3.34bn-$5bn) to NKr30bn-NKr50bn. The fund amounted to NKr5,206bn at the end of 2013 and some activists had called for it to invest 5 per cent of its portfolio in green infrastructure.

Ms Jensen’s own sister, Nina, head of the WWF in Norway, accused the government on Twitter of “gigantic broken promises”. Ms Smith added: “They have taken a gigantic step backwards. [The increase] is not very much. We were expecting much more.”

The fund will merely have to state how much it invests in emerging markets and environmentally friendly companies – last year the figures were NKr500bn and NKr180bn respectively.

The growing size of the oil fund – on average it owns 2.5 per cent of every listed company in Europe – has sparked a growing debate in Norway about its objectives. The government has set up an expert group to consider whether the oil fund should pull out of all investments in oil, gas and coal.

It announced on Friday that the group will be headed by Martin Skancke, a former government bureaucrat who once headed the finance ministry’s asset management department, and will include British professor Elroy Dimson.

The government noted, however, that “the most important measure to reduce the state’s oil and gas price risk” is to put its petroleum revenues into the oil fund and thus into “diversified financial investments globally”.

Ms Jensen’s Progress party had recommended setting up three smaller funds as part of its election platform last year. But observers of the oil fund expected Norway’s powerful bureaucracy to water down any attempts at radical reform.

The finance ministry also decided to postpone until next year a decision on whether the fund should become a more active investor after receiving a report about its investment returns from international experts.

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