The Norwegian Government Pension Fund

For the exclusive use of H. Yuen, 2018.
ID# CU12
PUBLISHED ON
MAY 19, 2011
THE PROGRAM FOR

FINANCIAL STUDIES
The Norwegian Government Pension Fund

The Divestiture of Wal-Mart Stores Inc.
BY ANDREW ANG *
Introduction
On June 6, 2006, a press release from Norway’s Ministry of Finance hit the global news wires:
“[We have] excluded Wal-Mart Stores Inc 1 . . .from the Norwegian Government Pension
Fund in line with recommendations from the Council on Ethics for the Fund. The
recommendation to exclude Wal-Mart cites serious/systematic violations of human rights
and labour rights.” 2 The Government Pension Fund, one of the largest sovereign funds in the
world, went on to describe a list of specific alleged violations including the use of child labor,
gender discrimination, suppression of unionization, and hazardous working conditions. The
press release states, “What makes this case special is the sum total of ethical norm violations,
both in the company’s own business operations and in the supply chain. . . Altogether they
form a picture of a company whose overall activity displays a lack of willingness to
countervail violations of norms in its business operations.” 3
Not surprisingly, the Norwegian Government Pension Fund’s decision to exclude Wal-Mart
for ethical reasons received a lot of scrutiny and raised a number of key questions including:
What were the decision-making criteria and processes that led to the divestiture? Did all
decision-making bodies involved agree? What were the costs to Norwegian citizens—the
owners of the Fund—of not investing in Wal-Mart?
Author affiliation Copyright information

*
Ann F. Kaplan Professor of Business, Columbia Business School ©2008-2011 by The Trustees of Columbia University in the City of
New York. This case includes minor editorial changes to the version
Acknowledgements originally published on January 2, 2008.
Hilde Hovnanian ’99 and Elizabeth Gordon ’83 provided research
and writing assistance for this case. Martin Skancke and Valborg This case is for teaching purposes only and does not represent an
Lie of the Norwegian Ministry of Finance, Aslak Skancke of the endorsement or judgment of the material included.
Council on Ethics, and the Sanford C. Bernstein & Co. Center for
Leadership and Ethics provided valuable support for this case. This case cannot be used or reproduced without explicit permission
from Columbia CaseWorks. To obtain permission, please visit
Andrew Ang is an advisor to the Norwegian Ministry of Finance and www.gsb.columbia.edu/caseworks, or e-mail
has served as a consultant to Norges bank. [email protected]
This document is authorized for use only by Hoi Yin Yuen in 2018.
Background on Norway
Norway is wedged between the North Sea and Sweden and also borders Finland and Russia.
In total, the Norwegian kingdom, which includes the Svalbard and Jan Mayen islands, has
an area of 148,726 square miles. The Norwegian mainland is long, and the seaboard,
including fjords, stretches over 15,000 miles. 4 Yet, this country has only a relatively modest
4.6 million inhabitants. Norwegians are generally viewed as being proud of their heritage
and are socially and environmentally conscious.
ECONOMIC BACKGROUND
Norway’s offshore territory includes some of the richest oil basins in the world. Norway
officially became an oil nation on December 24, 1969, when Phillips announced the discovery
of the Ekofisk field in the North Sea. Ed Seaborn, the platform manager, boldly stated, “I
hereby declare that the North Sea, from here to the North Pole, is a huge oil basin.” 5 During
recent years, a worldwide surging demand for oil and rising oil prices fueled the
development of more sophisticated exploration methods and an aggressive expansion to
deeper, more challenging waters. In 2006 the Norwegian oil industry contributed 36%, or
over $54 billion, to total government revenues. This amount came primarily from taxes and
direct government ownership. 6 In early 2007 the estimated total worth of oil reserves was
over $560 billion, and Norway had saved about half of its total historical oil revenues. 7
Norway was also the third-largest exporter of oil in the world at that time, after Saudi Arabia
and Russia. The rapid and very large wealth creation from oil production had caused “the
reluctant billionaires of Norway” 8 to search for meaningful ways to manage their recent
fortune.
HISTORY
Norway’s deep roots in ethical investing span several decades. As early as the 1970s, the
government recognized that its large oil prosperity could easily distort its domestic economy
and lead to an overheated economy. In a report to the Norwegian Parliament in 1973, the
government, under Prime Minister Bratteli, recommended that Norway use its oil revenues
to develop “a qualitatively better society,” thus “avoiding an outcome characterized only by
fast and uncontrolled growth in the use of material resources, without any changes to
society.” 9
Experts point out that countries richly endowed with natural resources tend to have lower
growth rates in the long run than countries with fewer natural resources. Thorvaldur
Gylafson identifies four causes of this effect:
• The so-called Dutch disease, where a large increase in wealth from natural resources
drives up the real exchange rate, which then crowds out investment in other sectors
and makes the economy less productive
• Expropriation of the wealth from natural resources by producers, corrupt
government officials, or other agents in the economy, ultimately making the economy
less efficient
• Fewer incentives to create economic growth by other means
The Norwegian Government Pension Fund: The

Divestiture of Wal-Mart Stores Inc. | Page 2
BY ANDREW ANG*
• A reduction in investment in human capital and entrepreneurial activities caused by

over-reliance on the riches from natural resources. 10
During the 1970s and 1980s, Norway experienced many symptoms of the Dutch disease:
increasing oil revenues caused a rise in the real exchange rate, making the manufacturing
sector less competitive. When oil prices fell in the mid-1980s, these problems helped
contribute to a period of subdued economic growth that lasted until the early 1990s.
By the beginning of the 1990s, Norway had begun a more systematic effort to facilitate a
long-term, sustainable fiscal policy. The fundamental idea was to diversify the nation’s assets
away from a heavy concentration and dependence on oil to a more diversified portfolio.
From a risk management perspective, the move shielded Norway’s economy from wildly
fluctuating oil prices in international markets and established more predictable, long-term
economic development. On January 1, 2006, the Government Petroleum Fund was renamed
the Government Pension Fund. The new title conveyed the fund’s goal of managing its
capital in a manner that would both finance long-term government obligations and benefit
future generations. Specifically, the fund would have to pass the “future test,” which Kristin
Halvorsen, the minister of finance at that time, defined by asking, “Will our choices today
create a better society for the next generation than the society we inherited?” 11
Socially Responsible Investing

Investment practitioners often point to two different reactions when companies are
approached with guidelines for socially responsible investing (SRI). On the one hand, many
companies feel the pressure to meet quarterly financial targets, and Wall Street tends to
reward companies for meeting short-term goals. As long as a company is in compliance with
prevailing accounting, reporting, and governance regulations, management may not see the
need to adopt and report on more stringent environmental, social, and governance (ESG)
standards. If there is an added cost of implementing ESG procedures, many companies
choose to continue with the status quo. On the other hand, many companies argue that
practicing social responsibility benefits the bottom line and produces superior company
performance over time. One industry leader commented, “If we look at sustainability
initiatives, setting targets for reducing a company’s environmental footprint can not only
lower its operating costs—whether it’s lowering an energy bill or reducing travel costs—it
can also result in innovation and re-engineered processes that have an even greater
impact.” 12
Companies that embrace ESG policies are often also successful in managing key drivers,
retaining management talent, and developing competitive advantages vis-à-vis their peers. A
report from Goldman Sachs released at the UN Global Compact Summit in July 2007 found
that companies that were leaders in the field of ESG policies also enjoyed a lead in stock
performance by an average of 25%. The analysis included 120 leading ESG companies in five
different industries, and Goldman Sachs found that companies in four of the sectors (energy,
mining and steel, food and beverages, and media) had outperformed the MSCI World Index
Page 3 | The Norwegian Government Pension Fund:

BY ANDREW ANG*
by an average of 25% since August 2005. Although ESG policies played a part in the overall
analysis, Goldman Sachs concluded that “investors cannot rely on ESG factors alone but
need to integrate them into an industrial framework and valuation methodology to pick
stocks.” 13
Due diligence is a key component of the ESG investment process. One of the prominent
information-gathering sources in this area was the British consultancy firm Ethical
Investment Research Services (EIRiS). EIRiS, along with other national and international
organizations, gathered information on numerous companies and flagged those that may
violate ethical norms. EIRiS was one source of information that the Norwegian government
used to monitor whether companies’ activities were in line with established ethical
guidelines.
There are concerns within the social responsibility investing community that EIRiS, as well
as other information sources, are biased toward larger, more transparent companies. The
development of SRI indices was a step toward establishing uniform reporting standards for
all companies. For example, both the FTSE4Good Index Series and the Dow Jones
Sustainability Index (DJSI) encouraged company transparency with regard to ESG factors. In
order to be included in either index, companies had to undergo a detailed assessment of
corporate, economic, social, and environmental practices. Companies that met the index’s
requirements were then included in the index. Similarly, companies that failed to meet the
index’s requirements were deleted from it. In this sense, investing in companies included in
the universes of these indices is an easy mechanism for investors seeking companies meeting
ESG standards. These indices offer investors and SRI funds a possible diversification tool
and a cost efficient method of obtaining information on companies. 14 Although the indices
have attracted a lot of attention within the SRI community, skeptics point out that the indices
are still biased toward large companies. The Norwegian Government Pension Fund did not
use either index as a benchmark.
Management of the Norwegian Government Pension Fund

STRUCTURE OF THE FUND
At the time of this case, the Norwegian Pension Fund consisted of two funds, the
Government Pension Fund–Global and the Government Pension Fund–Norway. The
Government Pension Fund–Global was much larger and focused on investments held
outside Norway; the Government Pension Fund–Norway focused on investments in
Norway’s domestic economy. Both funds were ultimately under the authority of the
Norwegian Ministry of Finance. For the purpose of this discussion, we will focus on the
Government Pension Fund–Global (“the Fund”). The Fund was under the governance of
three main bodies: the Ministry of Finance, Norges Bank Investment Management, and the
Council on Ethics. Ethical standards informed the Fund’s investment decisions and were an
integral aspect of its governance. The Council on Ethics provided advice to the ministry on
which companies to exclude in order to avoid contributing to grossly unethical activities.
Exhibit 1 summarizes these relationships.

BY ANDREW ANG*
ETHICAL GUIDELINES
The Fund’s investments were intended to promote sustainable development by considering
economic, environmental, and social criteria. The Fund’s ethical guidelines were based on
two premises:
• The Government Pension Fund–Global is an instrument for ensuring that a
reasonable portion of the country’s petroleum wealth benefits future generations. The
financial wealth must be managed so as to generate a sound return in the long term,
which is contingent on sustainable development in the economic, environmental and
social sense. The financial interests of the Fund shall be strengthened by using the
Fund’s ownership interests to promote such sustainable development.
• The Government Pension Fund–Global should not make investments which
constitute an unacceptable risk that the Fund may contribute to unethical acts or
omissions, such as violations of human rights, gross corruption or severe
environmental damages. 15
The Fund exercised ownership rights in accordance with the United Nations Global
Compact, the OECD Principles of Corporate Governance, and the OECD Guidelines for
Multinational Enterprises. The UN Global Compact defines 10 universal principles for human
rights. The OECD guidelines encompass a broader range of principles, including shareholder
rights; employee rights; issues of corporate governance, transparency and disclosure; and the
responsibilities of directors. 16
The ethical guidelines of the Fund were promoted through three channels:
• Exercise of ownership rights to promote long-term financial returns
• Negative screening of companies that produce weapons that, through normal use,
violate humanitarian principles
• Exclusion of companies where there is considered to be an unacceptable risk of
contributing to serious or systematic human rights violations, serious violations of
individuals’ rights in situations of war or conflict, severe environmental damages,
gross corruption, or other serious violations of fundamental ethical norms 17
MINISTRY OF FINANCE
The Ministry of Finance determined the general investment strategy of the Fund—long-term
investment with the goal of maximizing returns at moderate levels of risk. In particular, the
Ministry of Finance set asset allocation targets. In 2007 the Fund’s portfolio was weighted
60% in equities (with an allowed range of 50% to 70%) and 40% in fixed income (with an
allowed range of 30% to 50%). In the same year, the ministry decided to increase the number
of companies in the Fund by including small listed companies in the benchmark portfolio as
well as by evaluating the merits of including real estate as an asset class in the Fund. 18
The key tool in not allowing the large oil revenues from distorting Norway’s domestic
economy was the fiscal policy guideline (“handlingsregel”). Every year, the Fund transferred
to the Norwegian government an amount of money that roughly corresponded to the long-

BY ANDREW ANG*
run expected real rate of return on the Fund to the Norwegian government. For many years,
that rate was defined to be 4%. 19 The idea behind the handlingsregel was to fold petroleum
revenues into the economy in alignment with the real growth of the Fund’s assets. In this
sense, the rule ensured that the government did not dip into the Fund’s core capital. Thus,
the handlingsregel also supported the preservation of wealth to maintain the welfare of
future generations.
As part of the overall management of the Fund, the ministry defined two major ethical
obligations:
• The obligation to ensure financial returns so future generations will benefit from the
oil wealth
• The obligation to respect fundamental rights for those affected by the companies in
which the Fund invests
The Fund achieved its ethical obligations in two ways: (1) shareholder activism and (2)
negative screening and exclusion of companies. The Ministry of Finance was responsible for
setting criteria for both. The Fund’s first goal for shareholder activism was to ensure the
financial interests of the Fund on a long-term basis. The second goal was to enforce
compliance with ethical guidelines corresponding to the Fund’s long-term horizon and
reach. 20 Forms of shareholder activism included engaging in dialogue with corporate boards
regarding company practices and policies, as well as placing motions before shareholders. In
addition, proxy voting offered an opportunity to affect corporate policies. The Fund’s goal
for negative screening and ad hoc exclusion, on the other hand, was to ensure that
companies that did not meet the Fund’s ethical standards were not included in its
investment portfolio. The Ministry of Finance was the final decision maker in determining
whether a company should be excluded from the Fund.
Halvorsen summed up her department’s track record with regard to having ethics influence
investing as follows: “While it is still early days, I believe we can say that the guidelines,
combined with their implementation, have created an increased awareness about the topic.
And since increased awareness and debate is a key ingredient in bringing about change in
this field, I would already draw the preliminary conclusion that the ethical guidelines are
having positive effects.” 21
NORGES BANK INVESTMENT MANAGEMENT
The Ministry of Finance delegated the ongoing management of the portfolio to Norges Bank
Investment Management (NBIM). As the asset manager, NBIM had three main objectives:
first, to invest new oil revenues as efficiently as possible in capital markets (transition);
second, to invest the capital broadly in markets in accordance with the strategy defined by
the Ministry of Finance (beta management); and third, to achieve a somewhat higher return
where markets provide opportunities and where NBIM has an advantage in terms of
specialist skills (alpha management). Shareholder activism was an integral part of the
portfolio management process, and Knut N. Kjær, executive director of NBIM, stressed the
ethical responsibility of the asset manager: “We have high ambitions with regard to playing

BY ANDREW ANG*
a leading role internationally in fostering corporate governance and we are subject to a

demanding requirement from the Ministry of Finance to take particular account of an
investment horizon that spans many generations ahead. This implies imposing ethical
requirements on companies.” 22
Indeed, NBIM went to great lengths to ensure that its ethical standards were backed by
action in the investment process. In 2005 the investment team hired a philosopher, Henrik
Syse, the son of a previous Norwegian prime minister, as an in-house ethicist. Syse was
assigned responsibility for contemplating ways for NBIM to maximize its impact on
companies’ corporate policies through shareholder activism. Recognizing that promoting
ethics without putting actions behind those principles is in vain, he stated, “If we just rant in
public we will be excluded as Scandinavian moralists.” 23 Syse acknowledged that although
the Fund’s size and investment universe was large, its leverage as an activist investor was
limited by its relatively small investment stake in each company. As an example, in 2006
NBIM owned an average of .4% of each company in its investment universe. 24 The Fund’s
investment guidelines at year-end 2006 also placed a 5% limit on ownership stakes in
individual companies, signaling that the Fund was a financial (rather than strategic) investor.
However, many observers thought that although Norway was a small minority stakeholder
it could have a positive effect on corporate behavior by setting an ethical standard.
COUNCIL ON ETHICS
The Ministry of Finance appointed an independent Council on Ethics (“Etikkrådet” or “the
Council”). The Council consisted of a five-member team that had its own secretariat. The
Council issued recommendations on whether an investment might constitute a violation of
the Fund’s ethical guidelines. In most cases, the Council issued recommendations on its own
initiative, but occasionally it issued recommendations at the request of the Ministry of
Finance. If there was an unacceptable risk that the Fund contributed to violations of its
ethical standards by investing in a specific company, the Council could recommend the
exclusion of that company from the Fund’s investments. The Council took the seriousness of
a company’s unethical behavior into consideration in determining whether investing in the
company constituted an unacceptable risk. Such decisions were made on a case-by-case
basis. The Ministry of Finance then made the final decision about whether to exclude a
company. In 2006, the Council of Ethics conducted a preliminary review of around 80
companies, and only a limited number of these resulted in a recommendation for exclusion. 25
Typically, the due diligence process lasted several months before the Council submitted its
recommendation to the Ministry of Finance. If a company was then excluded from the
Fund’s investment universe, the Council had the responsibility to follow up on a regular
basis to find out whether the company had changed practices to become compliant with the
Fund’s ethical guidelines. If it had, the Fund could reinvest in that company. As an example,
on April 12, 2005, the Council recommended the disinvestment of Kerr-McGee Corp. because
the company had seriously violated ethical norms by operating in the Boujdour field in the
occupied territory of Western Sahara. According to the Ministry of Finance, “The Council on
Ethics did not assess whether Morocco’s exploration activities constitute a violation of

BY ANDREW ANG*
international law, but based on the rationale behind the general rules of international law
relating to this subject matter, the Council found that the economic activities off shore
Western Sahara could be considered unethical.” 26 The company terminated its activities in
the spring of 2006 and the Council recommended revoking the exclusion of the company,
which was subsequently included in the Fund’s asset universe on June 30, 2006.
The Council utilized a variety of different sources when gathering information on
companies. On behalf of the Council, EIRiS continuously monitored all companies in the
Fund portfolio to uncover possible violations of norms, using a variety of publicly available
media sources. EIRiS then informed the Council on a monthly basis of cases that might
warrant closer scrutiny. To evaluate companies, the Council also used the findings of
national and international organizations, research reports, and information provided by the
media. The Council undertook its own research as well as engaging independent experts to
consult on specific cases.
Ethical Investing
INVESTOR ACTIVISM
Ongoing and active shareholder participation comprises three main venues, including proxy
voting, dialogue with management, and shareholder proposals. The Securities and Exchange
Commission (SEC) required companies registered in the United States to send shareholders a
proxy statement and a proxy ballot annually. The statement listed the shareholders’
resolutions and the material issues on which shareholders will vote. The ballot gives
management the authorization to vote on behalf of the shareholder at the annual shareholder
meeting. Proxy voting was an integral part the Fund’s investment process. As of the
beginning of November 2006, the Fund had voted on 23,363 issues in 2,189 companies that
year. 27
Another way to exercise investor activism is to speak with management. Dialogue is often
less confrontational than interaction at shareholder meetings and can have a more powerful
impact, especially when large shareholders are involved. NBIM often reached out to
companies in this way. Finally, groups of investors often joined together to submit
shareholder proposals to influence management. Such resolutions must meet SEC
requirements for timing, stock ownership, and content. In 2006 Norges Bank voted on
approximately 700 shareholder proposals concerning the preservation of shareholders rights,
the remuneration of managers, the structure of the board of directors, and social and
environmental issues. 28 According to NBIM, working with other investors to foster corporate
responsibility was one of its key activist tactics.
Investment activism can also extend beyond engaging individual companies. At the time of
this case, investment managers, state officials, and environmental groups had recently filed a
petition with the SEC in order to improve reporting standards on the financial impact of
climate change. The petition specifically called for greater transparency and explicit
reporting guidelines so that requirements were standardized. As one environmental activist

BY ANDREW ANG*
pointed out, “Disclosure rates are improving, but it’s a question of reporting. There’s a lot of
variance. Investors need to receive information in a format that is consistent and accurate.” 29
According to the petition, uneven reporting standards put individual investors at a
disadvantage because individuals do not have access to the often expensive screening
processes used by consultants to large investment firms. In this sense, a uniform set of
standards would level the playing field of social investing.
EXCLUSION OF COMPANIES
Exclusion of companies from the Fund’s investment universe was generally considered the
last resort. Negative screening or the divestiture of a company occurred only when dialogue
and resolutions were deemed ineffective. Companies were excluded from the Fund’s
investment universe if they, or entities under their control, were deemed to be involved in
grossly unethical activities. For example, according to the Fund’s guidelines, companies that
produce weapons—such as nuclear arms and cluster munitions—whose normal use may
violate fundamental humanitarian principles were excluded by negative screening. The
Fund also excluded companies on an ad hoc basis when there was an unacceptable risk of
the Fund contributing to human rights violations, environmental damage, corruption, or
other infringements of ethical norms by investing in those companies. At the end of year
2006, 21 companies were excluded from the investment portfolio (see Exhibit 2).
Ad hoc disinvestment is an area fraught with controversy, and in 2007 the Fund defended its
continuing investments in 20 companies operating in Burma under the military regime in
power there. In a letter on October 15, 2007, the Council found insufficient evidence that the
companies contributed to serious human rights violations due to their location. The Council
admitted that “while a company’s presence can be assumed to generate revenues for the
suppressive regime, and therefore contribute to the regime’s existence, the general
relationship between the company and the state’s violations is not sufficient to warrant
exclusion.” 30
Examination of Wal-Mart
In April of 2005, the Council began a closer examination of several alleged unethical
activities by Wal-Mart. The Council distinguished between violations within Wal-Mart’s
supplier network and the company’s own operations. Among suppliers in Asia, Africa, and
Latin America, there were numerous reported violations of internationally recognized labor
and human rights, including reports of child labor, serious violations of working hour
regulations, paying wages below the local minimum, hazardous working conditions, and
unreasonable punishment. At Wal-Mart’s own production facilities and stores in North
America, the Council found widespread gender discrimination in the company’s wage
policy. In addition, there were documented attempts by the company to stop unionization
among workers. Finally, there were reports of children performing dangerous work and the
use of illegal immigrant labor.

BY ANDREW ANG*
The Council held Wal-Mart directly accountable for the violations of labor standards at its
own operations. However, regarding violations in the supplier network, the Council
conceded, “it would be difficult to demonstrate direct responsibility for all norm violations
taking place in the supply chain around the world.” 31 The test for exclusion also lies in the
future. As the 2006 Annual Report for Global Pension Fund—Global stated, the Council
“consider[s] whether an unacceptable risk exists that the company is complicit in, and will
continue to be complicit in, violations of ethical norms.” 32
Valborg Lie, senior advisor at the Ministry of Finance, noted that many of the alleged
violations of human rights were associated with independent companies along Wal-Mart’s
supply chain, even though many of these companies had Wal-Mart as a majority investor.
“In an integrated economy, the responsibility may not stop at the limits of a legal entity,” she
said. 33
OTHER INVESTORS’ ACTIVISM
In 2001 a coalition of 38 investors proposed that Wal-Mart utilize third-party inspectors for
monitoring suppliers. The effort was unsuccessful as the company concluded that its own
monitoring system was sufficient. Two years later, a group of investors brought up the topic
again at Wal-Mart’s annual shareholder meeting. The investors were attempting to pressure
Wal-Mart, as they said in a letter to shareholders, in order to “commit the company to the
full implementation of human rights standards by its international suppliers and its own
international productions facilities, and to commit to a program of outside, independent
monitoring of compliance with these standards.” 34 In 2005 the institutional investors F&C
Asset Management PLC and Universities Superannuation Scheme Ltd (USS)—which
together owned approximately 11 million Wal-Mart shares—wrote a letter to the company,
expressing concern about “the potential contingent liabilities and negative effects on the
company’s stock price and reputation.” During the same year, the Interfaith Center for
Corporate Responsibility (ICCR) urged Wal-Mart to become more transparent in its
reporting and to publish a report detailing the specific steps the company was taking to
protect human rights, worker rights, and the environment.
Faced with such intense criticism, Wal-Mart stepped up its own efforts to counter the
accusations. In January of 2005, the company took the unusual step of placing a full-page ad
in hundreds of newspapers in the United States, including the Wall Street Journal, New York
Times, and USA Today. The ad was a direct letter from H. Lee Scott, CEO who stated:
We understand that, as one of the most visible corporations in the world, we
will be a target for criticism. When it is valid, we try to learn from it and
become a better company. But we have made a commitment to our
associates, customers and suppliers that when false allegations are made
about Wal-Mart, we will actively correct the record. 35
In addition to conducting the ad campaign, the company added a page to its website to
present facts about the company to the public. 36

BY ANDREW ANG*
ATTEMPTS TO ENGAGE WAL-MART

On September 14, 2005, the Council sent a letter through NBIM, asking Wal-Mart and its
subsidiary, Wal-Mart de Mexico SA, to comment on the alleged human rights violations.
Wal-Mart acknowledged receiving the letter but declined to respond.
Separately, the Ministry of Finance asked NBIM to assess whether an activist approach
would be an effective tool to influence Wal-Mart’s business practices. The Council found the
risk of complicity for the Fund was unacceptably high and recommended excluding Wal-
Mart in a report released on November 15, 2005.
In a letter dated January 6, 2006, the bank commented, “Processes are under way in relation
to ethical and social conditions at Wal-Mart and that Norges Bank is in a position to
participate in several of these processes.” The letter, shown in Exhibit 3, expressed the bank’s
concern regarding its ability to support the Council’s goal of meeting ethical guidelines,
saying:
The Council on Ethics has, having performed an assessment of Wal-Mart,
rendered an exclusion recommendation, under reference to the Fund’s ethical
guidelines. We will not be commenting on this recommendation below, as it
falls outside the scope of our mandate. However, we would like to emphasize
that Norges Bank’s possibility of exercising ownership rights vis-à-vis Wal-
Mart, which would entail having a real say as to the future development of
the company—also within the areas identified by the Council on Ethics—will
disappear if the company is excluded from the investment universe of the
Fund. 37
However, given the apparently limited success of previous activist action, the bank offered a
more tentative view of the future: “Active ownership in a company such as Wal-Mart is a
complex undertaking and requires patience.” 38
After receiving the recommendation from the Council, the Ministry of Finance initiated its
own assessment effort. From January until March 2006, the ministry conducted its own
assessment, primarily based on the recommendation from the Council on Ethics and the
letter from NBIM. After deliberation, the ministry found that it was “unlikely that exercising
the Fund’s ownership rights vis-à-vis Wal-Mart will sufficiently reduce the risk of the Fund
contributing to ethically unacceptable conduct.” 39 As a result, in late March the ministry
decided to exclude Wal-Mart from GPFG’s investment universe. In announcing the decision,
the ministry quoted the recommendation of the Council on Ethics as follows:
What makes this case special is the sum total of ethical norm violations, both
in the company’s own business operations and in the supplier chain. It
appears to be a systematic and planned practice on the part of the company
to hover at, or cross, the bounds of what are accepted norms for the work
environment. Many of the violations are serious, most appear to be
systematic, and altogether they form a picture of a company whose overall

BY ANDREW ANG*
activity displays a lack of willingness to countervail violations of norms in its

business operations. 40
The press release is included in Exhibit 4.
Disinvestment
The Pension Fund—Global held 6,470,900 shares in Wal-Mart Stores Inc. on March 31, 2006.
With a closing price of $47.24, this number represented a position of $306 million. The Fund
also held 8,323,877 shares in Wal-Mart de Mexico SA, which was also to be divested. After
disposing of the Fund’s Wal-Mart shares, the Ministry of Finance issued a press release on
June 6, 2006 (see Exhibit 3).
Reaction
The Fund’s decision to exclude Wal-Mart did not go unnoticed. Benson K. Whitney, the US
ambassador to Norway, claimed Norway had taken aim at companies arbitrarily based on
unreliable research from third-party reports. In addition, he contended that the exclusion
process unfairly singled out American companies, which operated in markets with a free
press and easily accessible information. 41 Council on Ethics Chair Gro Nystuen fired back:
“This is about investment decisions. No one has an inherent right to be invested in [by us].”
As to whether the Fund was negatively biased toward American companies, she
commented, “In either case, the Fund must have a 35 percent allocation to U.S. based
companies.” 42 A spokesperson from Wal-Mart also disputed Norway’s decision, claiming
that it was based on inaccurate information. In late 2006 the company sent two senior
executives to plead its case before the Ministry of Finance.
In the future, as the Fund’s assets grew larger, Norway would have to grapple with
situations similar to those it had encountered in the divestment of Wal-Mart. Given its large
size and strong emphasis on ethical investing, the Fund had an opportunity to influence
standards in the global investment community. On the other hand, as a sovereign fund
pioneer in ethical investing, Norway would continue to face scrutiny about its investment
practices. The Norwegian Government Pension Fund’s continued ability to maintain a
consistent and cost-efficient procedure to comply with its ethical guidelines would be key to
its effectiveness.

BY ANDREW ANG*
Questions
1. Discuss the merits of the Fund taking on a more activist approach with Wal-Mart to
change its business practices versus divesting its Wal-Mart holdings.
2. In many of the reported instances of ethical violations, relate to the independent
suppliers of Wal-Mart, in which Wal-Mart has little or no ownership stake. In a
global, integrated economy, at what stage in a company’s supply chain should a
company be held responsible for unethical behavior?
3. The sources of information EIRiS uses to analyze companies engaging in potentially
unethical activities naturally bias results by placing greater scrutiny on larger, and
more transparent companies operating in countries with greater freedom of the press.
As the Government Pension Fund—Global begins to add small stocks to its equity
portfolio, can information on smaller companies be obtained in a cost-efficient way to
ensure the Fund avoids contributing to complicity in any unethical activities these
companies undertake?
4. After the Fund’s disinvestment decision, Wal-Mart sent senior executives to Norway
to present its case. Discuss what benefits Wal-Mart may lose by not having the
Government Pension Fund—Global as a shareholder.
5. The public announcement of an exclusion decision is generally postponed until after
Norges Bank has completed the sale of its securities in the excluded company, as
happened in Wal-Mart’s case. Generally, this disposal takes place over a period of
two months. 43
• Given information on turnover, trading volume, prices, and bid-ask spreads,
investigate whether the two-month divestiture period is sufficient to ensure a
financially prudent disposal of the Fund’s Wal-Mart’s shares.
• Estimate the transactions costs incurred by the Fund in divesting its Wal-Mart
holdings from April 1, 2006.
6. As of March 31, 2006, the Fund had a strategic benchmark portfolio of 60% fixed
income and 40% equities. The benchmark portfolio comprises indices for 27 stock
markets and bond indices for the currencies of 21 countries. Over 2,400 companies are
in the benchmark portfolio for equities, which is the FTSE All-World. This index
contains large and medium-sized companies and is divided into three regions:
America/Africa, Europe, and Asia/Oceania. The Fund has a tracking error limit of
1.5% relative to this index, of which only one third was exploited with a tracking
error of .38% over 2006.
• For the purpose of this case, assume the Fund’s U.S. holdings are benchmarked
against the S&P500. Assume that after the Fund disinvests Wal-Mart, the Fund’s
benchmark changes to an S&P499 that excludes Wal-Mart but maintains the same

BY ANDREW ANG*
relative weights of all other companies. Appendix 1 contains some information on

the construction of the S&P500.
• Given the S&P500 constituent and index returns from January 2005 to December
2006, compute the tracking error of the S&P499 index that excludes Wal-Mart
relative to the S&P500.
• What is the realized Sharpe ratio of the new index over this time period compared
with the S&P500?
• Given these results, what do you expect the costs in terms of tracking error to be
for the Fund’s FTSE equity benchmark?
7. Suppose the Fund is not constrained by a benchmark, but its U.S. assets are restricted
to the largest 30 stocks in the S&P500 at March 31, 2006. At this date, the month of
exclusion decision, compute a set of efficient portfolios available from the largest 30
stocks that can be formed without taking short positions. You will need an
assumption of expected returns, a covariance matrix of returns, and a risk-free rate to
make this computation.
• Now compare the set of efficient portfolios that can be obtained from this
universe of 30 stocks that excludes Wal-Mart. That is, only 29 of the 30 stocks can
be held with no holdings in Wal-Mart allowed. What theoretical loss in the
Sharpe ratio and increase in the minimum variance portfolio does the exclusion of
Wal-Mart induce?
• What diversification loss do you expect for the Fund in excluding Wal-Mart if the
Fund is able to hold any set of long positions in the FTSE index?

BY ANDREW ANG*
Exhibits
Exhibit 1
The Distribution of Responsibility between the Ministry of Finance,
Norges Bank, and the Council on Ethics in Work Relating to the
Ethical Guidelines for the Government Pension Fund–Global
The Ministry of Finance
Funda- Annual Criteria for Advice on

mental report on negative exclusion of
principles exercise of screening companies
for exercise ownership and from the
of rights exclusion of Fund’s
ownership specific universe
rights companies
Assessment
Decisions on of
exclusion of ownership
specific rights as a
companies tool in
individual
cases
Exchange of
information
Norges Bank Etikkrådet

(Council on Ethics)
Source: Royal Norwegian Ministry of Finance, Parliamentary Report No. 24 (2006-2007): On the
Management of the Government Pension Fund in 2006.

BY ANDREW ANG*
Exhibit 2
Companies Excluded from the Investment Universe of the
Government Pension Fund – Global Year–End 2006
1. Alliant Techsystems Inc.
2. EADS Co.
3. EADS Finance BV
4. General Dynamics Corporation
5. L3 Communications Holdings Inc.
6. Lockheed Martin Corporation
7. Raytheon Co.
8. Thales SA
9. Singapore Technologies Engineering
10. BAE Systems PLC
11. Boeing Co.
12. Finmeccanica Sp. A.
13. Honeywell International Inc.
14. Northrop Gruman Corp.
15. United Technologies Corp.
16. Safran SA
17. Wal-Mart Stores Inc.
18. Wal-Mart de Mexico SA de CV
19. Freeport McMoRan Copper & Gold Inc.
20. Poongsan Corp.
21. DRDGOLD Ltd.
Source: Royal Norwegian Ministry of Finance, Parliamentary Report No. 24 (2006-2007): On the
Management of the Government Pension Fund in 2006.

BY ANDREW ANG*
Exhibit 3
Letter from Norges Bank to the Ministry of Finance, January 6, 2006
Dear Sirs,
Use of policy tools to promote an ethical basis for the Government Pension Fund–Global
We refer to the letter dated 7 December 2005 concerning active ownership in Wal-Mart.
Norges Bank wishes, in conformity with the guidelines laid down by the Ministry of Finance,
to actively exercise the rights and the influence associated with the ownership of shares,
where this may contribute to safeguarding the long-term asset value of the Government
Pension Fund–Global (formerly the Government Petroleum Fund). We refer, in this context,
to our letter dated 8 December 2005 to the Ministry of Finance, where we discuss the exercise
of the Fund’s ownership rights on a general basis.
Sound exercise of ownership rights may, as previously discussed by Norges Bank, also
promote important ethical considerations, in addition to the financial concerns. The
Storting 44 and the Ministry of Finance are of the view that many key ethical concerns are
consistent with the main objective of a good return on the Fund, since the Fund is invested
very broadly and with a long-term perspective, and therefore benefits from global
sustainable development. It is also worthwhile to recall that the long-term return represents
an important ethical concern in itself.
Consequently, ethics are of considerable importance, along several dimensions, in Norges
Bank’s efforts to manage and safeguard the assets of the Fund.
Norges Bank will, in planning its exercise of ownership rights, have to take a view on which
matters are the most important to focus on for purposes of promoting a good return on the
Fund and other ethical concerns. We note, in this context, that aspects of the Third World
suppliers of the relevant company, Wal-Mart, as addressed in the recommendation of the
Council on Ethics for the Government Pension Fund–Global (the “Council on Ethics”),
illustrate issues that are also of importance to Norges Bank as an asset manager and a
custodian of ownership interests.
The Council on Ethics has, having performed an assessment of Wal-Mart, rendered an
exclusion recommendation, under reference to the Fund’s ethical guidelines. We will not be
commenting on this recommendation below, as it falls outside the scope of our mandate.
However, we would like to emphasise that Norges Bank’s possibility of exercising
ownership rights vis-à-vis Wal-Mart, which would entail having a real say as to the future
development of the company—also within the areas identified by the Council on Ethics—
will disappear if the company is excluded from the investment universe of the Fund. It is
therefore of importance to Norges Bank to communicate our views on, and our planned
activities in relation to, the exercise of ownership rights in Wal-Mart. These may be
summarised as follows:

BY ANDREW ANG*
• An important aspect of Norges Bank’s formal exercise of ownership rights over Wal-
Mart is voting in the shareholders’ meetings of Wal-Mart. We have previously
supported proposals from shareholders requiring more openness in the company’s
reporting on social matters, through requirements for, inter alia, the publication of an
annual Sustainability Report (a report on environmental and social sustainability)
and an annual Equal Opportunity Report (a report on the treatment of women and
minorities). We will continue to support such proposals, provided that Norges Bank
deems these to be reasonable in terms of their contents, their form and the
requirements imposed on the company. We are of the view that such pressure for
more openness forms a very important part of the contribution that Norges Bank can
make as an active owner, and that increased support amongst investors for these
proposals, which, against the advice of the company’s management and the largest
owner, achieved as much as 16 percent and 19 percent support in 2005, will over time
make it increasingly difficult for Wal-Mart to avoid broader and more thorough
reporting on the matters raised in the recommendation of the Council on Ethics.
• Norges Bank is, in cases like this, in contact with other large investors with
comprehensive experience from corporate contact in the US and Europe, with a view
to coordinating positions and any corporate contact. This enables Norges Bank to
communicate its requests, and the reasons underpinning these, more clearly and as
forcefully as possible.
• Wal-Mart is under pressure, both in the general public debate and the judicial system,
as well as from investors. It may be noted, in this context, that there is a consensus
amongst investors that significant weight should be attached to reputation risk when
evaluating how the value of a company is likely to develop. It would therefore seem
evident that investors have a real incentive to exercise additional pressure against
Wal-Mart. This may, again, provide the company with an incentive to consider
reforming its practises. Several serious analysts of the company indicate that the
reputational risk is taken seriously both by investors and by the company itself.
• Pressure against Wal-Mart has mounted during 2005, and it would appear that the
company has recently become more willing to respond to the criticism, and it has
communicated the commencement of measures to change its social profile to a larger
degree than has previously been the case. Norges Bank is continuously seeking to
keep updated on such relevant changes to the company’s profile and policy, in order
to thus identify the best manner of influencing the company.
• Whilst Wal-Mart is facing criticism in respect to certain aspects of its business
activities, it is at the same time a company with a formal management structure that
in many respects is satisfactory from the perspective of the principles and
requirements adopted by Norges Bank. This is an important consideration for
purposes of assessing the real prospects for influencing the company on the ethical
issues raised by the Council on Ethics. A good and predictable management structure

BY ANDREW ANG*
can be a prerequisite for a constructive investor dialogue and a willingness to change.

At the same time, the ownership structure of the company is characterised by the
dominance of the Walton family, which holds approximately 40 percent of the shares,
which may affect the scope for active exercise of ownership rights on the part of
minority shareholders.
Norges Bank deems it important to exercise ownership rights in companies like Wal-Mart,
which play a major role in the world economy, and which may set trends that will be
followed by other companies within their sectors, as well as by a number of suppliers.
However, it is important to emphasise that active ownership in a company like Wal-Mart is a
complex undertaking, and that it requires patience. Norges Bank is only one of many voices,
and long-term activity and broad alliances are required to create change.
Norges Bank plans to continue its participation in this effort. Whilst it is important to adopt a
realistic attitude when it comes to what can be achieved, Norges Bank notes that we can,
through our exercise of ownership rights, and at a relatively moderate cost, contribute to
influencing Wal-Mart for the better, and at the same time communicate important ethical
concerns and principles, not only to Wal-Mart, but also to other companies engaged in
similar activities, as well as to other investors.
Norges Bank deems it important to emphasise that there are at present processes ongoing in
relation to ethical and social matters at Wal-Mart, and that we will be able to participate in a
number of these processes. If one harbours a wish to influence the company through one’s
exercise of ownership rights, this may be an argument against divesting one’s holdings in the
company at present.
If the Ministry of Finance thus requests, and if the Ministry of Finance wishes, in view of the
above discussion, to postpone the decision to exclude the company, Norges Bank will report
on its active ownership strategy in relation to Wal-Mart at a later date in 2006 and
thenceforth.
Yours faithfully,
Svein Gjedrem
Henrik P. Syse

BY ANDREW ANG*
Exhibit 4
Edited Press Release, June 6, 2006
TWO COMPANIES – WAL-MART AND FREEPORT – ARE BEING EXCLUDED FROM THE
NORWEGIAN GOVERNMENT PENSION FUND – GLOBAL’S INVESTMENT UNIVERSE
No.: 44/2006
Date: 06.06.2006
The Ministry of Finance has excluded Wal-Mart Stores Inc., Wal-Mart de Mexico (“Wal-
Mart”) and Freeport McMoRan Copper and Gold Inc. (“Freeport”) from the Norwegian
Government Pension Fund–Global’s investment universe in line with recommendations
from the Council on Ethics for the Fund. The recommendation to exclude Wal-Mart cites
serious/systematic violations of human rights and labour rights. The recommendation to
exclude Freeport is based on serious environmental damage.
—“The Council’s assessments deal with issues under the Ethical Guidelines which have not
been dealt with by previous recommendations, such as violations of human rights, labour
rights, and complicity in serious damage to the environment. The exclusions reflect our
refusal to contribute to serious, systematic, or gross violations of ethical norms in these areas
through our investments in the Government Pension Fund–Global,” says Minister of Finance
Kristin Halvorsen.
—“The Council’s recommendations represent a thoroughgoing piece of work which
provides a good basis for the ministry’s consideration of these cases and its resulting
decisions. These companies are excluded because, in view of their practices, investing in
them entails an unacceptable risk that the Fund may be complicit in serious, systematic, or
gross violations of norms,” says Minister of Finance Kristin Halvorsen.
WAL-MART
The Council on Ethics has considered allegations that Wal-Mart is implicit in violations of
human rights and labour rights in its business operations. Wal-Mart is the world’s largest
retailer, posting a turnover of USD 285 billion in 2005.
Point 4.4., second paragraph, first bullet point of the Ethical Guidelines, reads:
The Council shall issue recommendations on the exclusion of one or several
companies from the investment universe because of acts or omissions that
constitute an unacceptable risk of the Fund contributing to serious or
systematic human rights violations, such as murder, torture, deprivation of
liberty, forced labour, the worst forms of child labour, and other forms of
child exploitation.
According to the Council on Ethics’ recommendation of 15 November 2005, “An extensive
body of material indicates that Wal-Mart consistently and systematically employs minors in
contravention of international rules, that working conditions at many of its suppliers are
dangerous or health-hazardous, that workers are pressured into working overtime without

BY ANDREW ANG*
compensation, that the company systematically discriminates against women in pay, that all
attempts to unionise by the company’s employees are stopped, [and] that employees are in a
number of cases unreasonably punished and locked in, along with a number of other
circumstances…” The Council’s assessments encompass Wal-Mart’s business operations in
the USA and Canada, and at its suppliers in Nicaragua, El Salvador, Honduras, Lesotho,
Kenya, Uganda, Namibia, Malawi, Madagascar, Swaziland, Bangladesh, China, and
Indonesia.
The Council on Ethics summarises its recommendation as follows: “What makes this case
special is the sum total of ethical norm violations, both in the company’s own business
operations and in the supplier chain. It appears to be a systematic and planned practice on
the part of the company to hover at, or cross, the bounds of what are accepted norms for the
work environment. Many of the violations are serious, most appear to be systematic, and
altogether they form a picture of a company whose overall activity displays a lack of
willingness to countervail violations of norms in its business operations.”
The Council, through Norges Bank, wrote to Wal-Mart on 14 September 2005 inviting them
to comment on the allegations of complicity in violations of human rights and labour rights.
Wal-Mart did not respond to this letter.
The Ministry of Finance has dialogued with Norges Bank on the possibilities for exercising
ownership rights as an instrument vis-à-vis Wal-Mart. In a letter of 6 January this year
Norges Bank wrote that it would like to exercise its ownership rights in Wal-Mart and that
this “may help influence Wal-Mart in a positive direction, while at the same time
communicating important ethical considerations and principles, not only to Wal-Mart, but to
other companies with similar operations, as well as other investors.” Norges Bank also writes
that at the present time “… processes are under way in relation to ethical and social
conditions at Wal-Mart, and that Norges Bank is in a position to participate in several of
these processes.” At the same time the bank points out that “… exercising ownership rights
in a company such as Wal-Mart is a complicated matter and requires patience.”
— “I would emphasise that the exercise of ownership rights is a highly important instrument
under the Ethical Guidelines in terms of promoting ethical practices and long-term
sustainability,” says Minister of Finance Kristin Halvorsen.
— “Exercise of ownership rights is the instrument best suited to influencing companies in a
desired direction. For that reason I view Norges Bank’s stance positively. The threshold for
excluding companies from the Fund’s investment universe must be high. Companies’
violations of norms must be of a serious, systematic, or gross nature in order for this
instrument to be applied. However, in this particular case the Council on Ethics is clear in its
recommendation for exclusion, and the Council views the risk of complicity in future norm
violations as unacceptable. In light of the Council’s recommendation, the Ministry of Finance
finds it unlikely that exercising the Fund’s ownership rights vis-à-vis Wal-Mart will
sufficiently reduce the risk of the Fund contributing to ethically unacceptable conduct, as this
is defined in the Ethical Guidelines. I would also recall that the Council on Ethics is

BY ANDREW ANG*
mandated to monitor companies excluded from the Fund’s investment universe to determine
whether a basis for exclusion still exists. In cases where a basis for exclusion no longer exists,
companies may once again be included in the Fund’s investment universe,” says Minister of
Finance Kristin Halvorsen.
In light of the above, the Ministry of Finance has decided to act on the Council’s
recommendation to exclude Wal-Mart from the Fund’s investment universe based on the
view that the Government Pension Fund–Global will incur an unacceptable risk of
contributing to serious or systematic violations of human rights by maintaining its
investments in the company.
DISINVESTMENT
According to established procedures, Norges Bank has two months in which to disinvest
from a company before a decision on exclusion is made public. Norges Bank was asked by
letter of 28 March 2006 to disinvest from the above two companies concerned by the end of
May 2006. Disposal of stocks and bonds in the companies is now complete. As of 31
December 2005 the Government Pension Fund–Global’s investment in Wal-Mart totaled
about NOK 2.5 billion. The Fund’s investment in Freeport came to about NOK 116 million at
the same point in time. Publication of the decisions was deferred to ensure an appropriate
disinvestment process.
The recommendations of the Council on Ethics are posted on the Ministry of Finance’s
homepage.
Read more about the Council on Ethics for the Government Pension Fund–Global at
http://www.regjeringen.no/en/sub/styrer-rad-utvalg/ethics_council.html?id=434879.

BY ANDREW ANG*
Appendix
Calculation of the S&P500 Index
The S&P500 is a free float weighted index of 500 U.S. domiciled companies with an
unadjusted market capitalization of about $5 billion. To be included in the index, a company
must be an operating company and not a closed-end fund, holding company, or tracking
stock. Real estate investment trusts are eligible for inclusion. S&P also looks at other criteria
to determine a company’s inclusion in the S&P500 index, including adequate liquidity and
reasonable price (the ratio of annual dollar value traded to market capitalization should be at
least 0.3); a large public float (at least 50 percent of issued stock); financial viability (at least
four consecutive quarters of positive GAAP earnings); and time since listing (IPOs are
seasoned for 6 to 12 months before their inclusion).
S&P calculates an investable weight factor (IWF) for each stock to ensure the index reflects
only those shares available for investment by investors, rather than counting all of a
company’s outstanding shares). The IWF excludes shares closely held by control groups,
family trusts, or other publicly traded companies or government agencies. The IWF is
defined as
available float shares
IWF = .
total shares outstanding
The level of the S&P index is calculated as
∑ P S IWF
j
j j j
Index = ,
Divisor
P S IWF
where j is the price of stock j, j is the total shares outstanding of stock j, and j
is the
investable weight factor of stock j. The purpose of the divisor is to ensure continuity in the
index value. The divisor adjusts for all changes in constituents’ share capital for corporate
actions, such as additions and deletions to the index, rights issues, share buybacks and
issuances, splits, and spin-offs. The investable daily return, not including dividends, of each
stock in the S&P index can be defined to be
Pj ,t S j ,t IWFj ,t
r j ,t = .
Pj ,t −1S j ,t −1 IWFj ,t −1
This allows the index return of the S&P500 to be computed as
rt = ∑ w j ,t −1rj ,t ,
j
where the weight of firm j is given by

BY ANDREW ANG*
Pj ,t −1S j ,t −1 IWFj ,t −1
w j ,t −1 = .
∑P
j
j ,t −1 S j ,t −1 IWFj ,t −1
Note that the weights of each firm are known at the beginning of the period.

BY ANDREW ANG*
Endnotes
1 Wal-Mart was rebranded as Walmart in 2008.

2 Norwegian Ministry of Finance, “Two Companies—Wal-Mart and Freeport—Are Being Excluded
from the Norwegian Government Pension Fund–Global’s Investment Universe, press release No.
44/2006, June 6, 2006.
3 Norwegian Ministry of Finance, press release No. 44/2006.
4 Statistisk Sentralbyrå, Fakta om Norge, 2007.
5 Ina Gundersen and Emile Ashley, “Oil Veterans Look Back,” Norwegian Continental Shelf, no. 3 (2006):
30-33, http://www.npd.no/Global/Engelsk/3%20-
%20Publications/Norwegian%20Continental%20Shelf/PDF/2006-no.3.pdf
6 Facts 2007, Norwegian Petroleum Directorate, http://www.npd.no/Global/Engelsk/3%20-
%20Publications/Facts/Facts_2007.pdf. The average exchange rate for 2006 was $1/NOK=6.41557.

7 Kristin Halvorsen, “Hvor Mye Skal Vi Bruke av Oljeformuen?” (speech at Lecture on Value Seminar,
Sanderstolen, Norway, January 24, 2007),

http://www.regjeringen.no/nb/dep/fin/aktuelt/taler_artikler/ministeren/finansminister_kristin_halvors
en/2007/hvor-mye-skal-vi-bruke-av-oljeformuen.html?id=446078
8 Mark Landler, “Norway Backs Its Ethics with Its Cash,” New York Times, May 4, 2007.
9 Royal Norwegian Ministry of Finance, Parliamentary Report No. 25 (1973–74): Petroleum Industry in
Norwegian Society, http://www.google.com/search?sourceid=chrome&ie=UTF-

8&q=The+Role+of+the+Petroleum+Activities+in+Norwegian+Society%2C%E2%80%9D+Report+from+
Ministry+of+Finance+to+Storting
10 Thorvaldur Gylfason, “Natural Resources, Education, and Economic Development,” European
Economic Review 45 (May 2001): 847–59.

11 Dagsavisen kronikk, March 29, 2006.
12 Anne Moore Odell, “Big Bosses Embrace Corporate Responsibility,” Institutional Shareowner,
September 21, 2007.

13 Goldman Sachs, GS Sustain, June 22, 2007,
http://www.unglobalcompact.org/docs/summit2007/gs_esg_embargoed_until030707pdf.pdf
14 FTSE, FTSE4Good Index Series: Fact Sheet, 2008,
http://www.ftse.com/Indices/FTSE4Good_Index_Series/Downloads/FTSE4Good_Factsheet.pdf.
15 Council on Ethics, Government Pension Fund–Global, Ethical Guidelines (excerpts), December 22,
2005, http://www.regjeringen.no/en/dep/fin/selected-topics/the-government-pension-
fund/responsible-investments/the-ethical-guidelines.html?id=434894
16 For UN Compact, see www.unglobalcompact.org; for OECD principles, see www.oecd.org.
17 Council On Ethics, Government Pension Fund–Global, Ethical Guidelines (excerpts), December 22,
2005, http://www.regjeringen.no/en/dep/fin/selected-topics/the-government-pension-
fund/responsible-investments/the-ethical-guidelines.html?id=434894
18 Royal Norwegian Ministry of Finance, Parliamentary Report No. 24 (2006-2007): On the Management of
the Government Pension Fund in 2006.

19 Finansdepartementet, “Spørsmal og Svar,” February 8, 2007.
20 Kristin Halvorsen, ”Etikk i Praksis – Etiske Retningslinjer for Statens Pensjonsfond-Utland”
(presentation, Polyteknisk Forening, January 30, 2007).

21 Kristin Halvorsen, “Corporate Complicity in Human Rights Violations” (presentation, Council of
Ethics Workshop, Ministry of Finance, October 23, 2006).

BY ANDREW ANG*
22 Knut N. Kjaer, executive director of the Norwegian Pension Fund—Global, “From Oil to Equities”
(speech, Norwegian Polytechnic Society, November 2, 2006).
23 Andrew Higgins, “Oil-Rich Norway Hires Philosopher as Moral Compass: State Seeks Ethics Lesson
on Investing Its Bonanza; Mr. Syse Reads Hobbes,” Wall Street Journal, December 1, 2005.
the Government Pension Fund in 2006, section 4.1.2.

25 Norwegian Ministry of Finance Report to the Storting, No. 24, section 4.2.4, 2006–7. Four companies
were excluded in 2006.

26 Norwegian Ministry of Finance “KerrMcGee Is Again Included in the Government Pension Fund–
Global,”press release No. 62/2006, September 1, 2006,

http://www.regjeringen.no/en/dep/fin/pressesenter/pressemeldinger/2006/KerrMcGee-Corporation-is-
again-included-.html?id=419868.
27 Kjaer, “From Oil to Equities.”

29 Francesca Rheannon,“Investors, States, and Activists Petition Securities and Exchange Commission
to Mandate Climate Risk Disclosure,” SocialFunds.com, October 8, 2007,

http://www.socialfunds.com/news/save.cgi?sfArticleId=2388
30 Letter from the Council on Ethics to the Ministry of Finance, October 11, 2007.
31 Council on Ethics for the Government Pension Fund, 2006 Annual Report, Section 6.3.
32 Council on Ethics for the Government Pension Fund, 2006 Annual Report, Section 6.3.
33 Interview with Valborg Lie, June 2007.
34 Letter to the Wal-Mart board of directors, January 31, 2003.
35 “Wal-Mart Hits Back,” HRM Guide, January 15, 2005, http://www.hrmguide.com/relations/wal-
mart.htm
36 “Walmart Facts,” Walmart, http://walmartstores.com/PressRoom/9689.aspx
37 Letter from Norges Bank to the Ministry of Finance, January 6, 2006.
38 Letter from Norges Bank to the Ministry of Finance, January 6, 2006.
39 Norwegian Ministry of Finance, press release No. 44/2006.
40 Press release, Ministry of Finance, June 6, 2006.
41 Landler, “Norway Backs Its Ethics with Its Cash.”
42 Sigurd Bjørnstad, “Kunsten å tirre en Kjempe,” Aftenposten, December 23, 2006.

44 The Storting is the Norwegian Parliament.

BY ANDREW ANG*

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THE PROGRAM FOR

The Norwegian Government Pension Fund

Author affiliation Copyright information

The Norwegian Government Pension Fund: The

• A reduction in investment in human capital and entrepreneurial activities caused by

Socially Responsible Investing

Page 3 | The Norwegian Government Pension Fund:

Management of the Norwegian Government Pension Fund

The Norwegian Government Pension Fund: The

Page 5 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

a leading role internationally in fostering corporate governance and we are subject to a

Page 7 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

Page 9 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

ATTEMPTS TO ENGAGE WAL-MART

Page 11 | The Norwegian Government Pension Fund:

activity displays a lack of willingness to countervail violations of norms in its

The Norwegian Government Pension Fund: The

Page 13 | The Norwegian Government Pension Fund:

relative weights of all other companies. Appendix 1 contains some information on

The Norwegian Government Pension Fund: The

The Ministry of Finance

Funda- Annual Criteria for Advice on

Norges Bank Etikkrådet

Page 15 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

Page 17 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

can be a prerequisite for a constructive investor dialogue and a willingness to change.

Page 19 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

Page 21 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

This allows the index return of the S&P500 to be computed as

where the weight of firm j is given by

Page 23 | The Norwegian Government Pension Fund:

The Norwegian Government Pension Fund: The

1 Wal-Mart was rebranded as Walmart in 2008.

4 Statistisk Sentralbyrå, Fakta om Norge, 2007.

%20Publications/Facts/Facts_2007.pdf. The average exchange rate for 2006 was $1/NOK=6.41557.

Sanderstolen, Norway, January 24, 2007),

Norwegian Society, http://www.google.com/search?sourceid=chrome&ie=UTF-

Economic Review 45 (May 2001): 847–59.

September 21, 2007.

the Government Pension Fund in 2006.

20 Kristin Halvorsen, ”Etikk i Praksis – Etiske Retningslinjer for Statens Pensjonsfond-Utland”

(presentation, Polyteknisk Forening, January 30, 2007).

Ethics Workshop, Ministry of Finance, October 23, 2006).

Page 25 | The Norwegian Government Pension Fund:

the Government Pension Fund in 2006, section 4.1.2.

were excluded in 2006.

Global,”press release No. 62/2006, September 1, 2006,

the Government Pension Fund in 2006.

to Mandate Climate Risk Disclosure,” SocialFunds.com, October 8, 2007,

33 Interview with Valborg Lie, June 2007.

34 Letter to the Wal-Mart board of directors, January 31, 2003.

35 “Wal-Mart Hits Back,” HRM Guide, January 15, 2005, http://www.hrmguide.com/relations/wal-