The Norwegian Ethical Council Example

29Jun10

Ms. Lund from the Norwegian Ethical Council has kindly sent this outline of her speech at the recent conference on governmental ethical investment. It explains the methods and reasons behind the Norwegian system.

Ms. Lund outlined the Norwegian system and its challenges. The Ministry of Finance uses a number of different instruments to promote its goals as a responsible investor: Active ownership, exclusion of companies, international collaboration and contribution to the development of best practice, research and investigations and targeted investment programmes. The Norwegian Fund has outlined several goals for responsible management i.a to promote good corporate governance and greater awareness of social and environmental issues among companies and to avoid investments in companies that engage in grossly unethical activities. Ms. Lund said that in the Norwegian discussion a sound return on the investments was seen as an important ethical obligation as future generations should also benefit from the oil wealth.

Whereas active ownership is the main instrument to promote change in companies, exclusion is the main instrument to avoid investments in companies that fall below a certain standard. In the choice between promoting change through active ownership or excluding companies, Ms. Lund believed that active ownership was the best option provided that change was possible. But in some cases exclusion is probably the only option to achieve “clean hands”. The Norwegian Fund does for instance have a screen on certain weapons and tobacco. The Fund may also exclude companies that contribute to serious violation of human rights, gross environmental degradation, gross corruption, gross violation of individual’s rights in war and conflict situation or other particularly serious violations of ethical norms.

Ms. Lund said that the manager of the Fund (NBIM) focuses its active ownership strategies on areas where ethical and financial considerations pull in the same direction, and she mentioned the expectation documents NBIM has published on climate change, child labour and water management. Companies at risk are made aware of the Fund’s expectations and are ranked according to certain criteria. She spoke of the need to focus, be realistic and precise. There was no point in aiming to change everything, or demanding the impossible.

The Council on Ethics is tasked with recommending to the Ministry of Finance the exclusion of companies according to the criteria above. As the aim is not to contribute to gross violations of ethical norms, the assessment is forward looking. While not ignoring past behavour, their main concern is the future behavour of a company. The recommendations of the Council are publicly available stating the reasons to exclude a company and the sources of information. Ms. Lund believes that the publication of these reports has a considerable influence. While these reports are not binding, they allow an informed and well researched view to be given to activists and investors in all forms. . Ms. Lund emphasized the importance of regulations and international cooperation. The states have the responsibility to protect human rights and to develop environmental standards, not investors. But investors can contribute to the respect for the standards generally agreed upon.

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