Fund management - a pioneer in socially responsible investing

Norway is internationally known for the ethical investment strategy exercised by the Norwegian Government Pension Fund, which has blacklisted companies such as WalMart and recently sold all tobacco company investments from its NOK 2,640 billion (USD449 billion) portfolio. But the Norwegian fund management industry has been blazing trails in socially responsible investing since the mid-1990s, nearly a decade before the Government Pension Fund’s ethical guidelines.

 The Norwegian Government Pension Fund is the second largest sovereign wealth fund with an average holding of 1% in equities worldwide. Initially created in 1990 as the Petroleum Fund, it invests Norway’s excess oil revenues in international stocks and bonds on behalf of the country’s future pensioners. It first established ethical guidelines and appointed an advisory council on ethics in 2004.

The fund has several ways in which it carries out its ethical investment strategy. Norges Bank Investment Management (NBIM), the managers of the fund, practices active ownership through voting, filing shareholder proposals, investor expectations documents, and engaging directly with management. Last year, it voted at 10,095 shareholder meetings.

NBIM has six strategic focus areas within active ownership: equal treatment of shareholders, shareholder influence and board accountability, well-functioning, legitimate and efficient markets, climate change, water management and children’s rights.

Norway’s finance ministry has the role of screening out companies that produce weapons and excluding those that may pose a risk of human rights violations, such as child labour, violation of individuals’ rights in war or conflicts, severe environmental damages, gross corruption, other serious violations of fundamental ethical norms, and tobacco companies. The ministry has so far excluded nearly 50 companies from the fund’s investment portfolio.

Storebrand was the first fund manager in Europe to establish an environmental value fund, according to Christine Tørklep Meisingset, Storebrand leader for socially responsible investments.
© Storebrand/Øyvind Andersen



First Environmental Value Fund

Norwegian life insurance company Storebrand is one of the country’s three largest fund managers with NOK 350 billion of assets under management. In 1995, it was the first fund manager in Europe to establish an environmental value fund. The fund was started as a collaborative effort with Scudder in the US. Storebrand later developed its own product called Storebrand Principle Funds in 1997, based on the Environmental Value Fund.

“It was initially established as a niche fund to get into the markets in London and Paris…whereas now the entire portfolio has a responsible investment standard,” said Christine Tørklep Meisingset, Storebrand leader for social responsible investments.

Storebrand adopted environmental, social and governance (ESG) standards into all of its funds in 2005. Its strategy is threefold: negative screening, Best in Class/positive screening, and engagement. There is a negative screen for tobacco companies, weapons producers and those that are Worst in Class (i.e. the 10% worst performers within ESG in high-risk industries, such as mining and textile). As of the fourth quarter of 2009, Storebrand had excluded 93 companies in all of its funds and portfolio.

Its other means of practicing responsible investing is through active ownership in companies with breaches of human rights violations, child labour, environmental and water damage, and corruption. Storebrand has its own department monitoring more than 3,000 companies and has active engagement with several hundred companies each year. It succeeded, for example, in getting Chinese company Jinhui to cease its phosphate transport activities in Western Sahara.

The Norwegian Government Pension Fund has similar guidelines to Storebrand on active ownership and exclusion, but does not have a Worst in Class ranking. Moreover, Storebrand has a Best in Class ranking whereby it invests in the top performing companies based on ESG performance.

“What’s unique about our work is that we spend so much on active ownership and in this work the balance between negative and best performers is very useful,” said Meisingset. “None of the others do (Best in Class) in the Nordic region…we were pioneers in Europe in this.”

 

On 12 June, World Day Against Child Labor, four companies in NBIM’s portfolio (Monsanto, Bayer, Syngenta and DuPont) announced plans to work together to combat child labour in seed production. The partnership was initiated by NBIM.
© NBIM


First Comprehensive Ethical Investments
Another trail blazer within responsible investing is Kommunal Landspensjonskasse (KLP), which manages NOK 250 billion on behalf of more than half a million Norwegians which have their pensions with KLP. In 2002, KLP was the first Norwegian life insurance company to establish a comprehensive ethical investment policy encompassing its entire financial investment universe.

KLP uses three tools to influence companies: active ownership and engagement, exclusion, and sustainable investments. It primarily relies on the Global Ethical Standard Investment Services (GES) analysis for its engagement and exclusions, as well as decisions of the Ethical Council for the Norwegian Government Pension Fund. It practices engagement and exclusions within the following areas: human rights, labour rights, environmental degradation, corruption, weapons production, and tobacco production.

KLP has, for example, met with Exxon Mobil regarding the oil company’s operations outside the Sakhalin Island, which constitutes one of the few known feeding grounds for the endangered western gray whale. KLP was given extension information regarding its environmental protection work and is following the progress of the case. Exxon is currently on KLP’s observation list, which is a way KLP seeks to influence through dialogue before resorting to divestment.

KLP competitor DnB NOR, Norway’s leading financial services institution, promotes sustainable development through business operations emphasizing environmental, ethical and social consequences. In 2008, the company adopted the Equator Principles, a voluntary set of guidelines for managing environmental and social issues in project finance. That same year, ethical guidelines for asset management in DnB NOR were revised and coordinated.

In December 2009, the companies coordinated the ethical guidelines in DnB NOR Asset Management and Vital to make them stricter. The guidelines are still based on the UN Global Compact and the OECD guidelines for multinational companies, focusing on environmental considerations, human and labour rights, and corporate governance. In addition, companies involved in the production of weapons of mass destruction, cluster bombs or anti-personnel mines are excluded, and now also companies producing tobacco and pornography.

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