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An assessment of the basis for unlisted investments focusing on the environment and sustainable growth

Norges Bank's letter to the Ministry of Finance 6 July 2010

6 July 2010

In Report No. 20 (2008-2009) to the Storting, the government proposed the creation of a new investment programme focusing on environment-related investments, and further assessment of whether it would be appropriate for the Government Pension Fund Global to introduce investments focusing on sustainable growth in emerging markets. Unlisted investments in equities and infrastructure, which are currently outside the fund’s investment universe, were described as possible instruments.

In its letter of 18 September 2009, Norges Bank argued that specialised unlisted investments of this kind must be based on an analysis of investment opportunities, including the risk and expected return associated with such investments. The enclosed report provides a general presentation of investment opportunities in the private market with the focus on private equity and infrastructure. The report builds on the assessment in Norges Bank’s letter of 20 October 2006, where we recommended that the fund’s investment universe should be expanded to include private equity and infrastructure. The report also describes investment opportunities in the private market in areas that can be considered environmental investments and for investments focusing on sustainable growth.
Norges Bank recommends that unlisted investments focusing on the environment and sustainable growth should be made within the context of a broad management mandate. Such investments should be subject to the same requirements for return and risk management as other investments. The approach to these new investment opportunities should not therefore be to invest in a narrow and risky segment of the asset class but to permit unlisted investments on a broad basis. It is also in keeping with the intentions behind the fund’s investment rules that investments are not earmarked for special purposes. We would refer here to the comments in section 3.2 of Proposition No. 29 (1989-1990) to the Odelsting on the Government Petroleum Fund Act that the fund should not be an alternative source of funding for areas unable to compete with other expenditure through the government budget.

Norges Bank would be able to develop an organisation with the expertise to evaluate, execute and monitor investments in private equity and infrastructure. This expertise could be built up on the basis of existing experience, qualifications and processes in the organisation.

Yours faithfully

Svein Gjedrem

Yngve Slyngstad