Concluding a human rights evaluation for the Council on Ethics of the world´s largest sovereign wealth fund
The last years saw an increased focus on the responsible business conduct and human rights responsibilities of institutional investors. In 2017, OECD published the Guidance on Responsible Business Conduct for Institutional Investors. Two years later, the EU adopted a regulation requiring a range of financial actors, including investment and pension funds, to take into account sustainability factors into investment decisions.
Against this backdrop, the Institute was commissioned by the Council on Ethic s to conduct an evaluation of its practice to recommend the exclusion or observation of companies from the Norwegian Global Pension Fund (the Fund) on human rights grounds since 2005.
Human rights exclusion by the Council on Ethics
The Council on Ethics is an independent body that advises the Norwegian Central Bank on the exclusion or observation of companies from the Fund based on a set of ethical criteria, including on human rights. According to section 3 of the Guidelines for Observation and Exclusion, companies may be put under observation or be excluded if there is an “unacceptable risk that the company contributes to or is responsible for serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour and the worst forms of child labour.”
As of March 2019, the Fund divested from 14 companies following the recommendations made by the Council under the human rights criterion.
First evaluation of the Council´s human rights practice
Since the adoption of the Guidelines in 2005, the Council has not reviewed the implementation of its human rights criterion. Our evaluation concluded with a report making policy and operational recommendations on the integration of the UN Guiding Principles on Business and Human Rights in the Council´s assessment, screening and investigation process.
“We are very pleased to have completed this internal evaluation. The Council on Ethics is a unique institution in the business and human rights field. Its high-profile exclusions are followed by the investment community with the potential to influence business enterprises all over the world,”
The Fund is the world’s largest sovereign wealth fund and holds equity in more than 9,000 companies worldwide with a current market value of approximately 1 trillion euros. On average, it holds 1.4 % of all the world’s listed companies, placing it in a unique position to shape business practices across economic sectors and regions.
Evaluation findings
Overall, the Institute found that the Council´s practice has been consistent with its mandate and systematically followed due process and thorough evidence gathering protocols. It also found areas where the Council´s practice could be further aligned with international business and human rights standards, in particular with respect to the definition of “serious or systematic violations”, the Council´s approach to the assessment of future risk, the consideration of remedy and the exercise of leverage.