Addressing Climate Change Through the Norwegian Sovereign Wealth Fund (SWF) - Using Responsible Investments to Encourage Corporations to take ESG Issues into Account in their Decision-Making
46 Pages Posted: 21 Nov 2010 Last revised: 13 May 2013
Date Written: November 21, 2010
The Norwegian Government Pension Fund - Global (GPFG), a sovereign wealth fund (SWF), was set up in 1990 to ensure that the country’s oil wealth can benefit all generations of Norwegians. This long term goal is to be reached in accordance with sustainable development principles, taking into account economic, social, and environmental concerns. In 2004 the Norwegian Parliament adopted ethical guidelines for the GPFG, specifically prohibiting investments that would put the fund at risk of contributing to systematic human rights violations, serious environmental damage, and gross corruption. The GPFG recently underwent an evaluation process. The Norwegian Government has now decided to focus more on environmental, specifically climate change issues, and has established an environmental investment program, which will focus on companies developing climate friendly energy and is considering a new investment program for development in emerging markets.
Taking into account the long term nature of the GPFG, the government has initiated a study to analyze the effects climate change will have on the financial markets. In addition, it has set out to focus on companies’ impact on climate change, recognizing that if they emit large amounts of greenhouse gases (GHGs) it will entail a cost in the future, thus bringing down the rate of return for the GPFG. In that context, the Norges Bank Investment Management (NBIM), the entity established by the Norwegian Central Bank (Norges Bank) to manage GPFG, has published a document, NBIM Investor Expectations on Climate Change Management outlining their expectations of companies where the GPFG invests in order to strengthen its active ownership effort.
The purpose of this paper is to examine how the Norwegian government is trying to resolve the challenge of balancing financial returns with sustainable development in regulating the GPFG and the possibility of applying this model to other sovereign wealth funds (SWFs) and institutional investors in general. Also, I posit that sustainable development needs to be included in the newly adopted Generally Accepted Principles and Practices (GAPP/ Santiago Principles) for SWFs. Furthermore, I also argue that this effort will encourage the corporations in which the SWFs are investing, especially multinationals, to take environment, social, and governance (ESG) issues into account into their decision-making process.
This paper was presented at the first Sustainable Companies workshop in Oslo in January 2010, and is forthcoming in the second of two Sustainable Companies special issues of the International and Comparative Corporate Law Journal.
Keywords: Sovereign wealth fund, norwegian government pension fund global, santiago principles, sustainable development, sustainable companies
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