Resource Wealth and the Ethics of Global Investment: The Legitimacy and Governance of Norway’s Sovereign Wealth Fund

Abstract:     
The Norwegian Government Pension Fund-Global is one of the world’s largest sovereign wealth funds and is one of the most transparent institutions of its type. It also has an explicit mission aimed at integrating long-term investment return objectives with a two-sided ethical commitment: to corporate engagement according to accepted principles of best-practice corporate governance and to ensuring that the fund is not associated with companies that pose a risk to social and environmental justice. As such, the Norwegian fund has an ethical mandate — a remarkable fact when compared to other sovereign wealth funds. In this paper, we argue that this mission is best understood in terms of procedural rather than substantive justice. The contrast drawn is between a function-based conception of the design and implementation of the investment process and an outcomes-based or substantive conception of the proper purpose of investment. This argument is developed with reference to recent work on the nature of state authority and legitimacy in democratic societies, the logic of best-practice investment management, and the functional integration of decision-making. To illustrate, the paper focuses on the nature and significance of the recommendations from the advisory Council of Ethics and the exercise of powers related to corporate governance. Implications are drawn for understanding the limits of sovereign wealth funds seeking to give global effect to national sentiments.

Keywords: resource wealth, Norway, democracy, ethics, investment, sovereign wealth fund

JEL Classifications: G23, G24, L12

Working Paper Series