The thumbs down of the richest sovereign wealth fund in the world could change ownership. Until today, in fact, it was the Finance Ministry in Oslo that decided whether the large pool of 800 billion dollars in assets should divest from a company. Now the ball could pass to the Central Bank. A decision that worries – or excites – even beyond the North Sea. Because the fund, which has already failed excellently for ethical issues, is not only the largest, but is also the most followed by institutional investors.
The Central Bank of Norway should have the power to exclude companies from the sovereign wealth fund. This was stated by the Norwegian Strategic Council, the body that makes investment suggestions to the government, owner of the largest sovereign wealth fund in the world. The move could change the delicate balance between the executive and the bank over how the fund should be managed.
If the suggestion is followed, the Central Bank of Norway, which already manages the fund, will increase its influence, until it becomes the real boss: the one who can decide who is in the portfolio and who is not. Currently, it is the Finance Minister who decides whether to leave the shareholding of a company for incorrect behavior, based on the recommendations of the Council for Ethics, a committee of 5 members active since 2004.
The procedure is quite slow, at least for Scandinavian rhythms, and can last a few months. If the Central Bank decides everything, however, the exclusion could be more accelerated. The problem, according to non-governmental organizations, is if anything a matter of independence of investment decisions, guaranteed so far by the Council for Ethics.
“The Ethics Council, itself, was a wonderful institution when it was established, but now we can do more. We've come a long way,” said Elroy Dimson, head of the sovereign wealth fund.
Dimson also speaks of a growing overlap of powers between the central institute, the Ethics Council and the Ministry of Finance in adjudicating violations of the guidelines. An overlap that could be avoided by assigning every decision to Norges Bank.
The decision could have global impacts. The fund controls about 1,2% of all stocks on the planet and has been the frontrunner in settling ethical disputes. Several companies have already been excluded for incorrect behavior and environmental damage.
Oslo exited Wal-Mart's capital in 2006 after reports of human and labor rights violations. In 2007 and 2008 it was the turn of mining companies such as Vedanta Resources and Rio Tinto, because their activity threatened the environment.
Furthermore, the sovereign wealth fund excludes entire sectors a priori, such as producers of tobacco, landmines and nuclear weapons.
Finance Minister Svi Jensen said she took note of the Strategic Council's suggestion and said the government will make a decision, proposing some changes to investment strategies, in spring 2014.
