The Petroleum Fund 3

The Petroleum Fund Part III

7: Code of conduct and ethical guidelines

Withdrawals from the Petroleum Fund are regulated by the so-called action rule – a rule introduced by the Stoltenberg I government in 2001. The action rule limits the withdrawal from the fund – and thus the phasing in of oil revenues in the Norwegian economy – to the expected long-term real return to the fund. Until now, it has been 4 percent per year. The action rule thus contributes to the gradual phasing in of oil revenues into the economy. At the same time, only the return on the fund is used, and not the fund capital. This means that the fund can in principle last forever. The funds raised from the fund are included in the state budget.

In 2004, according to, the Storting adopted ethical guidelines for the fund, and an ethics council was established. The ethical guidelines are based on basic and stable values ‚Äč‚Äčthat are widely agreed upon by the people. The task of the Council on Ethics is to assess whether the investments in certain companies contravene the fund’s ethical guidelines and then give its recommendations to the Ministry of Finance. Input to assess whether an investment violates the guidelines or not, often comes from public opinion. Non-governmental organizations and “watchdogs” are constantly looking to verify whether the fund’s investments are in line with the ethical guidelines.

In recent years, and especially after a review of the ethical guidelines in 2008, the fund has to a greater extent tried to influence companies that violate the ethical guidelines by exercising active ownership, rather than selling out of the companies. Active corporate governance means that the fund uses its ownership rights as a shareholder to influence the companies in the desired direction. By prioritizing active ownership, the fund’s ethical focus is more reminiscent of that of other, private investors. Norges Bank has been an ardent advocate for this approach.

8: The Petroleum Fund – a foreign policy instrument?

As the Petroleum Fund is state-owned, and thus owned by all of us, it depends on having the support and legitimacy of the population. The ethical guidelines can be seen as part of ensuring the fund’s legitimacy. Among several national actors, such as environmental and development organizations, the fund’s legitimacy can be further strengthened if the investments are at all times in line with Norway’s foreign policy priorities and obligations.

At the same time, the Petroleum Fund is dependent on confidence in the financial markets in which it invests. If the financial markets begin to believe that the Petroleum Fund invests on foreign policy rather than economic grounds, the fund could quickly lose legitimacy in these markets. Measures that can help strengthen the view of the fund among the owners – the Norwegian people, can thus mean that the fund also loses legitimacy in the financial markets.

In other contexts, however, domestic political and financial legitimacy can go hand in hand – such as if the fund can point to high returns. High fund returns are an indication that the fund’s investments help to channel capital to the most productive and financially profitable companies and investment objects. This is in line with the financial markets’ primary purpose, at the same time as it contributes to good management of Norway’s oil wealth.

There are regular voices who believe that the fund’s investments undermine Norwegian foreign policy. However, the Norwegian government has determined that the Petroleum Fund is not suitable for meeting all of Norway’s obligations as a state. There has therefore been broad agreement in the Storting that other political considerations are best resolved through other instruments , including foreign, development aid and environmental protection policy.

Several players, both nationally and internationally, nevertheless point out that Norway is inconsistent when the fund’s investments are not in line with Norwegian foreign policy. For example, the Rainforest Fund and the Norwegian Society for Nature Conservation pointed out in 2011 that the Petroleum Fund had significant shares in companies where deforestation is widespread. This, they claimed, is contrary to Norway’s obligations under the UN Climate Convention.

In another episode in 2006, the Petroleum Fund was criticized by the then Prime Minister of Iceland, Halldor Asgrimsson, for being among the first investors to speculate on economic collapse in Icelandic banks. Halldor Asgrimsson criticized the Norwegian state for investing millions of dollars through the Petroleum Fund in something that would undermine the Icelandic economy. Asgrimsson further believed that these investments were in breach of the co-operation agreements between the Nordic countries.

In 2011, the Petroleum Fund showed once again that consideration for financial principles is governing. Then the Petroleum Fund voted no to an EU agreement to restructure the Greek government debt. The Petroleum Fund thus failed to support an EU measure that would help get the Greek economy back on its feet. By some, the refusal was interpreted as the rich uncle’s refusal to help a poor nephew in great need.

Despite these episodes, there has mainly been broad agreement in the Storting that the fund should be a financial and not a foreign policy instrument. To use the fund for foreign policy purposes would be to undermine the fund’s role and position in the financial markets, it is emphasized. Norway is therefore essentially a professional investor in international financial markets.

The Petroleum Fund 3

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