"The Council’s purpose is to uncover any unacceptable risk that these companies are violating ethical norms, regardless of where in the world the abuses take place. You may think that sounds like an impossible task. However, through various portfolio-monitoring systems, the Council is presented with hundreds of news reports on GPFG-invested companies that may be linked to norm violations that could fall within the scope of the Fund’s ethical guidelines. Our main priority is to uncover the most serious violations and the companies most closely associated with them." ["Etikkrådet skal avdekke uakseptabel risiko for at disse selskapene bryter etiske normer uansett hvor i verden det foregår. Dette kan høres ut som en umulig oppgave. Gjennom ulike systemer for porteføljeovervåkning fanger rådet hvert år opp hundrevis av nyhetsoppslag om selskaper i fondet som er knyttet til normbrudd som kan falle inn under retningslinjene. Vår hovedprioritet er å avdekke de alvorligste forholdene og selskapene som er nærmest knyttet til dem "] (Lederens forord/Foreword by the Council's Chair, Svein Richard Brandtzæg, 2023 Annual Report, p. 6)
The Council on Ethics for the Norwegian Government Pension Fund Global has just distributed 2023 Annual Report [Etikkrådetfor Statens pensjonsfond utland; Årsmelding 2023]; English version HERE; Norwegian Version HERE (link to my discussion of the 2022 Annual Report HERE).
Last year I raised three interesting issues that might be extracted from the 2022 Annual Report. The first touched on automation and the stubborn reluctance of the Ethics Council to move past the 19th century in the old-fashioned humanity of its deliberative approach. The second touched on the construction and projection of ESG related issues in the assessments of the Ethics Council. Not that the practice was a bad thing but the human rights implications of extraterritorial projections of national values built into the construction and assessment of ESG remains to be fully considered. The third touched on "the usual suspects" approach to investigations. And, indeed, one might be forgiven if one notices that the Ethics Council appears to have a fondness for deep investigation of enterprises with origins or operations in certain places. This, I offered, recalls "a frame of mind that suggests an inherent bias enhanced by the needs of efficiency in the face of an enforcement model that invites selection of targeting. That ought to come as no surprise. The set up of the Ethics Council makes it virtually impossible both to effectively engage in its mission and to avoid a little bit of profiling, or of strategic (and thus value enhancing) targeting."
None of this has changed much--nor would one expect it to. The Ethics Council issued sixteen recommendations during the course of ten meetings (2023 Annual Report, p. 10). It accepted 102 new cases and issued summaries of fifteen (2023 Annual Report, pp. 42 et seq.). On the other hand, dialog has become an increasingly important instrument of extending governance power. The 2023 Annual Report speaks to the Ethics Council's "extensive dialogue with the companies it is assessing." (2023 Annual Report, p. 7).
Thus, in 2023, the Council had about 70 cases under assessment, of which around a third were concluded during the year. Much time is spent obtaining information, commissioning consultant-based assignments, assessing the facts and engaging in dialogues with companies. This is both a material and important aspect of the Council’s work, even though only a few cases culminate in a recommendation. (2023 Annual Report, p. 21, discussing at § 4.1 serious or systematic human rights abuses).Even in areas where the Ethics Council has issued no recommendations (e.g., §8.2 touching on "other serious financial crime", p. 32), dialogue remains an important element of their work. "The Council engages in a dialogue with the companies under assessment at an early stage. In this connection,
it was in contact with four companies in 2023." (2023 Annual Report, p. 32).
Yet it is the portfolio-monitoring systems that ought to draw some interest (touched on ibid., p. 6; 9; example, 2023 Annual Report, p. 18). The system is built on a three legged foundation. First it hires consultants " to identify companies whose operations may be covered by the exclusion criteria." (Ibid., p. 9). One can hope that the future Annual Reports will be more transparent, in a granular fashion, about this practice (which has been ongoing). Second, its staff "monitors a number of databases and websites" (ibid.) apparently by engaging in searches for key terms (Ibid., example, p. 20). Key term searches vary including indigenous people and energy transition (for the later ibid., p. 20). Third, and likely the most interesting, though again the cultivation of transparency is quite lacking, the Ethics Council is "approached by organisations and individuals who call on it to consider specific cases." (Ibid.) The possibilities of using the Ethics Council process instrumentally in this way--or to freeze the system up entirely by flooding it with "approaches" might not escape the minds of other institutional organizations that also seek to leverage their influence by invoking a superior process. Sadly, little is known about the way in which these "approaches" are assessed.
There is a fourth leg of sorts--the discretionary authority of the Council to choose the cases they would like to work on. While the Council assess all cases that are flagged, less than all move forward. "The
Council therefore selects only certain cases for further investigation on the basis of the violation’s scope and seriousness, its consequences, the company’s responsibility for or contribution to the matter concerned, what the company is doing to prevent or mitigate the harm caused, and the risk of similar incidents occurring in the future." The temptations of bias and "the usual suspects" always lurks--the strategic use of choice for political and policy aims looms larger. And not just bias but sometimes profiling: "The Asian companies are often examined as part of a review of issues that the Council monitors particularly closely because the ethical risk is high." (2023 Annual Report, p. 12). Moreover, that "choice" power is embedded in the Ethics Council's theme based projects. Its explanation is interesting. "To compensate for the fact that not all serious cases are picked up on through day-to-day portfolio monitoring, the Council undertakes its own inquiries into areas of high risk. When the Council has selected a particular issue for further investigation, it generally follows this up over several years." (Ibid., p. 9). And, at least in the case of environmental risk, there is an expectation of self monitoring, the absence of which can itself serve as a basis for assessment under the Guidelines. "For example, it is expected that major international enterprises will monitor, assess and share information about exposure to nature risk and make this information freely available, so that nature risk and adverse impacts may be reduced" (Ibid., p. 29).
Here, again, one wonders, in the way that Svein Richard Brandtzæg wondered rhetorically in the portion of his Foreword quoted at the start of this essay, whether one "may think that sounds like an impossible task." The answer is that, of course it is not if, as the Ethics Council suggests its role is to be one of gesture and example with no intention of actually engaging in comprehensive compliance--only in strategically selected in terrorem investigations with respect to abuses deemed worthy of pursuit. That is fair, but one wonders whether it weakens the authority of the process. Certainly it subjects its approach to questions of bias (negative) or political instrumentalism (neutral or to expected from a state organ). What the quoted statement does suggest is that the automation pressures raised in the review of the 2022 Annual Report remain even more relevant in 2023, and likely even more relevant in 2024. It may well be tome for the Ethics Council to move toward a monitoring system operationalized through big data machine learning programs and perhaps guided by the analytics of descriptive or predictive analytics. Even a little. Running a monitoring system through key term searches and hired consultants, relying on institutions to come to you with "tips" all evaluated on the basis of human interactions and alignments produces significant issues of quality control which remain almost entirely unexplored.
Nonetheless, and this is the irony, the essence of the operational self understanding of the system as it was constructed is designed precisely to act as it does. The structures and working style of the Ethics Council is meant to be self-reinforcing and inward looking. Within its Lebenswelt (lifeworld) it can be conscious only of itself as constituted as and through the Ethical Guidelines and the public policy of the Norwegian Kingdom and its mission of projecting out its own version of international law/norm values. And rightly so--its world is built around its wealth and the extraction of the greatest possible return, which is valued not just in money but the return on investment in shaping the world of economic activity to suit its own values. This is well understood, and the Ethics Council has not deviated from this path. It is, more than anything else, a money making political operation that extends the political influence of the Norwegian Kingdom through private sector investment activities. The question remains: given this foundation, is the system structured to deliver maximum value. I have suggested for a long time that it does not--unless the highest value is reduced to the value of gesture.
I leave the politics of Ethics Council application of both focus and operating rules to others; as a political body expressing the desires of the Norwegian people through the institutions of government designed for that purpose, no one outside of Norway is really in a position to quibble. Norway is entitled to act as it like, politically, within the limits of plausible interpretations of domesticated international law and norms. One can be responsible, of course for one's own response based on one's values, interpretations, and interests, and one might hold Norway to its bilateral treaty obligations, of course. The rest is politics--and money, intimately connected in a polycentric system in which smaller states leverage power by projecting it not against other states within the international state system, but in markets against market actors.
The Foreword by Svein Richard Brandtzæg, the Council Chair follows.
Foreword by the Council's Chair
Annual Report Pages 6-7
Having previously served on the government-appointed Ethics Commission, from 2019
to 2020, and after some two years getting up to speed as a council member, this has been
my first year as Chair of the Council on Ethics. I hope that the experience I have acquired
through 34 years at Norsk Hydro, 10 of which as the CEO, as well as directorships in many
Norwegian and international companies, will prove useful. Given the complex issues and
perspectives that the Council works with, our most valuable and important success factor
is the expertise and diversity which both the Council’s members and the staff of our
eminent secretariat collectively bring to the table.
Over the years, the Council has built up a solid international reputation. It is clear to me
that expectations with respect to the Council’s work will not lessen as the years go by.
It is therefore with all due respect for the role that I now take up the baton previously
held so sturdily by my predecessor as chair, Johan H. Andresen. I would like to express
my heartfelt gratitude to Johan for his skilful leadership of the Council from 2015 until the
summer of 2023.
Norway’s Government Pension Fund Global (GPFG) owns shares in approximately 9,000
companies worldwide. The Council’s purpose is to uncover any unacceptable risk that
these companies are violating ethical norms, regardless of where in the world the abuses
take place. You may think that sounds like an impossible task. However, through various
portfolio-monitoring systems, the Council is presented with hundreds of news reports on
GPFG-invested companies that may be linked to norm violations that could fall within the
scope of the Fund’s ethical guidelines. Our main priority is to uncover the most serious
violations and the companies most closely associated with them. If we consider the risk
of future norm violations to be unacceptable, we recommend that Norges Bank either
excludes the companies concerned from investment by the GPFG or places them under
observation.
The Guidelines for Observation and Exclusion of Companies from the Government Pension
Fund Global (GPFG), otherwise known as the ethical guidelines, form the basis for the
Council’s assessments. In recent years, the Council has devoted considerable resources to
assessing companies in situations of war or armed conflict. In such situations, companies
must take particular care not to contribute to serious norm violations. Under the ethical
guidelines, however, a company’s mere presence in an area of conflict is not sufficient
grounds for its exclusion from the GPFG. In 2023, the Council has assessed companies
operating in areas of conflict in relation to several of the ethical guidelines’ criteria. This
includes those relating to war and armed conflict, the production and sale of weapons, and
the umbrella criterion “other particularly serious violations of fundamental ethical norms”.
Other topics we have covered in 2023 include abuse of Indigenous peoples’ rights, poor
working conditions, corruption, money laundering, deforestation in vulnerable areas, the
further endangerment of already threatened species and animal cruelty. Societal changes,
or changes in accepted norms, impact where the Council focuses its efforts. For example,
the Kunming-Montreal Global Biodiversity Framework from 2022 has already played, and
will continue to play, an important role in our assessments. Digitalisation and artificial
intelligence (AI) are also topics that will become increasingly important in the years ahead.
The Council generally engages in extensive dialogue with the companies it is assessing.
Some companies are highly responsive and openly share data and information, whereas
others fail to reply when we contact them. In addition to information provided directly
by the companies concerned, the Council relies on a range of different sources. We are
wholly dependent on being able to engage external consultants and speak with subject
experts in order to build an adequate factual basis for our assessments. However, access
to information has worsened in some parts of the world in recent years. In some cases,
we see that people working “on the ground” for NGO’s, the media or other organisations
put themselves and their lives in danger. This is something that we must take into account,
so that we do not make the situation worse for these individuals. If it is dangerous or
impossible to conduct a thorough investigation, and the companies under assessment fail
to provide adequate information, the Council may conclude that the risk to the GPFG is
unacceptably high.
In many countries, businesses are facing rising expectations with respect to corporate
social responsibility (CSR). From the Council’s point of view, new reporting standards and
follow-up requirements are helpful. The EU has adopted new legislation, with effect from
2024, which includes a double materiality requirement. Double materiality means that a
company must report on its global impact as well as its financial results. A growing demand
for reporting transparency may contribute to increased compliance with ethical standards
and make businesses operate more sustainably. However, such a development is unlikely
to affect all companies worldwide. The Council’s endeavours to identify companies that
represent an unacceptable risk of future violation of the GPFG’s ethical guidelines will
therefore remain as necessary as ever.
Svein Richard Brandtzæg
Chair of the Council on Ethics
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