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ESG

Ethics council identifies 11 companies in 2017 for Norway’s sovereign wealth fund to exclude

The ethics council of Norway's Government Pension Fund Global, Oslo, assessed 149 companies in 2017, resulting in exclusion recommendations for 11 companies.

The council on ethics, which evaluates whether or not the 8.2 trillion Norwegian kroner ($1.05 trillion) sovereign wealth fund's investments in companies are consistent with its ethical guidelines, issued 10 recommendations to exclude a total of 11 companies in 2017. In 2016, the council assessed 162 companies, issuing nine recommendations.

The most assessments in 2017 related to human rights, at 56 of the total 149 companies assessed , followed by weapons at 33. Environmental criteria was assessed in 33 cases, environment and human rights in 13 cases, and nine assessments related to corruption. Eight cases related to climate and the remaining three cases were assessed based on other serious violations, said the council's annual report of its work.

On the basis of its recommendations, Norges Bank said one company had been excluded, one was readmitted and four had been placed under observation over the year. The fund exercised its influence as a shareholder to engage with a further two companies.

As of Dec. 31, 64 companies had been excluded from GPFG's investment universe, vs. 66 a year earlier. The report said this was a result of two companies being delisted.

However, already in 2018 Norges Bank has decided to exclude a further nine companies and place one under observation. As of March 1, 73 companies have been excluded and seven are under observation based on recommendations by the council.

In 2017, the council launched a review of companies that sell ships to be broken up for scrap in Bangladesh and Pakistan, said the report. Exclusions based on this process — known as beaching — totaled four in 2017 and one company was placed under observation "on the grounds that their activities represent an unacceptable risk of contributing to both human rights violations and serious environmental damage," said the report. "This work continues in 2018."

The council said it will also continue its work with textiles and garment manufacturers this year.

The fund's 2017 risk and return report said its product-based exclusions, relating to companies that produce tobacco or weapons that violate fundamental humanitarian principles, have reduced the cumulative return on the equity index by about 2.4 percentage points, or 0.1 percentage points on an annualized basis for the period​ 2006 to 2017. "Both the exclusion of tobacco companies and certain weapons manufacturers have reduced returns," said the report.

A separate exclusion criterion relates to conduct of companies, where there is an "unacceptable risk of conduct that contribute to serious or systematic human rights violations, serious violations of the rights of individuals in situations of war or conflict, severe environmental damage, gross corruption or other serious violations of fundamental ethical norms." Conduct-based exclusions have increased the cumulative return on the fund's equity index by about 0.9 percentage points, or 0.04 percentage points on an annualized basis for the same period.