The Norwegian government pension fund global. Risk based versus ethical investments
Nilsen, HR and Sjafjell, B and Richardson, BJ, The Norwegian government pension fund global. Risk based versus ethical investments, Vierteljahrshefte zur Wirtschaftsforschung (Quarterlies on Economic Research), 88, (1) pp. 65-78. ISSN 1861-1559 (2019) [Refereed Article]
Access to finance is crucial if we are to achieve the fundamental transition of our time: securing a safe and just society operating within the planetary boundaries. In the era of global market capitalism and deregulation, Sovereign Wealth Funds (SWFs) offer one of the few public economic institutions capable of injecting ecological and social values into global markets. This article undertakes a case study of one of the world’s largest SWF, the Norwegian Government Pension Global (The Fund). The Fund is well-known for its Ethical Guidelines recommending exclusion of companies based on products and conduct as well as the Fund’s public statements when withdrawing from companies. Still, the ethical basis of overlapping consensus leads to responding to public opinion and media controversy when considering divestment, rather than undertaking due diligence beforehand.
In addition, and not well known, more firms have been excluded from the Fund based on the financial risk against the portfolio than based on the Ethical Guidelines. In this article we discuss the basis of both the Ethical Guidelines and of the financial risk management of the portfolio. Still, the majority of the Fund’s investments are on an unsustainable path of ‘business as usual’. A principal thesis of this article is the paradox that the more
unsustainable ‘business as usual’ becomes, the importance of financial risk assessment increases and the relevance of the Ethical Guidelines decreases.