Saving the Norwegian oil wealth for future generations

Norway pumps three million barrels of oil from the North Sea daily, and is the world's third largest oil exporter. However, the oil will run out and to ensure the wellbeing of future generations, the Norwegian state governs a pension fund based on current oil revenues with strict ethical guidelines.

The Norwegian Government Pension Fund receives attention not only because it's one of the world's largest retirement funds worth an approximately NOK 1275 billion (EUR 160 billion) but also because of its recently implemented ethical investment guidelines. The fund was restructured in December 2005 and currently comprises two parts, "Norway" and "Global". The latter is what was formerly known as the Petroleum fund.

Counselor for Economic and Financial Affairs Tore Mydske at the Norwegian Embassy in Washington D.C. answers some questions about the ethical guidelines for the Global fund:

Why does the government pension fund have a strong ethical profile?
"The ethical guidelines were adopted by the Norwegian Parliament in 2004, and are based on two premises. First, the fund is an instrument for ensuring that a reasonable portion of the country's petroleum wealth should benefit future generations. So it needs to be managed with a focus on generating a sound return in the long run.

Second, the fund should not through its investments contribute to unethical acts, such as violations of fundemental humanitarian principles, serious vilations of human rights, gross corruption, or severe environmental degradation."

How are these ethical considerations observed?
"The ethical basis for the fund is promoted through three different measures. Firstly, it is done through exercising ownership rights in order to promote long-term financial returns. This is done by the Norwegian Central Bank. Corporate governance is a keyword here, and the bank exercises its ownership rights and voting power, for instance by fighting corruption or poor leadership within a company.

Secondly, it is done through negative screening—selling the shares in companies that produce weapons that may violate human rights principles. The focus here is on the products the company makes, not how the company is run.

Thirdly,  it can be done through the exclusion of companies where there may be a risk of contributing to serious violations of fundemental ethical norms. The decision to sell shares in a company based on negative screening or exclusion is made by the Ministry of Finance. To date, 17 firms from around the world have been excluded from the fund. Most of these are involved in the production of nuclear weapons or key components for cluster bombs."

Where is the fund invested?
"To put it simply, the net is cast as widely as possible. We are not interested in risky stocks with short-time gains. This fund is for our children, and for our children's children, and therefore it is important that we have as low a risk as possible. We do this by investing comparatively small sums in a broad array of companies. This way we can follow the larger tendencies in the stock market.

A little over half of the fund is invested in bonds and equities in Europe. The rest is spread out through America, Asia, Australia, New Zealand and South Africa."

Facts about the Government Pension Fund:

  • The Fund is currently worth more than NOK 1275 billion (EUR 160 billion)
  • At the end of 2006, the fund is expected to be worth NOK 1456 billion (EUR 183 billion). That is approximately NOK 284 582 (EUR 35 793) per Norwegian citizen.
  • At the current growth rate the Fund will be the world's second largest retirement fund by the end of this year.
  • Income from the petroleum sector accounts for 21 percent of the Norwegian GDP.
  • 47 percent of Norway's exports are petroleum related. 

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Counselor for Economic and Financial Affairs Tore Mydske answers some questions about the ethical guidelines for the Norwegian Government Pension Fund.Photo: Arild Strømmen

Kristin Halvorsen is the Norwegian Minister of Finance. Her Ministry is responsible for managing the State's pension fund.Photo: Bjørn Sigurdsøn/ Office of the Prime Minister