Pensions, Profits and Principles: Towards a Sustainable Financial System

FairPensions Guest Lecture given by Roger Schjerva, State Secretary, Ministry of Finance, Norway.

6pm, Monday 26 October in the Grand Committee Room, Parliament

Jon Cruddas MP, who hosted the event on behalf of FairPensions, introduced the event, reflecting on the current debate about the role of institutional investors in protecting against or precipitating the financial crisis. This was followed by an introduction from Catherine Howarth (CEO), who emphasised the Norwegian Pension Fund's record for coupling a strong position on investment ethics with impressive financial returns: an example that UK pension funds can learn much from.

Mr Schjerva's speech began by noting how, in the aftermath of the recent economic crash, stable financial markets are crucial for us all. These are best achieved through transparency and proper regulation, combined with an investor focus on long-term horizons that respects the overlap between environmentally and financially sustainable growth. Norway manages its pension fund with these requirements in mind- and does so with considerable success: by the end of 2011, its market value is expected to reach almost $550bn (US).

Norway's pension fund (NPF) is a universal owner, investing in almost 8000 companies worldwide. Yet as Mr Schjerva highlighted, the Norwegian approach differs from most others in its explicit recognition of an enlightened self-interest to uphold responsible corporate practices across the global economy, so as to ultimately yield strong and sustainable financial returns. As Schjerva put it, "the goal of financial return is closely linked to that of being an ethically responsible investor." As a result, Norway's fund management strategies draw upon the power of active ownership to influence investee companies positively; whilst, in a minority of cases, exclusion strategies are also employed where risks may be too high to invest, or it's not possible to influence a company's unethical behaviour otherwise. These decisions are directed by Norway's Ministry of Finance, closely informed by a wider body of expertise from the field: representatives from Norges Bank and an external Council of Ethics. The fund has recently committed to resourcing a research project on investor risk in the face of climate change at LSE's Grantham Institute on Climate Change and Environment, chaired by Sir Nicholas Stern.

Mr Schjerva finished his speech by offering an answer to the following question: should all investors take on the same responsibility as the Norwegian government pension fund does? Whilst acknowledging this as a complicated question with no easy answer, ultimately, he pressed that a notion of ‘enlightened self interest' can only lead us to respond with a ‘yes' on this matter. In pursuing a sustainable strategy of responsible investment, we must strike a balance that marries both Friedman's mantra that ‘the business of business is business,' and the ideal that ‘doing well is the result of doing good' (Ralph Waldo Emerson).

Mr Scherva's speech was warmly received by everyone present, as reflected by subsequent votes of thanks from Nigel Waterson MP and David Pitt-Watson. Waterson stressed the strength of Schjerva's argument from the perspective that its focus on long-term sustainability spoke sound and welcome financial sense; while Pitt-Watson praised the Norwegian approach for its prudence in considering future climate change risks to the economy. As Pitt-Watson put it, we can and we will recover from the financial crisis, but the same cannot be said of the environmental crisis, which requires responsible management and a long-term investment mindset.

The event concluded with a question and answer session. Representatives from a diversity of organisations participated: Oxfam, The Financial Times, Merrill Lynch and the DWP. The questions also covered a wide scope of topics: whether hedge funds could be viewed as a ‘responsible' investment choice; the extent to which international collaboration exists between the Norwegian scheme and other asset owners; and whether the scheme recommends strategically investing into a company to leverage greater influence over it. The conversation continued for some hours in St Stephen's Tavern on Bridge Street under the watchful eye of Big Ben.

Subsequent press coverage has been encouraging: Ruth Sullivan of The Financial Times provided the first article ("Eat your heart out" 27/10/09); Jonathan Williams of IPE.com has written two pieces ("Norway-Global to plough €400m into carbon capture" 29/10/09, and "Tories push for ethical fund in personal accounts" 29/10/09).

Read Mr Schjerva's speech in full.