The ethical guidelines for the Norwegian Government Pension Fund – Global have recently been reviewed, resulting in the decision to exclude tobacco producers to increase the focus on green investments. How will these additional criteria affect the council’s work?

The council on ethics has given its views on the review of the ethical criteria and we have specifically not commented on the additional criteria that have been discussed, not only concerning tobacco investments, but also on gambling. As we will ultimately be the ones implementing the criteria – whatever form they may take – we do not want to express an opinion on them.

Still, the Government Pension Fund – Global increased its tobacco investments by almost a quarter last year. Isn’t that odd?

The council has nothing to do with investment decisions or strategy. That is the responsibility of Norges Bank Investment Management (NBIM) and it does so only on the basis of financial considerations. We only enter the process after an investment has been made, and that is reasonable in the sense that it would be practically impossible for the council to perform prescreening for each of the 8,000-odd companies in the portfolio.

Do you feel that the system, in which the council, the ministry of finance and NBIM all have specific and sometimes oppositional roles, has operated effectively so far?

I think it is a very sound and sustainable system. It is important that the council, which is responsible for the exclusion of companies, can remain completely independent of NBIM and the ministry of finance. The ministry may disagree with us, but we must provide advice according to the guidelines, and do so free from financial or political considerations.

Can you give an example?

The Monsanto case is a good illustration. We had extensively documented their use of child labour in India, and recommended the ministry move to exclude. However, NBIM proposed that they engage instead. They were then able to confront the company using our research. It’s extremely rare for an investor to have this kind of detailed conversation with a company. The result was an improvement in the company’s behaviour. We reviewed our recommendation after a year and decided to recommend continued engagement because, if we exclude, the leverage to change behaviour will be gone.

Is it common that the council and NBIM co-operate in this way?

It is an example of how we at the council on ethics and NBIM might cooperate with, or deal with, the same company. But, you’re right, that’s rather the exception than the rule. It’s the only publicly known example anyway.

The council is currently assessing the fund’s investments in companies with activities in Israel. To what extent do politics play a role, and does it make your job of evaluating more difficult?

We obviously can’t comment on the fund’s investments in Israel until the ministry of finance publishes our recommendations, but we have been very consistent in applying the guidelines in a non-political manner. In terms of the political aspect, we have, of course, had previous experience with Total in Burma. There, because we are only concerned with future risk and not with past behaviour, we recommended against exclusion. This came as a surprise to many and went against the public and political consensus. At the same time, we also had a new socialist finance minister [Kristin Halvorsen] and Total was convinced it would be excluded. When it wasn’t, it realised that the guidelines are not used as a political instrument. It also boosted the minister’s credibility as she could have easily been swayed by political pressures.

The ministry of finance has also introduced an observation list, as a middle way between engagement and exclusion. The council has advised excluding Siemens, but the ministry has decided against this and put the company on its list as a way of warning them to change.

The ministry of finance came up with the idea of the observation list, because even if they do not follow our recommendations, they have to publicise them. That could be politically costly and the observation list is an alternative to that. I don’t believe it comes at the cost of transparency because they still have a duty to publicise our recommendations.

What made the Siemens case such a challenge?

It was a very difficult case because there is a lot of discretion involved. The council is ultimately assessing whether there is an acceptable risk of corruption happening in the future. This is a very subjective assessment. Siemens had had this huge corruption scandal in the early 1990s and then set up a sizeable operation to combat corruption that proved to be completely inefficient – and even almost worked as cover-up for developing new forms of corruption culture. That meant that our threshold for trusting the company when it said it was taking us seriously was quite high.

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