When Mr McSpocky invited me to join his "Government and Industry" group, I immediately thought of our Oil fund and its ethics rules. It's a brash example of how one government attempts to influence industry. This 500 billion dollar fund is governed by rules that makes it unique in the word.
These rules are now a source of pride, but both the Labour Party government and the fund's management had to dragged into this ethics commitment kicking and screaming. Mind you, most of that kicking and screaming happened behind closed doors, so there was little loss of face when they finally caved in. The process from absolute rejection to acceptance took five years, from 1999 to 2004.
So, what ethics, and how are they applied? This is from the 2003 press release, a year before the rules became law:
"The exclusion of companies from the investment universe that pose an unacceptable risk that the Fund might contribute to unethical actions or omissions, such as the violation of fundamental humanitarian principles, grave violations of human rights, gross corruption or severe environmental degradation."
As a point of reference the committee that handles these guidelines simply has to look at Norway's international treaty commitments. For instance, Norway has signed a UN treaty banning cluster munitions. Likewise we have signed several treaties defining several human rights issues. Another source of reference is the OECD guideline for international companies. If a company consistently works in opposition to these treaty commitments it is excluded from the fund's investment universe.
This does not happen overnight. In fact, there is a lengthy and confidential dialogue between the fund's owner, the Norwegian Department of Finance, and the company. Some times this involves diplomatic efforts, too.
There is a balancing act involved in applying the ethics rules. The fund's policies must not be understood to be an instrument of Norwegian foreign policy. Rather, it is an expression of what the Norwegian people in general consider fair, rules that they impose on themselves, too. Thus it is an exercise in logic. We do not want our present and future income from the fund to rely on behaviour that we consider unethical, even illegal. Since these rules refer to multilateral treaties, they have broad international backing, too.
It is to be noted, however, that the United States hardy ever commits to any UN treaties. That is why the idea of self-imposed investment limitations are incomprehensible to the US government. At one point some 30% of the fund's assets were invested in the United States. Some US politicians expressed that our fund and other so called sovereign wealth funds might exert some influence. In other words, the investments were welcome, but not the power that came along with the money.
The fund invests about equally in company stock and government bonds. It is noteworthy that the ethics rules apply only to stock. This will be a fight in the years to come. Certainly there are reason to consider some nations in more or less constant breach of basic human rights: Russia, Belarus and Israel, to mention but a few. But if we were to invest only in stable democracies, our pickings would be slim, Government corruption is rife throughout the world, some things are hard, nearly impossible, to avoid.
The fund holds shares in nearly eight thousand companies. Only 20 have thus far been kicked out. Boeing and Wal-Mart are probably the most noteworthy of these. Tobacco companies are out, too. Others look to us and follow suit. No matter what we say and intend, political repercussions are unavoidable.
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