The Annual Report includes brief articles on specific topics relevant to the Council’s work, such as companies’ sales of weapons to parties in armed conflict, corruption risk, environmental damage or violations of worker’s rights in the textile industry. The report also includes a summary of all the Council’s recommendations to Norges Bank that have been published in 2018 through 1 March 2019.
Access the The Council on Ethics Annual Report 2018 HERE
Etikkrådets årsmelding for 2018: HER
The Council continuously monitors whether companies in which the fund is invested could be operating in ways that infringe the fund’s guidelines for observation and exclusion from the GPFG. As a result, the Council works on many different cases and issues in parallel. A consulting firm provides the Council with a quarterly report on any companies it has identified whose operations may infringe the guidelines’ product-based criteria. (2018 Report, pp. 7)
4. The Council's work on climate criteria merits further study. But it is also a study in a lack of transparency or broad consultation necessary for the extension of a broadly regulatory set of principles.
Work relating to the climate criterion has been challenging, partly because it is pioneering work, and partly because the criterion is open to different interpretations. In 2017 and 2018, the Council recommended the exclusion of a total of five companies under this criterion. In May 2018, Norges Bank sent the Council a letter asking for further clarification of how the Council understands the criterion. The Council and the bank have also held several meetings to discuss the criterion. The Council’s reply to Norges Bank is presented on page 43. In a letter dated 7 November 2018, Norges Bank asked the Ministry of Finance for clarification of certain key aspects of the criterion. (2018 Annual Report, p. 20).While the work of the Council on climate related principles is to be lauded, its methods might require some assessment, especially in the context of the sort of rule of law environment that they might want to serve an example.
5. The Council's work in the textile sector is important for two reasons. The first is that their data gathering appears to show a substantial gap between the emergence of a regulatory framework for supply chain management and its enforcement. "Even though almost all the companies have so-called codes of conduct based on requirements from customers, the level of compliance with these varies considerably. It is a cause for concern that even when textiles companies are inspected by customers or their representatives many times a year, the Council has uncovered multiple norm violations at the same factories."(Ibid., p. 17). The second is the emerging use of the process of investigation to encourage change before formal action is taken by the Council. The 2018 Report noted, for example, that some enterprises "demonstrate a willingness to change what were, at the outset, poor working conditions. This often happens after the companies have received a draft recommendation to exclude them, in which the labour rights violations are described. . . . A draft recommendation to exclude has on several occasions proved to be a good starting point for a constructive dialogue with companies about change. " (Ibid.) This use of soft power might be usefully expanded and regularized.
6. The Council's Human Rights work continues to be driven by periodic and limited time focus on "sectors where the risk of human rights violations seems particularly high." (Ibid., p. 15). And, indeed, the sectors that were the object of emphasis in 2018 were worthy of time and effort. Yet that approach also suggests the severe limitations on the Council's ability to engage in this portion of its work with any degree of substantial effect. Moving from one set of human rights catastrophes-of-the-moment to the next, where choices are made from information received, enhances the possibilities of discontinuity in the focus of the Counil's work. More interesting is the failure of the Council, in this increasingly broad and complex are, to fail to effectively align its work with that of other public institutions whose work might be leveraged--for example the work of National Contact Points and the OECD's Guidelines for Multinational Enterprises (which in its Chapter 4 incorporate the standards of the UN Guiding Principles for business and Human Rights).
The Chair’s report
Johan H. Andresen, Chair of the Council on Ethics
Outside Norway, the Council on Ethics is widely praised for what we do. In Norway, we are roundly criticised for what we do not do. That is as it should be. The Council on Ethics as an institution, and the ethical guidelines we adhere to, were created by Norway’s Ministry of Finance in 2004 to help ensure that Norway’s oil wealth is not invested in companies that violate fundamental ethical values. At that time, such guidelines for such a significant investment fund were one of a kind. Now, increasing numbers of investors focus on responsible investment, and the demands made of both investors and companies have become stricter. Over time, the ethical guidelines have been adjusted through democratic processes to reflect this development. This is a dynamic process that is still ongoing. Regardless of how the guidelines are worded, there will always be substantial room for discretion, which the Council on Ethics and Norges Bank exercise jointly.
Translating overarching guidelines into consistent practice can be challenging. One example is the climate criterion. The operationalisation of this criterion has proved difficult. The Council has issued a handful of recommendations, which Norges Bank has so far not taken a position on. Although the criterion has only existed since 2016, many of its underpinnings have already changed. Both the Paris Agreement and ever changing emission trading regimes turn what constitutes a conduct-based norm violation into a moving target. Nevertheless, the Council must issue recommendations based on what we now know to be behaviour that leads to unacceptable emission levels. This includes our assessment of companies’ willingness and ability to change such behaviour in the future.
Another example of where the Council on Ethics’ universe is ever changing is the field of human rights. More and more countries with differing views on such universal rights are being admitted to the Government Pension Fund Global (GPFG). When these countries do not give investors, their advisors, NGOs or the media insight into companies’ behaviour, the Council faces a major challenge. We must apply the criteria consistently, irrespective of geography, culture, type of regime or level of social development. But when access to information is unequal, this is almost impossible in practice. One relevant issue today is a recruitment practice used by companies worldwide, where workers are recruited in their home countries to work abroad, and in some cases must pay the entire cost of the recruitment process them-selves. When low-paid workers must pay out several months’ wages to secure work, they can become trapped in a situation they cannot escape. This behaviour is widespread and can verge on modern slavery
We have previously expressed concern that the development of entirely autonomous weapons systems could lead to a risk that companies contribute to the violation of international humanitarian law principles. Such weapons systems will soon be available. Other technology, which enables the collection and manipulation of data, surveillance and intervention in government systems, has been paid less attention. The Council on Ethics may not be best suited to prevent the GPFG from invest-ing in companies that are involved in such activities. It is difficult to identify new issues in advance, nor is it easy to place responsibility on companies in the fund. The Council focuses its efforts on norm violations that lie within the core of its mandate, such as hazardous working conditions, the payment of bribes or serious environmental pollution, and are closely linked to companies in the fund. We often feel that we should have done more – followed up more cases, investigated new issues and acquired an understanding of complex situations, where companies facilitate unacceptable actions without bearing primary responsibility for the norm violations themselves.
Nevertheless, I would primarily like to highlight all the positive effects of the Council’s work has had. During the year, we have seen that the assessment we made on norm violations relating to “beaching” had an impact far beyond our shores. The textiles industry study, now in its fourth year, has given us considerable insight, allowing us to assess where the line should be drawn for serious and/or systematic human rights violations. Furthermore, during a three-country visit in Asia in the autumn of 2018, we again received clear indications that companies not only want to avoid being excluded from the GPFG, but are also capable of changing their behaviour relatively quickly – if they so desire.
This last point, that the Council on Ethics – in its dialogue with companies – actually contributes to them changing their behaviour, is the least well known, but also one of the most striking effects of our work. But remember, it is the mandate we have to recommend exclusion on an entirely independent basis, and to publish our decisions, that gives our dialogue credibility and thus makes this contribution to reduced ethical risk for the fund possible