Report: Norway’s SWF Falls Short on Sustainability

Stockholm (NordSIP) – Sustainable investment is all well and good, but what to make of investors benefiting from risk/return calculations on sustainability where its ethical and political dimensions are subtracted from the equation?

This is one of many questions arising from a new critical report on Norway’s €829 billion sovereign wealth fund from the think tank Re-Define. The report argues that despite strong policies (on paper) on sustainability and climate change, the oil fund needs to “learn from its peers and significantly enhance its approach to managing climate risk and investing sustainably, based on rigorous risk/return considerations.”

The report, written by Sony Kapoor and Linda Zelina and co-sponsored by Norwegian Church Aid, reserves especial criticism for the government mandate for the investment management division of Norges Bank (NBIM), which manages the Government Pension Fund Global (GPFG), alongside the implementation of the mandate by the NBIM itself. In particular, the authors claim the use of the FTSE Global All Cap Index as the benchmark mandated by the Finance Ministry undermines the government mandate, and should be replaced by ethical benchmarks or low carbon indices.

The report also suggests Norges Bank can also do more with the existing mandate, such as taking a stance on carbon pricing, performing carbon stress tests on its portfolio and applying standards it expects of third party asset managers to itself. Other policy recommendations include a less restrictive stance from the ethics council when applying conduct criteria and that the GPFG join investor coalitions formed to address ESG challenges.

The central recommendation of the report is the establishment of a new fund – “Global Pension Fund – Growth”, whose main objective would be to invest in assets beyond liquid equirt and bonds, and real estate, such as in developing countries. Considering the challenges involved in this, cooperation with actors such as the International Finance Corporation and bilateral finance institutions such as Norfund is suggested.

The report is published amid an election campaign in Norway that has re-awoken debate as to how the GPFG is run. Read the report here.

Image: (c) Dieter Schütz-pixelio.de