Norwegian gov’t proposes amendments to sovereign wealth fund

Norvège
On the 09/23/20 at 7:44AM

by

Adrien Paredes-Vanheule

The Norwegian ministry of Finance seeks to solve the high stock ownership issue the local sovereign fund faces on the Oslo Stock Exchange.

Norway’s ministry of Finance on Monday released a whitepaper aimed at the Storting [the Norwegian Parliament, ed.] in which it outlined its recommendations on the Government Pension Fund, the €960bn Nordic country’s sovereign wealth fund.

Among others, the Norwegian authorities proposed an adjustment to the geographical distribution of the Government Pension Fund Global’s equity benchmark to ensure the fund’s investments “better represent the distribution of value creation in listed companies globally.” The ministry of Finance suggested that the share of developed markets in Europe in the benchmark is “to be somewhat reduced”, whilst that of the United States and Canada is “to be increased correspondingly.”

Regarding emerging markets equity investments, the Norwegian ministry of Finance said it would continue to review the composition of the sovereign fund’s emerging market sub-benchmark and will presents its conclusions during spring 2021. No new markets will make it to the GPFG equity benchmark until the ministry rules on its composition.

Solving Oslo stock exchange's high ownership challenge

As for the Government Pension Fund Norway (GPFN), the Norwegian ministry of Finance wants to keep allocation to Denmark, Finland and Sweden’s stock markets “unchanged at 15%.”

“The Government Pension Fund also has a presence in the Nordics through the GPFG, and having two funds in the same market is in isolation not efficient. Increasing the GPFN allocation to the Nordics would magnify this issue. The challenge of high ownership of shares in companies listed on Oslo Stock Exchange should in the ministry’s view be resolved, fully or in part, through withdrawals from the GPFN,” said the Norwegian government in its whitepaper, acknowledging that a withdrawal from the GPFN will require “further assessment.” It added that these withdrawals may take different forms, including lump-sum withdrawals and/or annual withdrawals.

Besides, GPFN’s scope for investments in unlisted companies seeking a listing may be expanded to some extent.

Climate risk framework strengthening

The Norwegian ministry of Finance insisted on the importance of climate risk in its whitepaper. It said it expects Norges Bank – which runs the sovereign wealth fund through NBIM - to continue considering a range of climate risk measures, including participation in research projects. “It is important that the Bank’s efforts are based on a comprehensive strategy that includes priorities, objectives and activities. Reporting should to the extent appropriate be in line with leading frameworks (TCFD), including on climate scenarios for the portfolio and relevant sub-portfolios, relevant metrics and eventual stress testing,” penned Norway’s finance authorities.

The ministry also intends to draw recommendations in spring 2021 upon amendments proposals to the GFPG’s ethical framework made by the special committee it established in 2019. These proposals include changes to the weapons and corruption criteria, as well as a new weapon sales criterion. The committee also proposed clarification over the requirements for coordination between Norges Bank and the Council on Ethics, as well as inclusion of the United Nations guiding principles on business and human rights in GPFG’s management mandate.