Government Pension Fund of Norway

The Government Pension Fund Global

The Government Pension Fund Global (Norwegian: Statens pensjonsfond Utland, SPU) is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. The fund changed name in January 2006 from its previous name, The Petroleum Fund of Norway. The fund is commonly referred to as The Oil Fund (Norwegian: Oljefondet).

As of the valuation in June 2011, it was the largest pension fund in the world, but it is not a pension fund in the conventional sense as it derives its financial backing from oil profits, not pension contributions. As of January 2017 its total value is NOK 7.5 trillion (USD 878 billion), holding 1.32 percent of global equity markets. With 2.33 percent of European stocks, it is said to be the largest stock owner in Europe.

The purpose of the petroleum fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, generated mainly from taxes of companies but also payment for license to explore as well as the State's Direct Financial Interest and dividends from the partly state-owned Statoil. The current revenue from the petroleum sector is estimated to be at its peak period and to decline in the future decades. The Petroleum Fund was established in 1990 after a decision by the country's legislature to counter the effects of the forthcoming decline in income and to smooth out the disruptive effects of highly fluctuating oil prices.

Management and size

The domestic fund, the Government Pension Fund Norway, is managed by the Folketrygdfondet. The global investment fund is managed by Norges Bank Investment Management (NBIM), part of the Norwegian Central Bank on the behalf of the Ministry of Finance. It is currently the largest pension fund in Europe and is larger than the California public-employees pension fund (CalPERS), one of the largest public pension funds in the United States. In a parliamentary white paper in April 2011, the Norwegian Ministry of Finance forecast that the fund would reach NOK 4.3 trillion ($717 billion) by the end of 2014 and NOK 6 trillion ($1 trillion) by the end of 2019. According to the forecast the 2030 value of the fund would be NOK 7.4 trillion ($1.3 trillion). A worst-case scenario for the fund value in 2030 was forecast at NOK 2.7 trillion ($455 billion), a best case scenario at NOK 19.6 trillion ($3.3 trillion). By May 2, 2016, the value of the fund was NOK 7.0 trillion ($873 billion).

Since 1998, the fund has been allowed to invest up to 40 percent of its portfolio in the international stock market. In June 2009, the ministry decided to raise the stock portion to 60 percent. In May 2014, the Central Bank governor proposed raising the rate to 70 percent. The Norwegian government planned that up to 5 percent of the fund should be invested in real estate, beginning in 2010. A specific policy for the real estate investments was suggested in a report the Swiss Partners Group wrote for the Norwegian Ministry of Finance. The fund's current investment strategy dictates 60% equities, 35% fixed income, and 5% real estate. Of the fixed income sector, 70% is invested in bonds issued by governments and 30% is issued by the corporate sector.

Norway's sovereign wealth fund is taking steps to become more active in company governance. In the second quarter of 2013, the sovereign fund voted in 6,078 general meetings as well as 239 shareholder proposals on environmental and social issues. Norway's Government Pension Fund Global (GPFG) has the potential to influence the corporate governance market in Europe, and possibly China as well, greatly. It has also started to become active in pushing for lower executive pay.

Debate

As a result of the large size of the fund relative to the low number of people living in Norway (5.1 million people in 2014), the Oil Fund has become a hot political issue, dominated by three main issues:

The Ethical Council

Part of the investment policy debate is related to the discovery of several cases of investment by The Petroleum Fund in very controversial companies, involved in businesses such as arms production, tobacco and fossil fuels. The Petroleum Fund’s Advisory Council on Ethics was established 19 November 2004 by royal decree. Accordingly, the Ministry of Finance issued a new regulation on the management of the Government Petroleum Fund, which also includes ethical guidelines.

According to its ethical guidelines, the Norwegian pension fund cannot invest money in companies that directly or indirectly contribute to killing, torture, deprivation of freedom or other violations of human rights in conflict situations or wars. Contrary to popular belief, the fund is allowed to invest in a number of arms-producing companies, as only some kind of weapons, such as nuclear arms, are banned by the ethical guidelines as investment objects.

To support the ethical screening process, the Council on Ethics works with RepRisk ESG Business Intelligence, a global research firm and provider of environmental, social and governance (ESG) risk data. RepRisk monitors the companies in the Norwegian Pension Fund’s portfolio for issues such as severe human rights violations, particularly regarding child labor, forced labour, and violations of individual rights in conflict areas as well as gross environmental degradation and corruption. RepRisk has been working with the Council on Ethics since 2009 and in 2014, re-won the tender for ESG data provision for 2014-2017.

An investigation by the Norwegian business newspaper Dagens Næringsliv in February 2012 showed that Norway has invested more than $2 billion in 15 technology companies producing technology that can and has been used for filtering, wiretapping, or surveillance of communication in various countries, among them Iran, Syria, and Burma. Although surveillance tech is not the primary activity of all the 15 companies, they have all had or still have some kind of connection to such technology. The Ministry of Finance in Norway stated that it would not withdraw investing in these companies or discuss an eventual exclusion of surveillance industry companies from its investments.

The Ethical Council is headed by Ola Mestad, a Norwegian lawyer who works for the European Centre of Law, who previously worked for the law firm Bahr, where he was specialized in oil-sector issues. The other members are Gro Nystuen, Bente Rathe, Ylva Lindberg and Dag Olav Hessen.

On 19 January 2010 the Ministry of Finance announced that 17 tobacco companies had been excluded from the fund. The total divestment from these companies was $2 billion (NOK 14.2 billion), making it the largest divestment caused by ethical recommendations in the history of the fund.

Both Norway's minister of finance Siv Jensen and the Strategy Council, appointed by the Ministry of Finance, has recommended that the Ethical Council be dismantled.

In March 2014, as the result of both domestic and international pressure, the parliament appointed a panel to investigate whether the fund should divest its coal assets in line with its ethical investment mandate. The panel released its recommendations in December 2014, recommending the fund follow a strategy of corporate engagement rather than divestment. The parliament was set to make its decision early in 2015. In the event, the fund will be required to divest from companies that derive at least 30℅ of their business from coal.

In 2014, the fund divested from 53 coal companies around the world, including 16 companies in the US companies (among them Peabody Energy, Arch Coal, and Alpha Natural Resources), 13 companies in India (including Coal India) and 3 companies in China. As a result, the total value of the fund’s coal holdings fell by 5% to $9.7 billion. In the same year of 2014 the fund increased its stakes in 59 out of 90 oil and gas companies in which it holds shares by $30 billion.

Excluded companies

The following companies have been excluded from the Government Pension Fund of Norway for activities in breach of the ethical guidelines:

The fund does not announce exclusions until it has completed sales of its positions, so as not to affect the share price at the time of the transaction.

In 2016, Norges Bank decided to exclude 52 coal companies from the fund.

Reinstated companies

Three previously excluded companies have later been reinstated to the fund because the companies were no longer involved in the activities that had led to their exclusion.

Companies "under observation"

As an alternative to full exclusion from the fund, companies may be placed "under observation" to help put pressure on the company to improve.

It has been proposed that one more company, Goldcorp, should be placed under similar observation.

Currency portfolio

In October 2010 the fund spent NOK 600 million ($136.4 million as of October 2010) daily buying foreign currencies. That figure would be increased to 800 million kroner daily in November. This practice was suspended in January 2011, and on 31 January it was announced that this would also be the case in February.

The Government Pension Fund – Norway

The Government Pension Fund – Norway (Norwegian: Statens pensjonsfond Norge, SPN) was established by the National Insurance Act (Folketrygdloven) in 1967 under the name National Insurance Scheme Fund (Norwegian: Folketrygdfondet). The name was changed at the same time as the former Petroleum Fund, on 1 January 2006. It continues to be managed by a separate board and separate government entity, still named Folketrygdfondet. The Government Pension Fund – Norway had a value of NOK 106.9 billion at the end of 2006. Unlike the Global division, it is required to limit its investments to domestic companies on the stock market, predominantly on the Oslo Stock Exchange. Thus, it is a key stock owner in many large Norwegian companies.