Norway weighs going green with its $800 billion pension fund

Norway, as the owner of an $800 billion sovereign wealth fund – the world’s largest – has made great efforts over the years to be an ethical investor. But it’s not always been easy.

The most recent reminder came last week when politicians in Norway called for the Government Pension Fund, which is based on excess petroleum revenues, to pull out of coal company investments abroad – a conundrum given that the country itself produces coal via a Norwegian state-owned company up in the northern territory of Svalbard.

Norway’s finance ministry, which oversees the pension fund, announced Monday it would consider recommendations from a strategy council to improve its responsible investment practices.

Political investments

This is not the first time the fund has found itself in an ethical dilemma.

Since 2005, the fund has excluded investments in Lockheed Martin for producing nuclear weapon components, yet the country purchases its planes. The fund currently excludes a total of 60 companies from investments over human rights violations, gross corruption, severe environmental damage, and production of tobacco, palm oil, and certain weapons.

A coal pullout would put at stake investments representing 1 percent of the fund in large companies such as BHP Billiton, Xstrata, and Anglo American. Such a move would be a natural follow-up to the decision by the Nordic prime ministers’ September meeting in Stockholm with US President Barack Obama to stop the financing of international coal projects, said Jonas Gahr Store, a Labor party representative behind the initiative.

“Increasingly people see that action is needed,” Mr. Store said in an editorial last Friday in Norwegian business daily Dagens Naeringsliv (DN). “In the summer, the World Bank and the EU’s investment bank announced that they would sharply limit financing of new polluting coal projects. The US’s Export-Import Bank has signaled the same.”

Coal accounts for 31 percent of energy-related CO2 emissions in the US compared to petroleum and natural gas, according to the Energy Information Administration. The US pledged in September that all new coal plants would be built with clean technology to limit carbon pollution, such as the Kemper Coal Power Plant in Mississippi.

Coal conflict

Erna Solberg, Norway’s Conservative prime minister, has commented that Norway would look odd as a coal-producing nation if the fund were to suddenly exclude coal producers. She told DN a better way could be to focus investments on those, such as Germany’s E.ON, which are also involved in renewable energy. However, no decision has been made.

Siv Jensen, Norway’s finance minister, says the coal issue is an “important debate” that would be taken in public before making a financial recommendation to parliament next spring. She made the comment Monday after receiving the recommendations on responsible investing from the government-appointment strategy council, one of which could make this ethical dilemma less of a problem.

Under the most radical of the ten recommendations, the council called for delegating exclusion responsibility from the Finance Ministry to Norway’s Central Bank, the managers of the fund. This could create an arm’s length distance on conflicting roles, such as the Lockheed Martin case, says Laura Starks, professor at the University of Texas at Austin, and one of the five members of the strategy council.

“Politics should not be a reason for a decision,” says Professor Starks.