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There are companies in which we choose not to invest. These include companies that violate fundamental ethical norms or impose substantial costs on society through their operations. By not investing in these companies, we reduce our exposure to unacceptable risks.

The Ministry of Finance has established ethically motivated guidelines for observation and exclusion of companies from the fund. The guidelines contain criteria for exclusion based either on the companies’ products or on their conduct. The fund must not be invested in companies that produce certain types of weapons, base its operations on coal, or produce tobacco. The fund must also not be invested in companies that through their conduct contribute to violations of fundamental ethical norms. The Ministry of Finance has established an independent Council on Ethics to make ethical assessments of companies. The Council on Ethics sends its recommendations to Norges Bank’s Executive Board, which then makes the final decision on exclusion, observation or active ownership.

Finally, the fund itself may divest from companies that impose substantial costs on other companies and society as a whole and so are not long-term sustainable. Examples of activities that are unsustainable are business models that do not conform to prevailing technological, regulatory or environmental trends.

Ethical exclusions

Product-based exclusions

The fund must not invest in companies which themselves, or through entities they control, manufacture weapons that violate fundamental humanitarian principles through their normal use, or sell weapons or military materiel to certain countries. Nor may the fund invest in companies that produce tobacco. There is also a product-based coal criterion that applies to companies in two categories: mining companies that derive 30 percent or more of their revenue from the production of thermal coal, and power companies that derive 30 percent or more of their revenue from coal-based power production.

Conduct-based exclusions

Companies may also be excluded if there is an unacceptable risk of conduct considered to constitute a particularly serious violation of ethical norms. The Executive Board takes the final decision on the observation and exclusion of companies after receiving a recommendation from the Council on Ethics.

The Executive Board bases its decisions on an assessment of the probability of future norm violations, the severity and extent of the violations, and the connection between the violation and the company the fund is invested in.

The Executive Board may also consider the breadth of the company’s operations and governance, including whether the company is doing what can reasonably be expected to reduce the risk of future norm violations within a reasonable time frame. Before the Executive Board takes a decision to exclude a company, it must consider whether other measures, such as active ownership, might be more suited to reduce the risk of continued norm violations, or whether such alternative measures may be more appropriate for other reasons.

Risk-based divestments

The integration of environmental, social and governance issues into our risk management may result in divestment from companies where we see elevated long-term risks. These are companies that do business in a way that we do not consider sustainable, or could have negative financial consequences. These consequences may be direct. For example, where a company has to pay fines or is excluded from markets on account of irresponsible conduct, or is outcompeted by others that manage sustainability risks more effectively. They may also be indirect, with companies’ operations having negative externalities for society and undermining sustainable economic development in the longer term. We wish to reduce our exposure to such companies over time and would rather allocate capital to companies with more sustainable business models. Risk-based divestments are one way of doing so.

We carry out divestments within the overall limits for portfolio deviation from the benchmark specified in the management mandate. Where we have substantial investments in a company, dialogue may be a more suitable approach than divestment. We generally have better analytical coverage of our largest investments, and more contact with their management and board.

Our diversified portfolio requires us to take a systematic approach to risk-based divestment. Many of the topics and sectors covered by our divestment analyses are also addressed in our ongoing work on standard setting and active ownership. Recommending companies for riskbased divestment is often the last resort after other possibilities have been considered but deemed insufficient. We do not publish a list of companies from which we have divested, but we are transparent about the criteria underpinning our decisions. We also publish annual holding lists showing all of the companies in our portfolio, which makes it possible to analyse changes from one year to the next.

Last saved: 03/01/2019