(November 11, 2013) — Advisers to the world’s largest institutional investor have issued a series of recommendations on how it can improve its responsible investment capability to benefit companies and its own financial returns.
The Strategy Council that advises the Norwegian Government Pension Fund Global published a report today on how it thought the investor could improve its efforts and outcomes when placing capital in a responsible manner.
The report gave the caveat, however, that due to the scale of the funds and lack of precedence in the sector, it was difficult to say with full certainty what the effects of the investments might be. The $750 billion fund is already one of the leading investors in this field. The council’s report added that new insights might emerge from the current exercises that could change how the fund deployed assets in future.
“The Strategy Council recommends that the fund is governed by principles that articulate what the fund expects from all the companies it invests in, and that principles describe how the fund will apply its ownership strategies,” the advisers said in a summary of the report. “The council believes that the fund can achieve more powerful effects from its responsible investing practices by integrating exclusion decisions with its ownership strategies.”
To this end, the council recommended that the resource dedicated to investing within the fund’s own Council on Ethics should be integrated with that of Norges Bank, which carries out all investment activity on its behalf. Further, it said that the board of Norges Bank should be held responsible for ensuring that its responsible investment guidelines were followed.
“The report proposes mechanisms that could enhance accountability and provide incentives to counter the inherent conflicts between the financial and non-financial objectives of the mandate.”
The report outlined how the fund should pay closer attention to the impact its investments were having on target companies—and the value of its own assets.
The advisers said they believed their recommendations would achieve three goals: to enable the fund to remain at the forefront of responsible investment for large, well-diversified global investors; to strengthen the fund’s legitimacy with Norwegian critics; and guide its owner and manager to “pursue responsible investment practices that enhance the value of the fund”.
The new government in Norway has issued statements suggesting it would consider breaking up the world’s largest pool of institutional capital into two competing funds, although there has been no decision announced.
To read the full report from the Strategy Council, click here.
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