How to balance How to balance ethics, culture, and money ethics, culture, and money

Reflections on Sovereign Wealth, Norwegian Oil Reflections on Sovereign Wealth, Norwegian Oil – –

and Money in Generaland Money in General

Dr. Henrik SyseFormer Head of Corporate Governance, NBIM (Norges Bank Investment Management)Senior Research Fellow, PRIO (Int’l Peace Research Institute, Oslo)e-mail: henrik@prio.no Heinrich Steffens VorlesungHumboldt-Universität zu BerlinJanuary 27, 2009

footer tekst 1

What’s What’s reallyreally the problem the problem with ethics and money?with ethics and money?TemptationsPrimary and secondary goals may

become confusedShort-term vs. long-term time horizonsImportant to remember the possibility –

and desirability – of plural motivations

footer tekst 2

Background to the Norwegian Background to the Norwegian fundfund

NBIM manages the ”Norwegian Government Pension Fund – Global” (the ”Petroleum Fund”; state income from petroleum activity); assets under management: close to EUR 230 bn.; largest sovereign wealth fund in Europe and North America.

The fund has ethical guidelines, which include both exclusions and active ownership. (Washing one’s conscience clean?)

Financial aim of investments; yet ethics plays a definite role. Midway between “SRI” and “hardcore finance”.

footer tekst 3

NBIM and Corporate GovernanceNBIM and Corporate GovernanceNBIM has its own guidelines on corporate

governance, based on OECD and UN Global Compact guidelines, and on the guidelines of the Norwegian Government.

From 2005: Corporate Governance defined as a separate task with its own task group within the bank, with combined competence in governance, ethics, and finance.

Part of a worldwide trend, strengthened by the current financial crisis. At its heart a governance problem?

footer tekst 4

Ethics, business, and Ethics, business, and investmentinvestmentAs long-term, institutional investors one is

negotiating between at least two (often more) ethical concerns. So it is not necessarily “ethics vs. business”, but equally often “ethics vs. ethics”, since the long-term financial profitability of the fund is an ethical concern in itself.

Norway as a political actor, or a financial actor?

A need for the investment manager to maintain investor credibility – and not be a political actor.

footer tekst 5

Ethics, business, and Ethics, business, and investment (cont’d)investment (cont’d)After the financial scandals of the late 90s

and early 00s, such as Enron and WorldCom, large investors started taking their ownership rights and duties more seriously, also by becoming sensitive to ethics- and governance related issues within companies.

Furthermore, large investors were and are increasingly expected – by their fiduciaries and society at large – to be sensitive to social and environmental effects of their portfolio companies’ activities.

footer tekst 6

Ethics, business, and Ethics, business, and investment (cont’d)investment (cont’d)

At least five reasons why seemingly “extra-financial” factors are important:

1. The long-term solidity and sustainability of the markets themselves. (“Universal ownership”)

2. The principal – agent problem3. The profile of our fund(s) – what our owners

expect of the fund, and the fund’s reputation vis-à-vis its owners

4. The reputational and subsequent financial damage to the companies one is invested in

5. ... And the fact that it is right in itself!

footer tekst 7

Practical tools – what does one Practical tools – what does one do?do?VotingCompany engagementEngagement with standard settersNetworking with other investorsLegal meansPublic communicationAcademic research Aim: concrete change (in companies and

markets), and contribution to the ongoing debate

footer tekst 8

Focus areas at NBIMFocus areas at NBIMGood corporate governance (e.g., voting

rights, board responsibility, and greater transparency)

Child labor and children’s rightsLobbying and the environment

footer tekst 9

What kind of responsibilities?What kind of responsibilities?Fiduciary responsibility to one’s ownersComplicity through ownershipRole responsibility as a large actorAll of these are relevant to the large

institutional investor

footer tekst 10

Our main challengesOur main challengesTo insist much more thoroughly on

ethical standards in financial services in particular, and in business in general.

To achieve better government regulation.

To ensure breadth in leadership personalities and qualities.

To widen knowledge and concern about financial markets.

footer tekst 11

Und Norwegen Und Norwegen – was nun, kleiner Mann...?– was nun, kleiner Mann...?

”Neither a borrower nor a lender be” – impossible in today’s globalized market.

But can we nonetheless insist on certain virtues?

Plato’s cardinal virtues may be a good place to start.

Although we may have to rely on a dose of the theological virtues as well...

footer tekst 12