Access to finance is crucial to achieve the fundamental transition necessary to meet the grand challenge of our time: securing a safe and just operating space within planetary boundaries.
The mantra of “sustainability” or “sustainable development” now pervades the international and domestic policy of governments, as most evident in the United Nations’ Sustainable Development Goals (“SDGs”) adopted in 2015. It also increasingly informs business practices, from corporate social responsibility (“CSR”) codes to socially responsible investment (“SRI”). But all such efforts have still left considerable uncertainty regarding what sustainability means in specific contexts because of difficulties translating its meta-principles, such as the precautionary principle or the polluter-pays principle, into workable legal doctrine or business management strategy. Furthermore, it is an open question whether sustainability, in the sense of maintenance of long-term ecological integrity of the planet’s life-support systems, is possible in politico-economic systems geared to indefinite growth via exploitation of natural capital.
Certainly, if sustainability is to be a meaningful concept, it has to mean staying within the nonnegotiable ecological limits of our planet—denoted I in the ground-breaking work of Rockström et al.—and, at the same time, finding out how to satisfy the basic social requirements of people everywhere now and in the future. In spite of the pervasive use of sustainability language, it is also quite evident that “business as usual”—i.e., continuing as we are now—is a very certain path to a very uncertain future.
If we are to break away from the path of business as usual, a fundamental shifting of capital from fossil-fueled and unsustainable business into renewables-based and sustainable business is necessary. Under the Paris Agreement, there is a huge investment gap, which is even larger in light of the SDGs. Contributing to development while at the same time steering the world toward sustainability requires enormous investments in renewable infrastructure (and other environmentally and socially sustainable ventures), notably in Africa and Asia. The topicality of the issue is illustrated by a recent Bloomberg report that spoke of the “sweeping transformation of the energy sector” that could result in $10 trillion of stranded assets, a high increase of jobs in renewables, and positive economic development.
These issues are particularly applicable to sovereign wealth funds (“SWFs”), which have become an increasingly significant presence in global financial markets since the 1970s and more recently have come under public scrutiny to invest ethically and sustainably. This Article undertakes a case study of the world’s largest SWF, the Norwegian Government Pension Fund Global (“Fund”). In the era of global market capitalism and deregulation, SWFs offer one of the few public economic institutions capable of injecting ecological and social values into global markets.
The principal thesis of this Article is that a misleading dichotomy between ethics and economics has held the Fund back from contributing to sustainability, leaving the majority of its investments on an unsustainable path of business as usual. Although there are positive indications, major changes are necessary to realise the Fund’s potential to invest in sustainability.
The Fund is well known for its ethical profile; a Council on Ethics assesses alleged breaches of its Guidelines for Observation and Exclusion from the Fund (“Ethical Guidelines” or “Guidelines”) and proposes excluding companies that violate them. This includes exclusion of companies based on products (e.g., tobacco, certain weapons, and, most recently, coal), observation and potential exclusion of companies based on conduct (including severe violations of human rights, severe environmental damage, gross corruption, and other particularly severe violations of fundamental ethical norms), and public statements when withdrawing investment from companies based on conduct when the Fund’s attempts to influence the companies have failed.
This Article raises the question of whether the Fund in practice is more reactive than proactive, responding to public opinion and media controversy when considering divestment rather than undertaking due diligence beforehand and continuously monitoring its investments. The controversial Dakota Access Pipeline is a case in point. Further, this Article analyzes the Fund’s engagement with and potential withdrawal from companies, querying whether the informational basis for the Fund’s decisions is relevant, reliable, and verifiable. This Article also discusses Norges Bank’s ordinary fund management in light of the Fund’s Management Mandate, questioning whether we are seeing responsible management with moderate financial risk, which, according to the Mandate itself, is meant to be an integrated element in the Fund’s long term, sustainability-oriented perspective. Does the Mandate need changing, or is the problem in the operationalization of the Mandate’s requirements?
