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This report is a product of the Natural Capital Project. Their full document ‘Use Cases and the Natural Capital Science-Technology Platform‘ can be downloaded here.


The Council on Ethics for the Norwegian Government Pension Fund is mandated to assess companies’ environmental, social, and human rights impacts and recommend the exclusion of companies from the fund based on ethical considerations. Recommendations are based on facts, are well reasoned, and are made public. The Council also believes that some companies have changed their behaviour in order to avoid being excluded from the fund.

Norway is in a particularly favourable financial position due to the rich abundance of oil and gas that was discovered over forty years ago. As a whole, Norwegians believe that the prosperity enjoyed by present generations carries obligations and that, because these resources are limited, it is not fair that these riches benefit only the few generations that happen to experience their extraction. Rather, it is held that wealth generated by these resources must be safeguarded for future generations.

The Norwegian Government Pension Fund is a Sovereign Wealth Fund and is invested in equities, bonds, and real estate. The Fund’s market value is about USD 900 billion, and the Fund is currently a shareholder in more than 9,000 companies worldwide. It is owned by the Ministry of  Finance, on behalf of the Norwegian people, and is managed by Norges Bank Investment Management, the investment management arm of Norges Bank (the Central Bank). In 2004, Ethical Guidelines for the Fund went into force. The Guidelines are based on two ethical obligations for the Fund: 1) ensuring that future generations will benefit from the petroleum wealth by generating sound return in the long term, and 2) respecting the fundamental rights of those affected by the companies in which the fund invests by avoiding investment in companies which are or will be complicit in grossly unethical activities.

Established by the government in 2014, the Council on Ethics was tasked with advising the Ministry of Finance on the exclusion of specific companies from the Fund if their activities contravene the ethical guidelines. As of 1 January 2015, it is Norges Bank that decides on the exclusion of companies. Both the Bank’s decision and the Council’s recommendation are made public and are publicly available.

Companies may be excluded from the fund based on two primary criteria: product criteria (some weapons, the sale of weapons to certain states, and tobacco) or conduct criteria. The conduct criteria are five-fold: complicity to serious or systematic human rights violations; serious violations of the rights of individuals in war or conflict situations; severe environmental damage; gross corruption; and other particularly serious violations of fundamental ethical norms. The ethical guidelines stipulate that only serious norm violations provide grounds for exclusion, and there must be an unacceptable risk of the norm violations continuing. At year-end, 60 companies were excluded from the fund.

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Promising Advances:

Once a decision has been taken on whether or not to exclude a company, the Council’s recommendation is published. The recommendation details the activities of the company, the associated impacts, and the Council’s assessment. There is often an extensive dialogue between the Council and the company being assessed. In many such dialogues, companies have stated that they wish to avoid being excluded because of reputational risk.

The recommendations communicate to other companies how the Fund views different types of activity. Several companies have contacted the Council to discuss planned activities similar to activities which have been addressed in previous recommendations. This indicates that the recommendations are well-known, that they communicate what can be expected of companies, that they can affect the conduct of companies, and that divestment can be a tool for change.

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Solutions, Science & Tools

The Council’s recommendation to exclude a company is based on thorough research and concrete assessments of the company’s activities on the ground. For example, in 2011 the Council identified all companies involved in logging or plantation activities in tropical forests. Based on information from the companies (including detailed information about the environmental impacts of the operations, concession maps, environmental impact assessments, social impact assessments, and high conservation value area assessments) and its own independent research (drawing on information from satellite images, land cover maps, academic literature, and the expertise of local consultants and experts), the Fund endeavors to assess individual concessions. They ask questions such as: What are the impacts on biodiversity? How are people’s livelihoods and health affected? What has the company has done to alleviate impacts?

The Council weighs whether forests or peatlands will be converted, the scale of the clearing, to what extent the license areas overlap with important ecological values, and how the conversion of forest or peatlands might affect endangered species, habitats, and peoples’ livelihoods. Ultimately, the Council makes a determination about whether the company’s measures are sufficient to maintain important ecological and social values in the concession area.

Governments and companies are often not willing to disclose information necessary to carry out a thorough assessment. However, tools are now being developed in this sector, such as the Zoological Society of London’s Sustainable palm oil toolkit, which is a good step forward to provide information investors can use in their assessment of companies.

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Scaling Up

The situation on the ground is often not consistent with the policies of the companies. To assess companies beyond their policies requires resources, knowledge, and capability. Not all investors have these resources. Moreover, ethical risk evaluated by the Council is not always a financial risk. It depends on the market and how important reputational risk is for the company. Investors must be willing and able and have the competence to ask the right questions. The Council’s public recommendations can be used by all to inform investment decisions. Improved transparency, access to data, and tools will enable faster, easier assessments. Better assessments will lead to better investments and continue to guide financially and ethically sound corporate conduct.

Jervan, H. 2015. Financially and Ethically Sound Investing: Council on Ethics for the Norwegian Government Pension Fund. May 2015 Stockholm Summit on Natural Capital Use Case #3. Natural Capital Project, Stanford University, Stanford CA, USA. 2pp. Available at www.naturalcapitalproject.org