Foreword by the Council’s chair
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