Norway's $1.25 trillion pension fund now owns a quarter of Regent St, London. Photo / Getty Images
Norway's $1.25 trillion pension fund now owns a quarter of Regent St, London. Photo / Getty Images
One of the architects of the world's biggest sovereign wealth fund says pension plans face increasingly complex decisions over responsible investment, particularly in energy.
Martin Skancke, now board chairman of the United Nations Principles for Responsible Investment, helped devise the framework for the oil-fuelled Norwegian pension fund in the mid-1990s.
The fund has grown to the equivalent of $1.25 trillion and owns about 1.3 per cent of equities around the world - including in New Zealand - and is branching into real estate. Its holdings include a 25 per cent share of all of Regent St in London.
Skancke, in Auckland for a briefing on responsible investment, said energy companies were challenging for pension funds which adhered to principles of responsible investment.
Martin Skancke, the Board Chairman of the UN Principles for Responsible Investment. Photo / Supplied
"Rather than reinvesting current profits in new fossil fuels, maybe this money should be redistributed to investors in the form of dividends and reinvested in something else."
However renewables could also be risky and the lack of global carbon pricing was a further complication.
"How do you address risks that are inherent in the current system and how do you assess the opportunities in a new system?"
Skancke said responsible investment had two related meanings.
"One is being responsible ... as a manager of other people's money. A broader issue is the responsibility to the society that you live in - you want to reflect the values of that society.
"People are not indifferent to the way that we make money to pay their pension."
Skancke said the Norwegian fund had changed its stance on investing in fossil fuels - it now doesn't invest in companies whose sole purpose is related to coal production. It will continue to invest in oil and gas.
People are not indifferent to the way that we make money to pay their pension.
The Norwegian fund has been built up by oil revenue and returns. Although the depressed oil price will stem revenue, global investments were still positive.
Skancke said politicians had a strong influence over the fund from its inception, and still do.
"The mandate is relatively clear but the decision-making process is slower. The good thing about it is that it gives the ultimate owners, Parliament, a very clear role in setting risk tolerance and that has served us very well," he said.
"For instance, during the financial crisis where we were not only able to rebalance the portfolio but increase our equity position. We were buying US$150 billion in equities when everyone else was selling."
He said Parliament's close watch on the fund suited the Norwegian political system. "Norwegians don't like experts and technocrats making decisions for them."
The fund had modest investment return targets, averaging 4.2 per cent since its inception in the mid-1990s.
Skancke said the New Zealand Superannuation Fund has more political independence.
"The Super Fund is one of the ones that we follow closely in terms of investment strategy - it's a global leader in setting investment beliefs and maps everything back to those beliefs."
A gathering in Auckland today will discuss responsible investing by private and government funds. It is estimated $28 trillion of assets is managed under responsible investment guidelines.
Hear Rodger Spiller, Financial Adviser at Money Matters speaking about the ethical investment of retirement funds on Newstalk ZB's Early Edition:
