The Norwegian ministry of finance has announced the exclusion of tobacco-producing companies from the Government Pension Fund – Global, following the completion of a review of its ethical guidelines at the start of April.

After a year in which the global government fund suffered its worst-ever results, its tobacco investments increased by close to a quarter in 2008 – up 24.6 per cent. By the end of the year, the fund had invested NKr14.2bn (€1.6bn) in the 10 largest stock exchange-listed tobacco companies.

Divestment is by no means certain, as parliament still has to approve the measures. Who exactly is defined as a tobacco producer remains to be determined. “The final distinction has yet to be made,” says Norwegian Ministry of Finance investment director Thomas Ekeli.

The report to parliament notes: “In the Ministry’s opinion, it is the production of tobacco that shall form the basis for screening. Thus, selling tobacco will not be encompassed by this criterion... Trying to operate with zero tolerance for all tobacco production may prove to entail particular challenges, although this will be the starting point when the criterion is formulated.”

Mr Ekeli adds that when one comes to these divestment issues a line always needs to be drawn somewhere. “That line is not altogether obvious in the first instance, you have to sit down and look through the details. The report has now been sent to parliament and it is set to debate the matter before the summer recess. Any divestment from tobacco companies will not happen before the summer.”

Among a host of measures announced by the ministry, it was confirmed that it will now sign up to the UN Principles for Responsible Investment, establish a NKr20bn environmental investment programme, and also institute a company ‘observation’ list to be used as an alternative to outright exclusion. In mid-March, Siemens became the first company on this list.

According to Finance Minister Kristin Halvorson: “By placing the company under observation we, as an investor, can signal that we expect the [anti-corruption] measures to be implemented as intended.”

But the introduction of the observation list has been seen by some as a move away from exclusion and towards engagement, perhaps with the potential for political or economic motivation.

In the case of Siemens, which the fund had invested NKr6.3bn in at the close of 2008, the Ethical Council twice recommended exclusion due to gross and long-standing corruption at the German engineering conglomerate. Yet the ministry delayed its decision before eventually putting the group on its observation list instead.

Pia Gaarder, editor-in-chief at Norwatch, an independent news service that monitors Norwegian business, expresses concern at the fact that, other than official recommendations, the ministry is under no obligation to publish correspondence from the Ethical Council.

“The observation list represents a shift in the ethical guidelines as the Ethical Council only deals with exclusion,” says Ms Gaarder. “I understand the argument [about engagement], but it must not become an excuse to not disclose all the things that could be made public. I think that, especially if we are going to see a shift from exclusion towards more engagement, then strict analysis to find out how much information can be publicised must be undertaken.

“There is now also the added element of public opinion and the media who want to know what is going on,” she continues, “and because engagement is not public, this will cause a huge problem.”

But Gro Nystuen, chair of the Council on Ethics for the Norwegian Government Pension Fund – Global, does not see it that way: “Ultimately, it boils down to what you believe. I think it’s important to point out that we [the council] are giving advice; the ministry makes the decisions. It’s quite natural that they will sometimes differ from us in their assessment. Also, because they have to make other considerations as well, we have different rules and different mandates. In my opinion, this case only shows that the system works as it is supposed to work.”

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