This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. The Ruminations Series in 2009 produced a series of aphoristic (ἀφορισμός) essays, meant to provoke thought rather than explain it. The hope was that, built up on each other, the series would provide a matrix of thoughts that together might lead the reader in new directions. Ruminations continue to be produced form time to time. For 2010, this site introduced a new series--Business and Human Rights. The series took as its starting point the issues and questions raised by John Ruggie, the United Nations Special Representative of the Secretary-General (SRSG) on business and human rights, in a global online forum.
For 2011, this site introduces a new series of integrated essays--Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model. The object of this series to to consider the work of the Ethics Council of the Norwegian Sovereign Wealth Fund. The thesis of this series is this: The Norwegian Sovereign Wealth Fund (NSWF) )investment program is grounded in the application of a set of Ethical Guidelines adopted by the Storting (the Norwegian Legislature) and enforced through an Ethics Council charged with determining whether a company should be excluded from investment by the NSWF. The work of the Ethics Council has produced the beginnings of a coherent jurisprudence of ethics for corporate investment. That jurisprudence may contribute significantly both to the development of transnational social norm standards and affect the way domestic corporate law is understood. This is Part III of the series.
But responsible investing is not limited to the use of international standards as a touchstone for national governance of the Fund's activities. Rather, responsible investing extends to the use of the Fund's power as an investor under principles of active ownership. While the Norges Bank, acting through the Fund investment, operates in something like a regulatory capacity--operationalizing a regulatory standard under which the lawfulness of Fund investment is measured--the Norges Bank is also obligated to exercise its ownership rights, that is its rights as a shareholder, to the purposes specified by statute and regulation. Specifically, the Fund is obligated to make decisions about the nature of its participation, and the exercise of its shareholder tights in a corporation, on the basis of a set of international soft law frameworks. These include the UN Global Compact, the OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Corporations. The effect is profound, the regulations compel the Fund, as a public shareholder, to govern its conduct as a shareholder (and thus to determine the character of its interests int he corporation) on the basis of a set of international soft law. Soft law is thus hardened, but indirectly by compelling a public entity to incorporate these standards in its private self interested conduct.
Thus understood, responsible investment does not merely compel the incorporation of international standards in national norms for investment. Rather it also requires the Norges Bank to actively contribute to the development of the standards under which it is to be governed. "The Government will play an active role in international processes aimed at further developing the CSR framework." (Norway Ministry of Finance, Report No. 10 (2008-2009) to the Storting, Corporate Social Responsibility in a Global Economy, at 1.1). As such, investing is both understood as participation in markets and also the development of the rules under which such private market participation is organized and its companies regulated.The Norwegian state's critical support for the work of the Special Representative of the U.N. Secretary General, John Ruggie, in his work to develop a framework for business and human rights is an important example of that outward projection of Norwegian state power in the construction of international norms that it, in turn, internalizes in its domestic legal order, and enacted as part of the regulatory framework of the NSWF, then becomes binding on Fund managers and directly affects both invest decisions and the forms of active ownership (that is, the expression and use of private power directed by state policy derived form law). "Norway has supported this work, both politically and financially." (Norway Ministry of Finance, Report No. 10 (2008-2009) to the Storting, Corporate Social Responsibility in a Global Economy, at 7.1.1 (specifying a number of actions in support of this project.).
The Ministry of Finance presented ethical guidelines for the Government Pension Fund – Global (former Government Petroleum Fund) in the Revised National Budget for 2004. The Storting endorsed the guidelines in Budget Recommendation to the Storting No. 1 (2003–2004). The Ministry of Finance established the ethical guidelines with effect from 1 December 2004. Clause 4.4 of the guideline was revised on the 29th of September 2008, according to the Report to the Storting No. 16 (2007–2008), and again on the 30th of September 2009, according to the Report to the Storting No. 20 (2008–2009). (From Council on Ethics for the Government Pension Fund Global, Annual Report 2009, at 8)
The consultancy group created by former US Secretary of State, Madeleine Albright, has been hired by the Norwegian state to help it review the ethical investment policy of the €250bn ($366bn) government pension fund. The Washington DC-based Albright Group is working with Simon Chesterman, global professor and director at the New York University School of Law Singapore programme, to examine issues including the effectiveness of the Norwegian fund’s high-profile divestment strategy and its engagement procedures with the 7000 companies it invests in. (From Hugh Wheelen, Ex US secretary of state Albright hired for Norway fund ethics review, Responsible Investor.com, Jan. 17, 2008).Cf. Simon Chesterman, Laws, Standards or Voluntary Guidelines?, ("The turn to ethics as a means of improving behaviour of multinational corporations offers an opportunity but also an opportunity cost: ethics can be a means of generating legal norms, through changing the reference points of the market and providing a language for the articulation of rights; yet they can also be a substitute for generating those norms."). Despite the concerns, fairly widespread among legal academics, about the substitution for soft law or quasi-judicial systems for the traditional positive law mechanics of the law-state, the Ethics Guidelines have now become part of an integrated system of responsible investing that is meant to serve as a set of legal qualitative and policy standards governing the sorts of investments that may be made by the Fund.
The Ethics Guidelines form an important component of the responsible investing framework of NSWF operations. It is grounded in the policy of the Ministry of Finance that links corporate social responsibility to ethics and that suggests that active ownership principles and determinations of decisions about which companies ought to form the investment universe of the NSWF are linked by the same set of principles. Those policies also suggest the link between responsible investing, national law and the extraterritorial application of national law standards grounded in international standards. "The ethical aspects of CSR have become more apparent as a result of globalisation. . . . The ethical basis for CSR derives from the inviolability of human dignity." Norway Ministry of Finance, Report No. 10 (2008-2009) to the Storting, Corporate Social Responsibility in a Global Economy, at 1.1. Ethics also proceeds from a set of political considerations that suggest the public obligations of private actors, and thus the legitimacy of the extension of public power through participation in private markets. The Committee on State Ownership concluded that "the state's legitimacy could be weakened, for example, as a legislator and on matters concerning foreign policy, if in its role as owner, it failed to comply with high standards in this area. (Id., at 2.1.3). This sovereign investing grounded in notions of ethical investing necessarily conflates public and private activities in ways that privilege the state and its choices, and suggests that such choices ought legitimately to be extended to the limits of the actual ability of the state to control activity--directly through legislation or indirectly through ownership. "Just as politics is not an end in itself, but a means of promoting social change for the benefit of the people and the environment, a company's profits or activities are not goals that can be viewed in isolation from other considerations." (id., at 1.1).
The assets in the Fund shall not be invested in companies which themselves or through entities they control:
a) produce weapons that violate fundamental humanitarian principles through their normal use;
b) produce tobacco;
c) sell weapons or military material to states mentioned in section 3.2 of the
guidelines for the management of the Fund. (Ethics Guidelines Sec. 2(1)))
a) serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour, the worst forms of child labour and other child exploitation;
b) serious violations of the rights of individuals in situations of war or conflict;
c) severe environmental damage;
d) gross corruption;
e) other particularly serious violations of fundamental ethical norms. (Id.).
In making this discretionary assessment, the Ministry of Finance
may among other things consider the probability of future norm violations; the severity and extent of the violations; the connection between the norm violations and the company in which the Fund is invested; whether the company is doing what can reasonably be expected to reduce the risk of future norm violations within a reasonable time frame; the company’s guidelines for, and work on, safeguarding good corporate governance, the environment and social conditions; and whether the company is making a positive contribution for those affected, presently or in the past, by the company’s behaviour. (Id., Sec. 2(4)).