Presentation ukrainian delegation 10 june 2011


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Presentation ukrainian delegation 10 june 2011

  1. 1. Norwegian Government Pension Fund Global Head of Secretariat Eli Lund Senior Executive Officer Pablo Valverde (Secretariat of the Council on Ethics)
  2. 2. <ul><li>Overview </li></ul><ul><li>Brief introduction to the Norwegian Government Pension Fund Global (NGPFG) </li></ul><ul><li>Ethics and the NGPFG </li></ul><ul><li>Example and questions </li></ul>
  3. 3. The Norwegian Government Pension Fund Global
  4. 4. The Government Pension Fund Global <ul><li>Set up in 1990 as a fiscal policy tool to support the long-term management of Norway’s petroleum revenue. </li></ul><ul><li>Serves a number of purposes: </li></ul><ul><ul><li>Provides stability against fluctuations in oil price </li></ul></ul><ul><ul><li>Prevents the economy from overheating </li></ul></ul><ul><ul><li>Saves money for future generations </li></ul></ul><ul><li>Is an integrated part of the government’s annual budget. </li></ul><ul><ul><li>Capital inflow: all government petroleum revenue minus financial transactions related to petroleum activities. </li></ul></ul><ul><ul><li>Capital outflow: the real return of the fund, estimated at four percent, used to balance the state’s non-oil budget deficit. </li></ul></ul>
  5. 5. Governance and transparency <ul><li>The Fund belongs to the Norwegian people through the Parliament and the Ministry of Finance. The Ministry is the owner of the actives. </li></ul><ul><li>The Fund is managed by the Central Bank (NBIM) </li></ul>Parliament Ministry of Finance NBIM Mandate and control Results and reports
  6. 6. Ethics and the NGPFG Two main ethical obligations <ul><ul><li>The obligation to ensure sound financial returns so that future generations will benefit from the petroleum wealth. </li></ul></ul><ul><ul><ul><li>- The Fund shall achieve a sound return in the long term. </li></ul></ul></ul><ul><ul><li>The obligation to respect the fundamental rights of those who are affected by the companies in which the Fund is invested. </li></ul></ul><ul><ul><ul><li>- The Fund shall avoid being invested in companies which are or will be complicit in grossly unethical activities. </li></ul></ul></ul>
  7. 7. 1) Exercise of ownership rights 2) Negative screening 3) Exclusion/Observation Norges Bank (the Central Bank) Council on Ethics Ethics and the NGPFG A three-pronged strategy <ul><li>Ministry of Finance </li></ul><ul><li>The owner of the Fund </li></ul><ul><li>Implements the Guidelines </li></ul><ul><li>Takes final decision on the exclusion/observation of companies </li></ul><ul><li>Norges Bank </li></ul><ul><li>Investment Management </li></ul><ul><li>Manages the Fund </li></ul><ul><li>Council on Ethics </li></ul><ul><li>Gives advice to the Ministry </li></ul><ul><li>on exclusions and observations </li></ul><ul><li>Corporate Governance Group </li></ul><ul><li>Engagement with companies </li></ul><ul><li>Exercise of ownership rights </li></ul><ul><li>Secretariat </li></ul><ul><li>Assists the Council in investigating </li></ul><ul><li>allegations against companies in the fund. </li></ul>
  8. 8. Ethics and the NGPFG Exercise of ownership rights (NBIM) <ul><li>Strategic focus areas </li></ul><ul><ul><li>Equal treatment of shareholders </li></ul></ul><ul><ul><li>Shareholder influence and board accountability </li></ul></ul><ul><ul><li>Well-functioning, legitimate and efficient markets </li></ul></ul><ul><ul><li>Children’s rights </li></ul></ul><ul><ul><li>Climate change management </li></ul></ul><ul><ul><li>Water management </li></ul></ul><ul><li>Different tools </li></ul><ul><ul><li>Expectations documents </li></ul></ul><ul><ul><li>Voting rights </li></ul></ul><ul><ul><li>Dialogue with companies </li></ul></ul><ul><ul><li>Cooperation with other investors </li></ul></ul>
  9. 9. Exclusion from the investment universe The assets in the Fund shall not be invested in companies which themselves or through entities they control : The assets of the Fund shall not be invested where there is an unacceptable risk that the company contributes to or is responsible for : Ethics and the NGPFG Exclusion and negative screening Serious or systematic human rights violations; Serious violations of the rights of individuals in situations of war or conflict; Severe environmental damage; Gross corruption; or Other particularly serious violations of fundamental ethical norms. Produce weapons that violate fundamental humanitarian principles through their normal use; Produce tobacco; or Sell weapons or military material to certain states (at present Burma). Exclusion (negative screening) based on products (Jan. 2011: 37 companies) Exclusion based on conduct (Jan. 2011: 14 companies)
  10. 10. <ul><li>Observation may be recommended if there is doubt as to whether the conditions for exclusion have been fulfilled, uncertainty about how the situation will develop, or if it is deemed appropriate for other reasons. Regular assessments shall be made as to whether the company should remain under observation. </li></ul>Ethics and the NGPFG Observation
  11. 11. 1) Identification of companies potentially violating the ethical guidelines Ethics and the NGPFG A typical assessment process 2) Selection of companies for an initial assessment 3) An in-depth assessment of companies 4) Recommendation for exclusion or observation New recommendation: Company re-included or observation removed Company remains excluded or under observation (no recommendation) 5) Regular follow-up to assess if basis for exclusion or observation remains Ministry makes decision News monitoring Suggestions by organisations or others Requests from Ministry Council’s own initiative Severe and systematic violations? Company responsibilities? Credible information? Draft recommendation sent to company Likely future situation? Dialogue with company Assistance by consultants / experts Establish and quality check ‘all’ the facts Central Bank (NBIM) given two months to sell securities, after which recommendation and decision is made public
  12. 12. Excluded companies <ul><li>For producing weapons that are contrary to basic humanitarian principles: 18 </li></ul><ul><li>For producing tobacco: 18 </li></ul><ul><li>For selling military material to Burma: 1 </li></ul><ul><li>For severe environmental damage: 10 </li></ul><ul><li>For serious violations of human rights: 2 </li></ul><ul><li>For violating basic ethical norms: 1 </li></ul><ul><li>For serious violations of the rights of individuals for situations of war or conflict: 2 </li></ul><ul><ul><li>There is also a company under observation for extensive use of corruption </li></ul></ul>
  13. 13. Example: Corruption and the NGPFG <ul><li>(3)   The Ministry of Finance may, on the advice of the Council of Ethics , exclude companies from the investment universe of the Fund if there is an unacceptable risk that the company contributes to or is responsible for : </li></ul><ul><ul><li>a) serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour, the worst forms of child labour and other child exploitation; </li></ul></ul><ul><ul><li>b) serious violations of the rights of individuals in situations of war or conflict; </li></ul></ul><ul><ul><li>c) severe environmental damage; </li></ul></ul><ul><ul><li>d) gross corruption; </li></ul></ul><ul><ul><li>e) other particularly serious violations of fundamental ethical norms. </li></ul></ul>
  14. 14. Corruption and the NGPFG Siemens <ul><li>Definition used: </li></ul><ul><li>“ Gross corruption exists if a company, through its representatives, </li></ul><ul><ul><li>gives or offers an advantage – or attempts to do so – in order to unduly influence : </li></ul></ul><ul><ul><ul><li>i) a public official in the performance of public duties or in decisions that may confer an advantage on the company ; or </li></ul></ul></ul><ul><ul><ul><li>ii) a person in the private sector who makes decisions or exerts influence over decisions that may confer an advantage on the company, and </li></ul></ul></ul><ul><ul><li>b) the corrupt practices as mentioned under letter a) are carried out in a systematic or extensive way.” </li></ul></ul>
  15. 15. <ul><li>Difficult to document </li></ul><ul><li>Difficult to tie specific allegations to company policy </li></ul><ul><li>Difficult to determine the risk of future violations taking place </li></ul><ul><li>Difficult to establish that it is systematic or extensive </li></ul>Corruption and the NGPFG Challenges in evaluating corruption
  16. 16. Corruption and the NGPFG Siemens <ul><li>The Council on Ethics recommended that the company be excluded from the Fund </li></ul><ul><li>The Ministry of Finance decided to put the company under observation </li></ul><ul><li>The Council on Ethics checks yearly on the company and reports to the Ministry. </li></ul>
  17. 17. <ul><li>The Ethical Guidelines and all recommendations in full text (English) are publicly available at: </li></ul><ul><li> </li></ul><ul><li>Questions/Comments: </li></ul><ul><li>[email_address] </li></ul>