Sovereign Wealth Funds and the Quest for Sustainability: Insights from Norway and New Zealand
Nordic Journal of Commercial Law, Vol. 2, pp. 1-27, 2011
28 Pages Posted: 15 Dec 2011
Date Written: 2011
An important trend in global financial markets is the growth of sovereign wealth funds (SWFs), some of which purport to invest ethically by considering the social and environmental impact of their financing. Yet, like private investors, these funds primarily view themselves as financial institutions interested in enhancing investment returns. A significant tension, therefore, may emerge between the ethical and financial expectations of SWFs.
This article investigates two contrasting cases, the Norwegian Government Pension Fund - Global (NGPF-G) and the New Zealand Superannuation Fund (NZSF), in order to evaluate how they address any tensions between being both virtuous and prosperous. These SWFs have legislative mandates to invest ethically, and have been hailed by some researchers as having among the most progressive approaches in this area. But neither fund yet manages its entire portfolio comprehensively to promote sustainable development, and disseminate socially responsible investment (SRI) norms and practices. Some interesting research has begun to measure the cost of environmental externalities to these "universal investors."
In comparing how these SWFs attempt to reconcile their ethical and financial aspirations, the article highlights the importance of governance frameworks. While there are some salient differences in how each SWFs is governed, each has, especially in their early years, focused on avoiding complicity in unethical conduct or social and environmental harm. This stance represented a rather narrow approach to ethical investment, which limited the capacity of these SWFs to promote environmentally sustainable development. More recently, both funds have begun to accept the business case for SRI, and reconceptualised ethical investment as a means of promoting long-term financial returns. But neither the NGPFG nor the NZSF is mandated to actively promote sustainable development or to seek improvements in corporations’ sustainability performance. In the future evolution of SWFs, the creation of explicit duties to invest in sustainability is perhaps the next logical step if they are to play their role in steering the global economy towards sustainability.
Keywords: Norway, New Zealand, socially responsible investment, sovereign wealth funds, ethical investment, legal frameworks
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