Norway's Government Pension Fund Global, Oslo, should delegate decisions on divestment to Norges Bank Investment Management, which manages the 3.3 trillion Norwegian kroner ($577.4 billion) fund, according to a set of recommendations in a report released Monday by the Norway Ministry of Finance's Strategy Council on Responsible Investment.
The ministry commissioned the report to strengthen its current responsible investing effort.
“We recommend that (moving) the mandate from the Ministry of Finance to Norges Bank” should include requiring NBIM “to develop and communicate a set of overarching responsible investment principles,” the report said.
“We also recommend that the mandate from the Ministry of Finance requires the bank to conduct research into issues related to responsible investment that may have material effects on portfolio returns,” the council's report said.
“We stress that the ultimate responsibility is to seek the maximum return given moderate risk levels,” the report said. “The fund's responsible investment activities should be directed at value-enhancing activities, and not be a vehicle for political objectives. We do, however, see a need for principles and ethical considerations that may not have financial effects on the fund's performance.”
Among the recommendations, the report said the “responsible investment should be integrated and included in the investment mandate.”
It said “fundamental decisions regarding responsible investment practices should be considered holistically and in tandem with the overall investment approach. In the future, new insights into issues involved with responsible investing may cause the fund to consider changing the portfolio's asset allocation. The strategy council recommends that any such considerations be based on research about the expected effects on portfolio returns.”
The council called for openness and transparency in the funds responsible investing objectives, including environmental, social and governance principles and strategies, clarifying expectations for the companies in which the fund invests or seeks investment, according to a ministry statement about the report.
In addition, the fund should encourage independent research into the impact of ESG investing on portfolio value in the long term.
Currently, the “most common exclusions result from production of certain arms and weapons, tobacco or pornography,” the report said.
Runar Malkenes, head of communications of the ministry, couldn't be reached for comment.
The members of the strategy council are Chairman Elroy Dimson, emeritus professor of finance at the London Business School and visiting professor at Cambridge Judge Business School; Idar Kreutzer, head of Finance Norway, a trade organization; Rob Lake, director of responsible investment at Principles for Responsible Investments and former head of sustainability and governance at APG, manager of the € 293 billion ($392.5 billion) Stichting Pensioenfonds ABP, Heerlen, the Netherlands; Hege Sjo, senior adviser, Hermes Investment Management; Laura Starks, finance professor at the University of Texas and trustee for funds offered by TIAA-CREF.