VZCZCXYZ0022
RR RUEHWEB
DE RUEHNY #1087/01 3111543
ZNR UUUUU ZZH
R 071543Z NOV 07
FM AMEMBASSY OSLO
TO RUEHC/SECSTATE WASHDC 6412
INFO RUEHLO/AMEMBASSY LONDON 1487
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS OSLO 001087
SIPDIS
SENSITIVE SIPDIS
E.O. 12958: N/A TAGS: EFIN EINV ECON NO
REF: STATE 153075
Sensitive but unclassified--please protect accordingly.
1. (SBU) Summary. In a November 5 briefing to the diplomatic corps, the Ministry of Finance DG reviewed Norways approach
to Sovereign Wealth Funds and the status of Norways approximately $350 million Global Fund (formerly known as the
Pension Fund). He said that Norways application of the Ethical Guidelines, which has heavily impacted US companies, is
not ideal and an upcoming evaluation may help improve them. The DG also explained that Norway is considering possible
divestments from companies building pipelines in Burma. Finally, he noted the possibility of positive investments in
companies promoting the public good. End Summary.
Overview of the Fund
--------------------
2. (SBU) Martin Shanke [ correct name is Martin Skancke, comment added by Aftenposten], DG at the Ministry of Finance,
explained that petroleum drives the Norwegian economy. It accounts for 25% of GDP, 38% of government revenue, 24% of
investment and 51% of exports. With the growing shift from oil to gas, the Norwegian economy will depend more on a
smaller set of clients.
3. (SBU) The money that the GON has made from petroleum has been, since 1990s, invested in a fund which is fully
integrated in the state budget. The revenues come into the government and then are shifted to the Global Fund. The Fund
in turn invests the money abroad and transfers to the state budget the amount needed to cover the non-oil budget
deficit. A fiscal policy guideline provides that over time, the Fund should not transfer to the state more than the
expected real return of the Fund, estimated at 4%.
4. (SBU) At present, the Fund invests 60% in equities and 40% in fixed income assets. Within each category, there is a
fixed allocation of how much goes to each geographic area based on the capitization values of each area. 35% is invested
in the Americas (and Africa). Overall, the Fund invests in about 7,000 companies worldwide. The Fund is the largest
single investor in Europe.
5. (SBU) Shanke explained that the Fund is looking at beginning real estate investments and will present a proposal to
the Parliament on this in the Spring. If the decision is made to move forward with these investments, money in fixed
asset investments will be drawn down.
Ethical Guidelines
------------------
6. (SBU) Moving to the Ethical Guidelines which have been a source of controversy, Shanke said that the Fund has a
negative screening process as well as an ad hoc review process. The negative screening is designed to weed out companies
who handle "weapons that through their normal use may violate fundamental humanitarian principles" which he identified
as weapons such a cluster munitions or nuclear weapons. (Note: it is as a result of this screening that Norway divested
from several American arms manufacturing companies.)
7. (SBU) An Ad-hoc exclusion is made when a company is considered to have "serious violations of fundamental ethical
norms." (Note: Walmart was excluded under this provision.) Shanke claimed that exclusions only happen after the Ethical
Council tries and fails to get the company to change its practices. The Council then recommends exclusion to the
Ministry. The Ministry then asks the Central Bank (the technical owner of the shares) whether the company is likely to
be amenable to dialogue. If the Central Bank says no, the Ministry orders divestment. (Comment: In the Walmart case, we
dont recall the Central Banks effort to mediate with Walmart. This may indicate that the Central Bank said any effort
would be fruitless. Alternatively, perhaps this process was not followed. End Comment.) To date, the Fund has excluded
21 companies, 12 of them are American.
8. (SBU) In response to a question from Emboff which suggested that companies that operate transparently and in open
economies may be discriminated against, Shanke agreed that that could happen and that the process is second-best. In the
1990s, his Ministry had argued against an ethical screen because of this problem. Today, with more information
available, he thought the system was good enough. He pointed out that an evaluation of the whole process in 2008 may
lead to fine-tuning. He welcomed engagement with others on this issue. Finally, he noted that more transparent companies
are often easier to engage and so it is more likely that the Central Bank would evaluate them as amenable to
negotiations-something which might offset the initial discrimination.
Investments in Burma
--------------------
9. (SBU) Turning to the growing domestic political pressure for the Fund to divest from companies doing business in
Burma, Shanke explained that the Ethics Council has determined that if companies build large gas pipelines in Burma they
will likely be involved with the Burmese Armed Forces and thus probably undermine human rights. Thus, if a company
builds a pipeline in Burma, the stage is set for possible divestiture from that company. The companies at risk include
Total, Daewoo and PetroChina.
Positive Screens?
-----------------
10. (SBU) Finally, Shanke explained that there is growing interest in positive screens whereby the Fund picks out
special areas in which to invest based on ethical considerations. One area under discussion is investments in
environmental technology.
Norway Welcomes Sovereign Fund Discussions
------------------------------------------
11. (SBU) Shanke said Norway welcomed dialogue on Sovereign Wealth Funds and looked forward to international discussions
which would help shape rules for the funds in general as well as perhaps share best practices on ethical guidelines. He
provided a position paper on Sovereign Wealth Funds which is being emailed to the desk along with his powerpoint
presentation.
JOHNSON