Norway’s oil fund invests in an ethical, sustainable future

NOK 9 trillion and counting

oil fund

Photo: Knudsens Fotosenter DEXTRA / Wikimedia Commons
Photo of boat by the oil platform Eldfisk Blokk 27 in the North Sea. Ekofisk is the field operator with Phillips. On Dec. 23, 1969, the largest offshore oil field was found here. Fifty years later, Norway’s revenues from oil and gas have been invested in a sovereign oil fund to sustain the welfare state for current and future generations. It has reached $1 trillion in assets.
Group no. 53-50-01-00 Picture no. 439767
Eldfisk oljeplatform
Ekofisk feltet – operatør Phillips
blokk 2/7 FTP Nordsjøen

Rasmus Falck
Oslo, Norway

The Norwegian oil adventure started the day before Christmas Eve, 1969, when the country found oil in the North Sea. The Ekofisk was the largest oil field ever found at sea. In the early 1980s, Norway discussed how the country’s oil wealth should be used. Former Norges Bank Governor Hermod Skånland proposed creating a fund where the government could store the current temporary rush of oil revenue and spend only the real return. Later, Stortinget passed a law to establish the oil fund, so that all assets are invested abroad to avoid overheating the Norwegian economy.

Today, the oil fund, also known as Government Pension Fund Global, is the world’s largest sovereign fund, with over $1 trillion in assets. The closest fund in size in a democratic country is the U.S. Social Security trust fund. In this year’s quarterly report, the value of the oil fund passed NOK 9 trillion, which is close to $200,000 per Norwegian citizen. Last quarter was the best ever for the fund in Norwegian currency, with a return of 9.1%. The tech sector and the stock market in the United States gave the best results. The fund has invested in more than 9,000 listed companies in 73 countries in three investment areas: equities, bonds, and real estate. It has been managed by Norges Bank Investment Management (NBIM), whose CEO is Yngve Slyngstad, since 1998.

The fund’s purpose is to help finance the Norwegian welfare state for future generations and is therefore dependent on sustainable development for a long-term return. Ethical guidelines have been in place since 2004. Norwegians do not wish to invest in equities of companies that produce tobacco and certain types of weapons or companies that have serious violations of human rights during war or produce severe environmental damage.

The guidelines are handled by the Council on Ethics appointed by the Ministry of Finance with input from NBIM and Stortinget. They believe that ethical values should be exercised as part of the ownership work. Therefore, they vote at general meetings and engage directly with companies’ boards and management. They also do negative screening and exclusion of companies. The fund is limited to owning 5% voting share in any company but is an active voter, routinely voting against what it sees as unethical behavior, such as inflated compensation for CEOs, and for equity among shareholder classes.

The fund has been different from its start. It is one of the few sovereign wealth funds in a democracy. The fund has put ethical issues at the heart of what it does. It made headlines when it banned business giant Walmart from its portfolio for alleged violations of human rights. The exclusion of one of America’s largest employers in 2006 drew heavy criticism from U.S. Ambassador Benson K. Whitney.

In 2015, it was decided to sell out of any mining company or power producer that derived more than 30% of its revenues or operations from coal. Textile companies were excluded in 2018 because of use of child labor. The exclusion strategy has been criticized by the new four-party government. Some want to avoid new sectors being excluded too frequently, arguing that the fund could be used more for political purposes than financial ones. There might be a possibility of adding gaming and betting and even oil and gas to the exclusion list in the near future. This might appear surprising for a fund that derives its wealth from oil and gas. Therefore, Stortinget has asked for an expert commission to evaluate the fund’s ethical investment policy.

Former Prime Minister (2000-2001, 2005-2013), Finance Minister (1996-97), and current NATO Secretary General Jens Stoltenberg said a key to the fund’s success has been the ability to reach consensus around the management of the revenues.

“We all understood the fund was going to be very important for Norway and the Norwegian economy,” he says in a video on the NBIM website. “It was going to be a great challenge to protect the fund and avoid using too much money too fast. At the same time, we also underestimated how big the fund was going to be. We underestimated how successful we would be in managing the funds. Many experts told us it was naïve to believe a democratic society and system could manage such big cash flow in a sustainable and responsible way. The experience so far in Norway is that we have been able to do that.

“One main reason for why there is broad consensus in Norway in how we are managing the oil and gas revenue is that we have seen so many other countries that have not been able to manage these kind of revenues in a sustainable and responsible way. We would very much like to avoid what happened in other countries, spending money too fast. That is the main reason we’ve been able to establish broad, political consensus in Norway.”

Work ethics is a fundamental principle in Rotary. At a recent meeting in Oslo, Rotary Club Professor at Law Hans Christian Bugge, a member of the oil fund council on ethics, gave a presentation on the ethical work in the oil fund. He said that they hope through their work that they are contributing to developing and improving standards for whole business sectors.

Rasmus Falck is a strong innovation and entrepreneurship advocate. The author of “What do the best do better” and “The board of directors as a resource in SME,” he received his master’s degree from the University of Wisconsin-Madison. He currently lives in Oslo, Norway.

This article originally appeared in the June 14, 2019, issue of The Norwegian American.

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Rasmus Falck

Rasmus Falck is a strong innovation and entrepreneurship advocate. The author of “What do the best do better” and “The board of directors as a resource in SME,” he received his masters degree from the University of Wisconsin-Madison. He currently lives in Oslo.