Part XXVIII: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXVIII of the series.

 

Although the Norwegian fund is largely based in oil and gas, it is likely to expand into property and green energy. Photograph: Robert Garvey/Corbis, From Gwladys Fouché, Norway's sovereign wealth fund: £259bn and growing, Guardian UK, Sept. 20, 2009.

Part XXVIII: Ethics and a Jurisprudence of Responsible Investment:  Summing Up and Looking Forward.

Sovereign investing has become an important new element in emerging  patterns of governance in this century. It represents efforts by states to manage their authority, and to project it, in accordance with changing realities of power and governance forms in a world defined by the logic of economic globalization.   Sovereign investing takes a number of forms.  Two fo the most innovative and dynamic are those of the People's Republic of China and of the Kingdom of Norway.

This month long project has sought to consider in some detail a critical aspect of the organization of the sovereign investing project of Norway.  Undertaken through its sovereign wealth fund, Norway is seeking not merely to project public wealth into private global markets.  Norway appears to be attempting the construction of a complex rule-of-law centered framework that blends the imperatives of a state based public policy with a rules based governance system that incorporates domestic and international norms.  To this Norway adds a policy oriented use of traditional shareholder power to affect the behavior and governance of companies in which the Fund has invested.   The object is not merely to maximize the welfare of the funds ultimate investors, the people of Norway (through its state apparatus), but also to use the fund to advance Norwegian public policy in the international sphere and within the domestic legal systems of other states to achieve a measure of horizontal harmonization of corporate governance. Norway has developed a tool box to effectuate its policy centered investment strategy consisting of both the traditional forms of regulatory governance, and a policy centered invocation of shareholder power, both within the corporation and, as a large investor, as an advocate for change within those foreign states where those companies are domiciled. In effect, Norway acknowledges three intertwined but autonomous governance realms. The first is the traditional territorially based law-state.  The second is the governance sphere of the corporation--affecting not only relationships within its operations but also the rules that reflect the choices it makes about how it deals with others.  The third is the international governance sphere,where common traditions are developed that have a direct and indirect effect on both domestic legal orders and corporate behavior choices.  Norway has sought to operate within and between these three governance realms, and to some extent affect their content, through the investment strategies of the NSWF.

The Ethics Council plays a critical role in this complex governance machinery. It is the primary vehicle for applying and elaborating the substantive standards of investment that are at the heart of the Norwegian regulatory effort.  It operates in the form of a court, in part to enhance the legitimacy of its pronouncement.  The Ethics Council is meant to operationalize the substantive provisions of the Ethics Guidelines by serving as a more formally constituted vehicle for applying its provisions to individual companies under unique sets of facts and circumstances. At the same time it also serves as a tool of Norwegian public policy, both long term general policy, and short term political objectives.  These are effected through the interaction between the Ethics Council and the Ministry of Finance. It is also served through the interplay between the exclusion determinations of the Ethics Council and the Norges Bank's active shareholder engagement program.

These essays served as a first attempt to organize more systematically my thinking about this framework and to provide a more organized basis for theorizing its construction, operation and effect.  Ultimately the object will be to consider whether the system can be generalized and adopted elsewhere and also whether the framework represents a new form of public-private transnational enterprise that will help reshape the  fabric of governance for this century.    I started with an introduction of the series theme and thesis.  I then considered the structure and operation of the Norwegian sovereign wealth fund.   The Ethics Guidelines were then introduced and considered. This provided the context for a consideration of the structure of the Ethics Council itself.  The bulk of the essays then considered the exclusion determinations themselves.  After an overview, the essays considered the cases.  These were divided along the lines suggested by the Ethics Guidelines themselves, first exclusions based on products and then the cases based on conduct.  The essays then looked to aggregate the case determinations.  What emerged from those aggregations was both the impact of the decisions and their scarcity. The Ethics Council has not issued a large number of determinations--though the investment universe of the NSWF might have suggested otherwise.  Each of the cases appeared to be chosen to maximize its leveraging effect--leveraging media interest and impact through wide dissemination of the "rule" extractable from the exclusion determination.  But the cases also suggested the large number of potential determinations that might be made in the future. It was not clear, however, whether those determinations would be systematically undertaken. Nonetheless, a sufficient number of determinations had been made to provide at least a partial picture of what the characteristics of the excluded universe.  The cases do more than that.  They also begin to define a jurisprudence with its own standards and rules that not merely deepen the rule of law legitimacy of the Ethics Council process but also expand the scope of the standards in the Ethics Guidelines.  The essays than turned back to the context in which the Ethics Council operates--considering again, and now in more depth, the relationship between the Ethics Council's role and that of the Norges Bank and its active shareholder program. That consideration is used as a basis for re considering the implications of the Norwegian responsible investment project.  The essays end with a consideration of work that is left to be done.  This is considered in two respects, first with respect to gaps in information available, and second with respect to the comprehensiveness and cohesion of the responsible investment policy (in general) and the Ethics Council's role (in particular). 

Michel Foucault, looking at the transformation of the ideology of the state and the forms of resistance to its construction before the 20th century, explained: "History is no longer the State talking about itself; it is something else talking about itself, and the something else  that speaks in history and takes itself as the object of its own historical narrative is a sort of new entity known as the nation." (Michel Foucault, "Society Must be Defended": Lectures at the Collège de France 1975-1976 (David Macey, trans., New York: St. Martin's Press (Picador), 2003), 18 February 1976, at 142). Substitute  the idea of "nation" broadly conceived, with that of community (economic, social, cultural. etc.) and the dynamic of this century emerges more clearly.  Whatever the final form of the Norwegian effort, what clearly emerges in a new form of governance in which the state seeks to harmonize autonomous governance frameworks while attempting to contribute to the development of each of them.  It is not the only one, of course.               



Index:


Part I:  Introduction of the Series Theme and Thesis.

Part II: The Structure of the Norwegian Sovereign Wealth Fund. 

Part III: Framing a Operational Structure for Responsible Investing:  The NSWF Ethical Guidelines.

Part IV: Operationalizing the Ethics Guidelines--The Structure and Functions of the NSWF Council on Ethics.


Part V: Responsible Investment Through the Ethics Guidelines--Overview of the Exclusion Determinations.

Part VI: Ethics and a Jurisprudence of Responsible Investment:  The Cases--I.  Products, 1. Weapons production, a.  land mines.

Part VII: Ethics and a Jurisprudence of Responsible Investment:  The Cases--I.  Products, 1. Weapons production, b.  cluster munitions.

Part VIII: Ethics and a Jurisprudence of Responsible Investment:  The Cases--I.  Products, 1. Weapons production, c.  nuclear arms. 

Part IX: Ethics and a Jurisprudence of Responsible Investment:  The Cases--I.  Products, 2. Weapons Sales to States, a.  Burma.

Part X: Ethics and a Jurisprudence of Responsible Investment:  The Cases--I.  Products, 3. Tobacco Production.

Part XI: Ethics and a Jurisprudence of Responsible Investment:  The Cases--II.  Conduct--Complicity, 1.  Serious or systemic human rights violations. 

Part XII: Ethics and a Jurisprudence of Responsible Investment:  The Cases--II.  Conduct--Complicity, 2.  Environmental damage.

Part XIII: Ethics and a Jurisprudence of Responsible Investment:  The Cases--II.  Conduct--Complicity, 3.  Serious Violations of Ethical Norms. 

Part XIV: Ethics and a Jurisprudence of Responsible Investment:  The Cases--II.  Conduct--Complicity, 4.  Serious Violations of Individual Rights in War or Conflict.

Part XV: Ethics and a Jurisprudence of Responsible Investment:  The Cases--II.  Conduct--Complicity, 5.  Corruption.

Part XVI: Ethics and a Jurisprudence of Responsible Investment:  The Cases--III.  Non-Exclusion Actions, 1.  Observation of Companies.

Part XVII: Ethics and a Jurisprudence of Responsible Investment:  The Cases--III.  Non-Exclusion Actions, 2.    Other Forms of Interventions by the Ethics Council.

Part XVIII: Ethics and a Jurisprudence of Responsible Investment:  The Cases--II.  Conduct--Complicity, 2.  Environmental damage (new case).

Part XIX: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part I. 

Part XX: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part II.

Part XXI: Ethics and a Jurisprudence of Responsible Investment:  First Run at the Characteristics of Companies in the Excluded Universe.

Part XXII: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part III.

Part XXIII: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part IV.

Part XXIV: Ethics and a Jurisprudence of Responsible Investment:  Summary of Ethics Council Standards developed from the Determinations.

Part XXV: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part V.

Part XXVI: Ethics and a Jurisprudence of Responsible Investment:  The Relationship Between the Ethics Guidelines and Active Shareholder Principles.

Part XXVII: Ethics and a Jurisprudence of Responsible Investment:  The Ethics Guidelines as Quasi-Judicial System--What is Left to be Done.

Part XXVIII:  Ethics and the Jurisprudence of Responsible Investment:  Summing Up and Looking Forward.

 

  

Part XXVII: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXVII of the series.

From The Conscious Shift in Consumer Behaviors,  LOHAS.  ("So what brands do New Affluents find meaningful, authentic and relevant? Apple, Sony, BMW and Ralph Lauren, unsurprisingly. But Crate & Barrel, Ikea, Whole Foods and Levi's, too. Porsche, Lexus, Chanel and Viking. And Target, North Face, Volkswagen and The Gap. Missing from this segment's 75 favorites list are classic luxury brands like Cadillac, Gucci, Louis Vuitton, Armani and Versace who have yet to demonstrate how they are keeping up with emerging trends.")

[almost done]

Part XXVII: Ethics and a Jurisprudence of Responsible Investment:  The Ethics Guidelines as Quasi-Judicial System--What is Left to be Done.

We have been considering the system that is the administration of the Ethics Guidelines. We have posited that the Ethics Guidelines system is an essential element of the Norwegian state's efforts to construct what will eventually serve as an international standard for responsible investment. We have come to understand responsible investment as a three pronged program consisting of: (1) a political-regulatory element derived from the Norwegian state apparatus (Storting and Ministry);  (2) an economic-private element derived from the position of the Norwegian state as a shareholder-investor in publicly traded companies; and (3) a quasi-judicial element derived form the Ethics Guidelines and implemented through the Ethics Council.  Together the three prongs apply national and international law in the public sphere and the private markets, and in the process seek to contribute the the development of the international law they develop and seek to domesticate that international (and national) law and regulatory framework into the operations of corporations (and the regulatory programs of corporate home states) through shareholder action.  

The Ethics Council plays a critical role in that process, standing between the state and the private sector.  It transforms politics into a set of predictable standards of conduct that are then applied on a case by case basis, to the investment universe of the NSWF. 

This short essay considers the limits of the Ethics Council's system in the context of the responsible investment construct. The suggestion here is that, while the Ethics Council system provides a respectable foundation for its operation, the Ethics Council system remains open to further refinement in line with its objectives and in the face of the task to which it has been charged.

"The level of transparency comes from the Truman index; the form of government from the Economist Intelligence Unit’s democracy index; the estimates of the fund’s size come from Standard Chartered."  From Brad Setser, Regulating sovereign wealth funds: does the US have any leverage?, Council on Foreign Relations, Feb. 26, 2008.

Where can more information be obtained about the size of divestments for companies where it was not listed in the recommendation? (i.e. tobacco and a few others)



Why was Rio Tinto excluded two years after Freeport since the violation in question is over the same mine of which they were both part owners?



Was Siemens ever excluded from the Fund? Is it still under observation status?



Why were various Council members changed in 2008/09 and what is the typical cycle for Council members?



As noted on Page 13 of the 2009 Annual Report the Council has a "Watch-list" is this interpreted as companies under observation?



There has been skepticism about adding other states to the criteria for being excluded (in the same manner Burma was), are there any plans to do this? (i.e. the DRC)



With what appears to be insurmountable evidence against the company through sources that the Council has cited before, why was Total never excluded?



Was the Minister of Finance overstepping their bounds by putting Siemens AG under observation instead of taking the Council's recommendation of excluding the company? (Cite Section 3 Article 1 of the Ethical Council's Guidelines)



Other than the Monsanto recommendation has there been any other cases of "active ownership"?



Is the Council looking to add any additional type of exclusions?



Was Rheinmetall ever excluded from the Fund?



Does the Council look at companies who are invested in equities more than companies that are invested in fixed-income assets?



As the Fund looks into developing into real estate, will the Council be participating much in that field?



Currently is the Council only looking at the Ottawa Treaty as their basis for excluding companies in violation of manufacturing anti-personnel landmines and the Oslo Convention for companies manufacturing cluster munitions, or are they taking into consideration other criteria?



How do people get nominated for the Council of Ethics?



Does the Council look at any source who writes to the Council on allegations against a company?



The Council's website states that they employ staff to translate in many different languages, does language pose a problem when evaluating a company?

Part XXVI: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXVI of the series.

From NBIM submits shareholder resolutions to four US companies 2009.

Part XXVI: Ethics and a Jurisprudence of Responsible Investment:  The Relationship Between the Ethics Guidelines and Active Shareholder Principles

The Ethics Guidelines provide only one part of the complex governance and regulatory structure of the NSWF's responsible investment framework. 

The term «responsible investment practice» has begun to take hold as a recognised and applied concept in the global investment community. It springs historically speaking from the idea that business has an ethical and social responsibility that extends beyond directives to comply with laws and regulations.

At the same time the debate about what constitutes responsible investment practice has gradually moved back to the core of investment management: managing capital with the aim of achieving the highest possible financial return within an acceptable risk, in line with shareholders" interests. There has been a move away from a purely philanthropic or ethical point of view to greater awareness of self-interest. From a perspective of ensuring a long-term return on capital values, many investors consider the following questions relevant: What ensures the companies" assets in the long run? What risk factors must a broadly diversified, long-term investor consider? Are there sufficient converging interests between owners and managers of the capital? Should companies demonstrate that they take due account of environmental and social factors, so as to convince investors that they create value over time? (Ministry of Finance, Report No. 10 (2009-2010) The Management of the Government Pension Fund in 2009, Section 10.1).

The Ethics Guidelines project presents the regulatory and gatekeeper function of the NSWF investment framework.  The private regualtory role is tasked to the Norges Bank and its active shareholder project.  

“We are increasingly attaching importance to Norges Bank’s active ownership,” says Minister of Finance Sigbjørn Johnsen. The new guidelines for Norges Bank include a new, ambitious requirement of generally integrating considerations of good corporate governance and environmental and social issues into investment activities. This reflects international developments, says the Minister of Finance.
Norges Bank participates in a variety of formal and informal initiatives in collaboration with other investors. The new guidelines emphasise the importance of this by stipulating that the bank actively contribute to development of good international standards within responsible investment practice and exercise of ownership rights. New requirements have also been defined regarding transparency and reporting in Norges Bank. (Norway, Ministry of Finance, New guidelines for responsible investment practices in the Government Pension Fund Global (GPFG) Press release, 02.03.2010, No.: 11/2010. )

The Guidelines on active ownership are worth a careful read.  See Norway, Ministry of Finance, Guidelines for Norges Bank’s work on responsible management and active ownership of the Government Pension Fund Global (GPFG) Adopted by the Ministry of Finance on 1 March 2010 pursuant to Act no. 123 of 21 December 2005 relating to the Government Pension Fund, section 2, paragraph 2, and section 7. The Guidelines declare the "Bank’s primary goal in its active ownership is to safeguard the Fund’s financial interests."  Id., Sec. 2(1).  It then ties the substantive principles of active governance to an important set of transnational voluntary governance codes. "Active ownership shall be based on the UN Global Compact, the OECD Guidelines on Corporate Governance and the OECD Guidelines for Multinational Enterprises. The Bank shall have internal guidelines for its exercise of ownership rights that indicate how these principles are integrated in its active ownership."  Id., Sec. 2(2).  The last two might well be understood to constitute an important component of the transnational constitution of corporate governance.  See, Larry Catá Backer, Transnational Corporate Constitutionalism?, Law at the End of the Day,  Sept. 21, 2009.   It also mirrors the thrust of the Ethics Guidelines, but now applied internally to specific corporations in which the NSWF has an interest under rules of private governance.

Avctive ownership is tied to the NSWF's notions of universal ownership.

An important prerequisite for influencing companies to change their behaviour is that such a change is also in the companies" interest, if not the results may soon become arbitrary. Where it is difficult to find a solution in isolation at the company level, a broader industry approach may be relevant. An example of successful ownership work in this context is the GPFG"s initiative in India which contributed to a new industry standard for combating child labour.

The most appropriate form of sustainable, long-term and predictable solutions to global problems will often be through regulation. In this case, the GPFG will primarily be interested in influencing global authorities in the direction of integrating the external effects with the economy, either directly or in partnership with portfolio companies and other investors. Work on climate change or regulation of the financial markets so that risk-taking is more in line with long-term interests are good examples of issues where global solutions are most appropriate. (Ministry of Finance, Report No. 10 (2009-2010) The Management of the Government Pension Fund in 2009, Section 11.4).

The universal ownership principles suggests the ways in which the state can access non-law based avenues of regulation through its shareholder power.  "The Fund is a universal owner by definition and should therefore have a concrete approach to what this means in practice. Such an approach should look at the need and possibilities for reducing the short- and long-term welfare losses by «lifting» the quality of the investment universe. It should also look at the dynamic need to «adapt» to the issues through changes in the investment strategy." (Id., at 11.6).

 

Active ownership is not meant to be applied only internally to the constitution of corporations.  It is also meant to have regulatory effects.  But the Guidelines are not merely the imposition of passive transnational standards. "The Bank shall actively contribute to the development of good international standards in the area of responsible investment activities and active ownership." Norway, Ministry of Finance, Guidelines for Norges Bank’s work on responsible management and active ownership of the Government Pension Fund Global (GPFG), supra, at Sec. 3.  Thus for example,

The Ministry of Finance and the Council on Ethics for the GPFG take part in a project coordinated by the UN Global Compact, where the goal is to develop a set of guidelines that provide guidance for responsible corporate and investment practice in conflict areas. Such guidelines are hoped to provide investors and companies a greater degree of insight into each other"s experiences and perspectives, contribute to better and more efficient use of suitable tools when companies operate in such areas, as well as raise awareness and clarity about what is acceptable, responsible behaviour. (Ministry of Finance, Report No. 10 (2009-2010) The Management of the Government Pension Fund in 2009, Section 10.3).

Together these incremental changes to the conventional Norwegian position reminds us of the importance of pubic policy in the operation of the private investment activities of the Norwegian sovereign wealth fund.  They provide a sophisticated mechanism for regulating extraterritorially not through law but through the governance mechanics of investment.  It also serves as a reminder of the substantial irrelevance of international efforts to draw a strong connection between public and private investment in private markets through instruments like the Santiago Principles.

Part XXV: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXV of the series.

From Heritage Foundation, 2011 Index of Economic Freedom

Part XXV: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part V

Last set of simple charts.  Still working through their value.  My sense is that this data is useful to provide a clearer sense of the Ethics Council's product.  In graphical form it might easier reveal policies and effects that might either be unarticulated or unconscious.   Because of the strong connection between the quasi judicial findings function of the Ethics Council and the political objectives of the Finance Ministry, it is possible to suggest that policies and presumptions might be better revealed through application.  But again, the most striking feature is the substantial lack of numbers.  On the one hand this suggests that trends and conclusions will be more difficult to suggest with any confidence.  On the other hand, it also suggests the importance of the political in the determinations.  By that I mean that the Ethics Council may be able to leverage the effects of individual decisions (they may have impact beyond the consequences to the specific company targeted).  Each decision may serve as a proxy (and one with a stinger) for the traditional announcement of policy from the state, directed specifically to the capital markets.  This is both efficient and tends to conflate public and private policy by effecting policy through private market mechanics.  You decide.  

The focus of these charts is on the states in which targeted companies were domiciled in a number fo exclusion determination categories.

The only country to have a company excluded for Anti-personnel landmines was Singapore in 2002 with one case.

The only country to have a company excluded for complicity with the Burmese Government was China (PRC) in 2008 with one case.

The only country to have a company excluded for human rights violations was the United States with two cases, one in 2005 the other in 2006.

The only country to have a company recommended for exclusion for corruption was Germany in 2007 with one case.

Part XXIV: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXIV of the series.

From How to?

[still under construction, apologies!]

Part XXIV: Ethics and a Jurisprudence of Responsible Investment:  Summary of Ethics Council Standards developed form the Determinations

We are coming tot he end of this series.  At this point it might be useful to bring together the  "law" that has been made by the Ethics Council as it has applied the Ethics Guidelines.  The are divided into the following categories:

evidentiary rules
procedural rules
product exclusion standards
conduct exclusion standards.


evidentiary rules

1.  Use of web posted company materials as evidence and admission. 

A. Recommendation of November 15, 2007, on the exclusion of the company Serco Group Plc.  [11.01.2008].

B. Recommendation of Sept. 6, 2006 on exclusion of Poongsan Corp. The company is recommended for exclusion because of production of cluster munitions[06.09.2006]

C. Recommendation of April 18, 2006 - The exclusion of EADS from the investment universe of the Government Pension Fund — Global has been reviewed [18.04.2006]

D. Recommendation of June 16, 2005 on the exclusion of companies that are involved in production of cluster munitions [16.06.2005] 

E. Recommendation of May 15, 2007, on exclusion of the companies Rheinmetall AG and Hanwha Corp. [11.01.2008].

F.  Recommendation of August 26, 2008, on exclusion of the company Textron Inc.  [30.01.2009]

 G. Recommendation of October 22nd, 2009, on the exclusion of tobacco companies [19.01.2010].

2.  Use of foreign state website for determinations of issues of fact.

A. Recommendation of November 16, 2009, on suspension of exclusion of United Technologies Corp.  [18.03.2010] (U.S. Air Force).

3.  Use of legitimated third party fact finder information

 A. Recommendation of April 18, 2006 - The exclusion of EADS from the investment universe of the Government Pension Fund — Global has been reviewed [18.04.2006](Jane's).

 B. Recommendation of June 16, 2005 on the exclusion of companies that are involved in production of cluster munitions [16.06.2005] (Jane's)

C. Recommendation of May 15, 2007, on exclusion of the companies Rheinmetall AG and Hanwha Corp. [11.01.2008]  (Jane's)

D. Recommendation of October 22nd, 2009, on the exclusion of tobacco companies [19.01.2010] (FTSE, Bloomberg, ).

4.  Probative information obtained from NGOs

 A. Recommendation of June 16, 2005 on the exclusion of companies that are involved in production of cluster munitions [16.06.2005]  

5.  Use of company product catalog or other publication .

 A. Recommendation of September 5, 2007 - New assessment of the company Rheinmetall AG [11.01.2008] (catalogue)

  B. Recommendation of February 13th, 2009, on inclusion of the company Thales SA.[03.09.2009] (corporate social responsibility report).

6.  Use of industry classifications in Fund's reference indices determinative

 A. Recommendation of October 22nd, 2009, on the exclusion of tobacco companies, [19.01.2010]

 



procedural rules

1.  Communication through mail,  e-mail or telephone

A.  Recommendation of September 5, 2007 - New assessment of the company Rheinmetall AG. [11.01.2008].

B.  Recommendation of August 26, 2008, on exclusion of the company Textron Inc.  [30.01.2009]

2.  Ethics Council determines the probative value of evidence.

 A. Recommendation of September 5, 2007 - New assessment of the company Rheinmetall AG [11.01.2008] (at 3).

3.  Ethics Council: presumption that past actions without interruption can be assumed to be ongoing.

A. Recommendation of November 14, 2008, on exclusion of the company Dongfeng Motor Group Co. Ltd.  [13.03.2009]

 


product exclusion standards
nuclear weapons:
1.  Define  “develop and produce key components to nuclear weapons”standard 
a. Missile, testing, and maintenance rule:  "It is presumed that the missile carrying the warhead as well as certain forms of testing of new weapons and maintenance of existing weapons also fall within the scope of the exclusion criteria."
 b.  "The Council considers any form of testing of nuclear weapons to be crucial to the development of nuclear weapons, and therefore such activity falls within the fund’s exclusion criteria."
c.  Dual Use Test:  The Council finds that development or production of products or materials or other
activities that may be categorised as “dual use” is, as a point of departure, not covered by the guidelines.

A. Recommendation of September 19, 2005 on the exclusion of companies that are involved in production of nuclear weapons. [19.09.2005]

Recommendation of November 15, 2007, on exclusion of the company GenCorp Inc. [11.01.2008]  (dual use test)

 Recommendation of April 18, 2006 - The exclusion of EADS from the investment universe of the Government Pension Fund — Global has been reviewed [18.04.2006]

Cluster weapons

1.  Exclusion includes companies involved in production of key components 

A. Recommendation of Sept. 6, 2006 on exclusion of Poongsan Corp. The company is recommended for exclusion because of production of cluster munitions [06.09.2006]

B. Recommendation of June 16, 2005 on the exclusion of companies that are involved in production of cluster munitions [16.06.2005]

Landmines

1.  Definition

A. Recommendation of September 20, 2005 concerning whether the weapons systems Spider and Intelligent Munition System (IMS) might be contrary to international law. Letter to the Ministry of Finance from the Advisory Council on Ethics[20.09.2005] (applies to landmines with battlefield override)

Military Equipment to Burma

1. Definition of "arms and military equipment" by reference to U.S. and E.U. sanctions policy, applies to products with significant military application or purpose, including spare parts and technical assistance.

A. Recommendation of November 14, 2008, on exclusion of the company Dongfeng Motor Group Co. Ltd.  [13.03.2009]

Tobacco

1.  Scope--production rather than sale of tobacco within scope of prohibition.

A. Recommendation of October 22nd, 2009, on the exclusion of tobacco companies [19.01.2010]

 conduct exclusion standards


Adoption of general principles

1.  Perinciple fo proportionality adopted (humanitarian suffering weighed against military advantage).

A. Recommendation of June 16, 2005 on the exclusion of companies that are involved in production of cluster munitions [16.06.2005]

2.  Principle of distinction of use (between military and civilian goals) adopted.

A. Recommendation of June 16, 2005 on the exclusion of companies that are involved in production of cluster munitions [16.06.2005]

B.  Recommendation of August 26, 2008, on exclusion of the company Textron Inc.  [30.01.2009]

3.  Ethics Council will apply international law obligations of Norway to its assessment of Ethics Guidelines rather than the legality of production in home or host states of company but interpret its provisions.

A.  Recommendation of August 26, 2008, on exclusion of the company Textron Inc.  [30.01.2009].

B. Recommendation of February 13th, 2009, on inclusion of the company Thales SA.[03.09.2009]

C. Recommendation of September 20, 2005 concerning whether the weapons systems Spider and Intelligent Munition System (IMS) might be contrary to international law. Letter to the Ministry of Finance from the Advisory Council on Ethics[20.09.2005]

 
XXXX 

Part XXIII: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXIII of the series.

From The Oil Drum, July 9, 2010.

Part XXIII: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part IV

Some of the most interesting issues of the Ethics Council's work relates to its exclusion actions.  I have included a final set of additional data in chart form below.

 Company responses by year, type of exclusion

Elected not to respond: 2005/Custer Munitions (Raytheon, Lockheed Martin, Alliant, Thales) 2006/Cluster                                                       Munitions (Poongsan), 2007/Cluster Munitions (Rheinmetall), 2005/Nuclear Weapons (Finmeccanica, Safran, Boeing, United Technologies, Honeywell), 2007/Nuclear Weapons (GenCorp), 2007/Environmental Damage (Vedanta Resources)

Letter affirming violation: 2005/Cluster Munitions (General Dynamics, L3, EADS), 2007/Cluster Munitions    (Hanwha), 2005/Nuclear Weapons (Northrop Grumman), 2007/Nuclear Weapons (Serco), 2008/Burma (Dongfeng), 2007/Corruption (Siemens)

Letter denying atrocities: 2009/Environmental Damage (Barrick), 2006/Environmental Damages (Freeport), 2008/Environmental Damage (Rio Tinto)

Not directly answered/averted: 2002/Landmines (Singapore Tech.), 2006/Human Rights (Monsanto), 2009/Environmental Damage (Norilsk Nickel), 2009/Other (Elbit)

Testimony: 2008/Other (Israel Electric Corp.), 2006/Human Rights (Monsanto)

Not stated/Never asked: 2005/Human Rights (Wal-Mart & Wal-Mart de Mexico), 2006/Environmental Damage (DRD Gold), 2006/Other (Kerr-McGee)

Declined comment: 2005/Nuclear Weapons (BAE Systems), 2010/Environmental Damage (Samling)

Previously excluded: 2005/Nuclear Weapons (EADS


This is to look at the tendency that under certain types of accusations for exclusion, companies will be reluctant to respond to requests from the Council, more open to responding to the Council, or will not directly speak the questions asked from the Council. Further it examines whether the recommendation for exclusion mentions that the Council talked to the company in question or not.


 Chart of NGO and type of exclusion

Land Mines: International Campaign to Ban Landmines (Singapore Tech.)

Cluster Munitions: Human Rights Watch (General Dynamics, L3, Raytheon, Lockheed, Alliant, EADS, Thales), Norwegian People’s Aid (General Dynamics, L3, Raytheon, Lockheed, Alliant, EADS, Thales), International Campaign to Ban Landmines (General Dynamics, L3, Raytheon, Lockheed, Alliant, EADS, Thales), Ethical Investment Research Service (General Dynamics, L3, Raytheon, Lockheed, Alliant, EADS, Thales), Jane’s Information Group(General Dynamics, L3, Raytheon, Lockheed, Alliant, EADS, Thales).

Nuclear Weapons: Federation of American Scientists (BAE, Boeing, Finmeccanica, Honeywell, Northrop, United Tech., Safron), Jane’s Information Group (BAE, Boeing, Finmeccanica, Honeywell, Northrop, United Tech., Safron)

Burma: None

Tobacco: None

Human Rights: National Labor Committee (Wal-Mart & Wal-Mart de Mexico), International Textile Garment & Leather Federation (Wal-Mart & Wal-Mart de Mexico), International Labor Rights Forum (Wal-Mart & Wal-Mart de Mexico), SwedWatch  (Wal-Mart & Wal-Mart de Mexico), Free Trade Centre  (Wal-Mart & Wal-Mart de Mexico), Hong Kong Christian Industrial Committee  (Wal-Mart & Wal-Mart de Mexico), Wal-Mart Litigation Project (Wal-Mart & Wal-Mart de Mexico), Interfaith Center on Corporate Responsibility (Wal-Mart & Wal-Mart de Mexico), Workingchild.org (Monsanto), Global March Against Child Labor (Monsanto), Physicians for Human Rights Child Rights Group (Monsanto), India Committee of The Netherlands (Monsanto), Anti-Slavery (Monsanto)

Corruption: Transparency International (Siemens)

Environmental Damage: WALHI (Freeport), Jatam (Freeport), Global Witness (Freeport), Mineral Policy Institute (Freeport, DRD Gold, Barrick), International Crises Group (Freeport), International Institute for Environment and Development (Freeport, Rio Tinto), Carnegie Council (Freeport), Amnesty International USA (Freeport), Friends of Earth (Freeport), Oxfam Australia (DRD Gold, Barrick), Environmental Watch Inc. (DRD Gold), Center Environmental Research and Development (DRD Gold), Citizen’s Constitutional Forum (DRD Gold), Indian’s People Tribunal (Vedanta), India Resource Center (Vedanta), India Committee of The Netherlands (Vedanta),  Social Watch (Vedanta), MAC: Mines and Communities (Vedanta), National Environmental Engineering Research Institute (Vedanta), The Indian People’s Tribunal on Environment and Human Rights (Vedanta), SIPCOT Area Community Environmental Monitors (Vedanta), Mines, Mineral, & People (Vedanta), “Local NGO’s” (Barrick), The Commonwealth Scientific & Industrial Research Organization (Barrick), Observatorio Latino de Conflictos Ambientales (Barrick), Australia and New Zealand and Conservation Council (Barrick), Blacksmith Insititute (Barrick), Bellona Foundation (Barrick), EarthSight Investigations (Samling), Illegal-loggin.info (Samling), Swiss Foundation for Development and International Cooperation (Samling),

Other: Norwegian People’s Aid (Israel Electric Corp.), International Committee of the Red Cross (Africa Israel Investments)

Part XXII: Developing a Coherent Transnational Jurisprudence of Ethical Investing: The Norwegian Sovereign Wealth Fund Ethics Council Model

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 XXII of the series.

From Rodent Control, Baiting, Exclusion, & Clean-up Roof Rats, Norway Rats, and Mice

Part XXII: Ethics and a Jurisprudence of Responsible Investment:  The Statistics--Part III

Some of the most interesting issues of the Ethics Council's work relates to its exclusion actions.  I have included additional data below. 

Exclusions by year and by country:

The prominence of the United States is apparent.  What is more apparent is the small number of determinations made.  Much of the exclusion determination bulges were aggregations of a single determination (e.g., the tobacco company exclusions).  The number of exclusions are substantially insignificant.  But the rate of investigation is growing and the scope of investigations appears to be expanding as well.

The insignificance can be placed in context:

                                                                                    2008         2009

Companies excluded during the year                      5                 19
Recommendations published                                    6                   6
Companies reinstated during the year                    0                    3
Companies in SPU at the end of the year             7800           8300

Cases flagged in monthly consultants’ reports       360            450
Cases where initial assessments were carried out  130            170
Companies under further assessments                    30               55

From Ethics Council, Annual Report 2009 (pdf, 1.0 MB), pg. 6.  

"The Council often starts looking into cases after allegations are made of potential violations of the Ethical Guidelines. However, it also undertakes studies of regions or sectors not based on news items about individual companies, but on the basis of information about recurrent problems in an industry or area. In 2010, the Council will continue its assessments of companies with operations in the conflict areas in the Democratic Republic of Congo, partly in light of UN reports claiming that companies are fuelling conflicts. The Council is also going to investigate more closely the Fund’s investments in coal mines in light of the many accidents in this industry, and is as well as looking into oil pollution in the Niger Delta in light of the many oil spills in the region over a prolonged period and the impact this may have on the environment and human health." Id.  

Additional data amplifies these insights.