Launch Partners

Launch Partners

Insight into Norway pension fund’s ethical investing

Operational since 1996, Norway’s Government Pension Fund Global is one of the world’s largest and is currently valued at over NOK17.33 trillion (US$1.57 trillion). It owns about 1.5% of all shares in the world’s listed companies, with holdings in around 9,000 companies worldwide.

Since this fund’s DNA is to ensure the welfare of Norway’s future generations — acting as a financial reserve and long-term savings plan — it is governed by a code of ethics to guide investments. And while there may be parallels between this ethics code and Shariah finance principles, there are key differences, said the fund’s Council of Ethics Secretariat Head Eli Ane Lund.

Eli told IFN Investor that unlike strict Islamic taboos against profiting from interest (Riba), gambling (Maysir) and other Haram practices involving gains by causing harm to others, the council can exercise flexibility in how the ethics code is applied.

“Our focus is on withdrawing the fund from gross abuses based on solid evidence only after we actively engage with the errant company or party. If positive changes are achieved, the investment can remain.”

Because of this flexible approach, Eli said the ethics code can be amended to reflect latest scientific advances. An example would be the Norway fund’s recent exits from coal-fired power plants, due to the council’s stand on environmental impact, even though such firms continue operating.

Eli noted this ‘exit’ approach is another way the fund’s ethics code differs from Shariah principles. “The council doesn’t dictate how investments are made in the first instance; we recommend what should be excluded during our regular reviews.”

But Eli acknowledged similarities exist with Shariah rules as its ethics code bars the Norway fund from investing in firms linked to weapons, tobacco and cannabis — as these cause clear harm to human lives, both in the short and long term.

For other exclusions like corruption, environmental harm and human rights abuses, Eli explained a very thorough review will first need to be done on a case-by-case basis.

For gender biases, racial discrimination or other forms of persecution — including religious — Eli said the council will not recommend exclusions unless there is evidence of real harm caused with continuous systemic abuses.

Eli explained an issue like exploited migrant workers can be addressed in shareholders’ meetings and direct engagements with company managers. Only when this approach fails does the council escalate the case to be reviewed for exclusion.

Due to this evidence-based approach, Eli said the council and the fund have both stayed as secular operations. This stance may change, as pension funds are governed by rules instituted by Norway’s legislature. But Eli doubted this would come to pass. “While the majority of Norway residents are Christians and we have a rising Muslim population, this is a matter of personal preference and mutual respect. Norway is a secular country and I believe we all here want it to continue being so.”

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