All the parties in the Storting have reached agreement that the GPFG will no longer invest in coal companies. The Government has now been requested to invite Norges Bank and the Council on Ethics for guidance in preparing the criteria for the withdrawal.
Translation of the Recommendation 290 S (2014-2015):
1.1 Investments and use of policy mechanisms in coal and petroleum companies
On 4 April 2014 the Ministry of Finance appointed an expert group whose remit was to assess the Norwegian Government Pension Fund Global’s (GPFG) investments in coal and petroleum companies and the use of policy mechanisms relating to such companies.
The expert group’s remit made reference to Recommendation 141 S (2013–2014) and the Storting’s consideration of this. The expert group was invited to assess whether the exclusion of coal and petroleum companies from the GPFG would be a more effective strategy when addressing climate issues and contributing to change in the future than active ownership and engagement. The group was also asked to provide guidelines regarding possible criteria for the exclusion of this kind of company.
Economist Martin Skancke chaired the group’s work. He was assisted by Professor Elroy Dimson (London Business School), Professor Michael Hoel (University of Oslo), Dr Magdalena Kettis (Global Child Forum), Dr Juris. Gro Nystuen (International Law and Policy Institute) and Professor Laura Starks (University of Texas, USA).
The expert group has had meetings with Norges Bank, the Council on Ethics and Folketrygdfondet. It has also met experts within the fields of climate change, economics and finance. In June 2014, the group arranged an open meeting with other interested parties in order to hear their views. A number of follow-up meetings were held in August 2014. Presentations given by the participants at these meetings and selected researchers are available on the Ministry’s website.
The group published its report on 3 December 2014. The report was sent out for consultation on 17 December 2014 with a deadline of 6 February 2015. The Ministry has received a total of 27 responses. Reference is made to the report for more detailed consultative comments.
1.1.2 The committee’s remarks
The committee has taken the consultative comments into consideration.
The committee refers to the report from the expert group that assessed the GPFG’s investments in coal and petroleum companies and active ownership relating to such companies. The committee underlines that there is broad political consensus regarding the financial objectives of the GPFG’s investments, that the fund has a long-term perspective, and that good long-term returns are dependent on sustainable development in economic, environmental and social terms. The fund must not be a climate policy or foreign policy instrument.
The committee notes that efforts to ensure responsible investment are an integral part of the management of the fund. The committee notes that in its follow-up of the expert group’s report the Government supports the group’s recommendations, including the proposal to introduce a new conduct-based criterion for the observation and exclusion of companies whose activities on an aggregate company level entail unacceptable degrees of climate gas emissions. The committee supports the introduction of the new conduct-based criterion, and the further work to follow up the expert group’s report to improve and reinforce the fund’s efforts in responsible investment and active ownership. The committee has noted that the new criterion will be independent of line of business or sector and of type of greenhouse gas, and that it will be able to take into account the fact that norms within this area may change over time.
The committee has noted that Norges Bank has developed over time its efforts to integrate relevant considerations relating to the risks associated with climate change in the investments of the GPFG. The bank has already implemented several of the changes put forward in the expert group’s report, and published its own report on responsible investment in Q1 2015. The committee has also noted that, within the limits of divergence permitted in the benchmark, Norges Bank has made adjustments to the portfolio based on risk assessments, relating inter alia to climate and environmental considerations. The committee supports the work Norges Bank has done regarding reporting and transparency in the fields of responsible investment and active ownership.
The committee notes that financial risk resulting from climate change is an area with the potential to have a systematic impact on the fund’s portfolio, and has noted that Norges Bank intends to increase its analysis-based work in this area. The committee has further noted that the Ministry of Finance will request Norges Bank to conduct and report on a specific risk-based review of the portfolio companies whose involvement in coal extraction, coal power generation or coal-based energy conversion represents a significant part of their business.
The committee notes that the criteria in the guidelines for the observation and exclusion from the GPFG are ethically motivated. The committee is of the view that there are ethical aspects connected with the operations of a number of coal companies within mining and power production. The committee believes in light of this that a separate product-based criterion in the guidelines for the observation and exclusion relating to such companies is advisable. This comes in addition to the new, conduct-based criterion that would not be restricted to specific sectors. The committee requests the Government to put forward in the National Budget for 2016 concrete proposals on how the following considerations may be taken care of by means of a new product-based criterion in the guidelines for observation and exclusion:
- As its point of departure the criterion should cover mining companies and power producers for whom a significant part of their business relates to coal used for energy purposes. The committee requests the Government to invite Norges Bank and the Council on Ethics to assess how such a criterion may most suitably be delimited and operationalized. Coal power companies and mining companies who themselves or through other operations they control base 30% or more of their activities on coal, and/or derive 30% of their revenues from coal, should as a rule fall under the essentiality principle. The committee is of the view that the practice of the new product-based criterion should also be developed over time, based inter alia on changes in energy production and technological advances. In this connection the exclusion of new products for activities/sectors other than those mentioned above has not been considered.
- It is assumed that the decisions made by Norges Bank’s executive board based on the new criteria will be published in accordance with the same rules as for existing product- and conduct-based exclusion.
- The changes to the mandate of the management of the GPFG and the new guidelines for observation and exclusion that came into force on 1 January 2015 are designed to create a comprehensive policy mechanism chain and to increase the degree of integration in efforts in responsible investments. Arrangements should also be made to form a policy mechanism chain for the new product-based criterion, something that has not been done for existing product-related criteria relating to arms and tobacco. This entails inter alia that importance should be attached to forward-looking assessments relating to new product-based criteria, including companies’ plans that would change the share of coal-related activities and the share of activities relating to renewable energy sources.
- The criterion must be viewed in relation to the new conduct-based criterion.
- The aim of the ethically motivated criteria in the guidelines for observation and exclusion must still be to reduce the risk of the fund being invested in companies that contribute to, or are themselves responsible for, gross violations of ethical norms.
The committee is under the assumption that efforts will be made to implement the above by 1 January 2016 at the latest. The committee requests that the Government accounts for experience of the new criteria in the white paper on the management of the Government Pension Fund in 2016, which will be put forward in spring 2017, at the same time as the previously notified statement on collective efforts in the treatment of financial risk resulting from climate change in the management of the fund.