The government of Norway is accelerating its agenda on ethical investment with plans to cut thousands of companies from its sovereign wealth fund and proposals to force disclosures by Norwegian businesses on human rights.
New rules for Norway’s sovereign wealth
Updated guidelines for Norway’s $1.3trn sovereign wealth fund, the largest in the world, will see billions of dollars of investment reallocated and more than 2,200 companies are to be cut from the fund’s portfolio.
Meanwhile, a proposed Transparency Act will enshrine disclosures on human rights in law and require Norway’s largest companies to disclose details of human rights issues on demand to anyone who makes a formal request.
The moves are the latest in a raft of initiatives by authorities around the world to embed ESG issues in business and finance and are a further signal that the ESG agenda is the most significant strategic issue for investors.
Norway’s finance minister Jan Torre Sanner announced the new guidelines for the Government Pension Fund Global (GPFG) last week, declaring: “We must have the highest possible return on our money, but we also want to know that it is invested in a responsible way.”
Sanner drew attention to climate change and the transition to a low-carbon economy. “This is the most important condition for large investors in the next 10-20 years,” he said.
The guidelines for the sovereign wealth fund, which owns 1.5% of all globally listed shares, will see about 25-30% of companies currently in the fund’s portfolio being cut. This represents 2% of the fund’s market value or about 2,200 companies.
The GPFG will also avoid any new investments in emerging market companies, which the government believes pose greater ethical risks. Sanner said that emerging markets tended to have “weaker institutions, weaker protection of minority shareholders and less openness”.
Mounting pressure for transparency
Meanwhile, the Transparency Act, which is subject to approval by the Norwegian parliament, is a separate initiative that will apply to Norway’s 8,000 largest companies.
The planned legislation’s full title – the Act on Business Transparency and Work with Fundamental Human Rights and decent work – indicates the breadth and depth of its proposals.
The act furthers the due diligence approach set out by the Organisation for Economic Co-operation and Development’s (OECD) Guidelines for Multinational Enterprises.
Large companies will have to carry out regular due diligence on human rights issues throughout their value chains. They are expected to publish and update disclosures in annual reports and on websites, as proposed by the OECD. The act also goes further, specifying that companies should take account of the rights of indigenous peoples, children’s rights, and workplace conditions, including the right to a living wage.
One of the act’s most distinctive features is the planned introduction of a public ‘right to know’. This will require Norway’s largest companies to make disclosures on human rights on demand to anyone who requests such information.
The ‘Right to Information’ clause contained in the proposed act will provide a new tool to private citizens, activist investors, campaigning groups and the media to hold Norwegian companies to account on human rights.
The on-demand disclosure rules have been compared to Freedom of Information laws in place in many European countries, but extending the obligation from purely public bodies to private enterprise.
While technically separate, the wealth fund guidelines and the proposed Transparency Act point to a rigorous strategy by the Norwegian government to pursue ESG across business and investment.Last Updated: 16 April 2021