Sovereign Investing and Markets-Based Transnational Rule of Law Building: The Norwegian Sovereign Wealth Fund in Global Markets

Coalition for Peace & Ethics Working Paper No. 11/11

American University International Law Review, Vol. 29 p. 1 (2013)

103 Pages Posted: 19 Nov 2012 Last revised: 26 Feb 2014

See all articles by Larry Catá Backer

Larry Catá Backer

The Pennsylvania State University (University Park) – Penn State Law

Date Written: December 1, 2013


States, like non-state actors, are increasingly participating in markets. In the form of sovereign wealth funds (SWFs), states project economic power beyond their borders. But some states also use private market activities abroad to transform the way they can project their own legal regimes beyond their territories, and in the process, contribute to a fundamental re-orientation of the relationship between state, market, and law. This study considers the way in which SWFs seek to govern (rather than the way in which they may be regulated), by closely examining the Norwegian sovereign wealth fund (NSWF), one of the most comprehensive of such projects. Part I provides an introduction, introducing the concept of “responsible investing” in the context of sovereign investing, and its implications for coordinated governance between traditionally public and private regulatory (and market) zones. Part II turns to a description of the legal and regulatory framework within which the NSWF is organized. Parts III and IV explore the two forms in which “responsible investing” is structured and applied by NSWF. Part III examines the development and use of “active ownership” principles as an important element of responsible investing, and the functional consequences of using share ownership as a basis for advancing public policy one enterprise at a time. Part IV turns to the use of “responsible investing” as a basis for influencing rules for access to capital markets by constraining the NSWF’s investment universe. The focus here is on the construction of a legal code of investment (the NSWF Ethics Guidelines) within which investment decisions assume a political as well as economic character, the application of which is overseen by a quasi-judicial body — the NSWF Ethics Council constituted to interpret and apply it. The emerging jurisprudence of the Ethics Council is then considered as a reflection of the legalism and juridification of responsible investing. Part V then considers the governance implications of the market activities of the NSWF. Norway has provided an architecture of governance that sits astride the borders of market and state, of public and private and of national and international. Undertaken through its sovereign wealth fund, Norway is seeking not merely to project public wealth into private global markets, but also to construct a complex rule-of-law centered framework that blends the imperatives of a state based public policy with a rules based governance system that incorporates domestic and international norms. To this Norway adds a policy-oriented use of traditional shareholder power to affect the behavior and governance of companies in which the Fund has invested. The object is not merely to maximize the welfare of the funds ultimate investors, the people of Norway (through its state apparatus), but also to use the NSWF to advance public policy in the international sphere and within the domestic legal systems of other states. Private power is deployed toward the ends of public governance; public power is deployed in turn toward the ends of private governance across the global marketplace for corporate ownership; markets become sites for legislation. The NSWF is evidence of a new form of complex and cooperative regulation, one in which the state itself serves as a nexus point for the domestication of international norms and its internationalization through projections of governance power in private markets. Sovereign investing through the NSWF is helping to develop two-way engagements between international public and private institutional law and private norm making that conflates public governance and private value maximization in new and flexible ways. The effects on the legal and governance landscape beyond the state may be considerable.

Keywords: sovereign wealth funds, markets, active shareholding, ethics council, investment universe, responsible investment, sovereign investment

JEL Classification: F02, F21, G15, K33

Suggested Citation

Backer, Larry Catá, Sovereign Investing and Markets-Based Transnational Rule of Law Building: The Norwegian Sovereign Wealth Fund in Global Markets (December 1, 2013). Coalition for Peace & Ethics Working Paper No. 11/11, American University International Law Review, Vol. 29 p. 1 (2013), Available at SSRN:

Larry Catá Backer (Contact Author)

The Pennsylvania State University (University Park) – Penn State Law ( email )

Lewis Katz Building
University Park, PA 16802
United States

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