1. How to balance ethics, culture, and money Reflections on Sovereign Wealth, Norwegian Oil – and Money in General Dr. Henrik Syse Former Head of Corporate Governance, NBIM (Norges Bank Investment Management) Senior Research Fellow, PRIO (Int’l Peace Research Institute, Oslo) e-mail: henrik@prio.nohenrik@prio.no Heinrich Steffens Vorlesung Humboldt-Universität zu Berlin January 27, 2009 footer tekst1

2. What’s really the problem with ethics and money? Temptations Primary and secondary goals may become confused Short-term vs. long-term time horizons Important to remember the possibility – and desirability – of plural motivations footer tekst2

3. Background to the Norwegian fund 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 tekst3

4. NBIM and Corporate Governance NBIM 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 tekst4

5. Ethics, business, and investment As 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 tekst5

6. Ethics, business, and 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 tekst6

7. Ethics, business, and 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 problem 3. 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 tekst7

8. Practical tools – what does one do? Voting Company engagement Engagement with standard setters Networking with other investors Legal means Public communication Academic research  Aim: concrete change (in companies and markets), and contribution to the ongoing debate footer tekst8

9. Focus areas at NBIM Good corporate governance (e.g., voting rights, board responsibility, and greater transparency) Child labor and children’s rights Lobbying and the environment footer tekst9

10. What kind of responsibilities? Fiduciary responsibility to one’s owners Complicity through ownership Role responsibility as a large actor  All of these are relevant to the large institutional investor footer tekst10

11. Our main challenges To 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 tekst11

12. Und Norwegen – 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 tekst12