‘Handful’ of GPFG investees could face exclusion under new proposals - NBIM

Norway’s Government Pension Fund Global (GPFG) had more than NOK 10bn invested in companies at the end of 2019 that could be excluded from investment by the fund under new proposals, according to Norges Bank Investment Management (NBIM).

The investor revealed the information as part of its response to proposed changes to guidelines for the observation and exclusion of companies from investment from GPFG, stating that any increase in the scope of exclusions may amplify their effect on return and risk.

NBIM manages GPFG under a mandate from the nation’s Ministry of Finance and has been tasked with deciding on the observation and exclusion of companies since 2015, based on guidelines which have been in place since 2004.

The bank noted that the annual return on the benchmark index for equities in the period between 2006-2019 was 0.04 percentage points lower than for a hypothetical benchmark index without exclusions from the GPFG under the 2004 guidelines, which, given the current size of the equity portfolio, amounted to a “loss” of return on the order of NOK2.8bn annually.

Around 144 companies are currently excluded from investment, 106 of which on the basis of product-based criteria.

The new proposals include updates and clarifications to exclusion based upon factors such as human rights, corruption and sale of weapons.

In the face of potentially stricter regulations for exclusion, NBIM called for high thresholds for exclusion and appeared to favour exercising ownership rights as an alternative to observation or exclusion.

The bank also appeared broadly positive about some aspects of the proposed guidelines changes, agreeing with clarifications to the GPFG’s purpose and requirements for coordination with the Council on Ethics.

The response from NBIM said: “Norges Bank agrees with the Commission that the framework established 16 years ago has functioned well, and the Commission’s proposals entail a continuation of the current model. The threshold for exclusion is to remain high.

“The criteria for observation and exclusion shall be based on “overlapping consensus”, which means the guidelines build on fundamental ethical norms that enjoy broad support. They also provide a high threshold for adding new exclusion criteria. Companies will continue to be assessed individually, and the assessments are to be forward-looking.”

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