A large share of Norway’s revenues from the extensive oil activity in the North Sea is invested in stocks and bonds the world over through the Government Pension Fund – Global. The “oil fund”, as it is known to the general public, has an average ownership stake of one per cent in the global stock markets, thus securing its right to a considerable share of future profits in listed companies throughout the world.
Only the yield is used
The Norwegian state is not to use more of the oil revenues than the fund’s anticipated real rate of return over time, estimated at four per cent. As a result, short-term changes in oil and gas prices have little impact on budget policy.
The Government Pension Fund – Global is the second largest fund in the world with only one owner. The value of the fund at the end of the second quarter 2009 was NOK 2,385 billion.
Moderate risk profile
The fund has a broadly based portfolio of securities from many countries, and takes a long-term perspective on investment. The objective is to achieve the maximum possible yield at a moderate level of risk, ensuring that future generations gain the greatest possible benefit from the country’s petroleum wealth.
The portfolio is invested in some 8,000 companies. The ownership stake in each company is one per cent on average, and never exceeds 10 per cent.
Stable, open owner
Due to the fund’s sound capital base and long-term perspective, the fund never needs to sell its shares in times of market instability or a major drop in value. The fund therefore serves as a vital, stable resource for companies throughout the world.
The fund is not a Norwegian foreign policy instrument, nor is it used to advance political or strategic objectives. This is emphasised in the fund’s investment strategy, which stresses the importance of a high degree of openness. The fund has received a high score on a ranking of responsibility and openness of government funds published by the Petersen Institute for International Economics.
Ethical guidelines
The aim of achieving a satisfactory return on investment is closely tied to the desire to act as a responsible investor. Although the fund is not used to achieve political or strategic objectives, Norwegian authorities view it as crucial that the investments do not contribute to unethical acts or omissions. For this reason, ethical guidelines for the fund have been drawn up. These received broad political support when they were approved by the Storting.
The Council on Ethics for the Government Pension Fund – Global provides input to the ministry regarding the stocks and bonds that should be excluded from the fund’s investment universe. For example, the fund may not invest in companies involved in the production of nuclear weapons, cluster bombs, landmines or biochemical weapons, nor may it contribute to serious violations of human rights or severe environmental damage.
Positive impact
The fund has sold its investments in several companies that have been shown to systematically violate labour and human rights. By withdrawing from such companies, Norway sends a clear signal that it does not support the violation of labour rights.
In light of its size, the fund is also well positioned to exert a positive influence on labour and human rights as these are practiced within various companies and industries. A special team at Norges Bank therefore works on a full-time basis to encourage the 8,000 companies represented in the fund’s portfolio to avoid the use of child labour and prevent the occurrence of environmental damage, among other things.