NORWAY - The Norwegian Ministry of Finance has defended its "negative" screening techniques for its ethical considerations, claiming the Government Pension Fund - Global is too big to screen "positively".
Strand who was a former US Fulbright scholar to Norway praised the ministry for its "transparent management" but described its screening technique as an "approach [which] represents a century-old practice that seeks to exclude companies deemed bad because of what they produce or how they produce it".
While the definitions of positive and negative screening varies widely, negative screening looks at aspects of a company or sector that a pension fund wants to avoid, while positive screening selects companies on the grounds of positive social impact and best-practices on environmental, social and governance issues.
In response, Kaja Haldorsen, communication adviser at the Norwegian Ministry of Finance, said: "Positive screening was considered by the commission which developed the ethical guidelines, but was found inappropriate for a fund of our size, due to the effects a constrained investment universe would have on diversification benefits."
However, Bozena Jankowska, head of the sustainability research team at RCM, argued the restrictions on the investment universe depended on the definitions used for positive screening.
She said: "Positive screening may have some investment restrictions if, for example, you aim to focus on investing in industries or sectors which have a net positive environmental or social impact.
"However if you take a 'best in class' approach, for example, where you do not necessarily exclude any specific sector but aim to invest in those companies within each sector which have the best approach towards managing their environmental and social risks and opportunities in this strategy, you are less restricted and have a much broader investment universe."
The Norwegian Government said it was now reviewing the guidelines, and there would be a public consultation process later this year.
"The question of positive versus negative screens is one of many questions that will be considered in this process. The government intends to submit its evaluation of the guidelines to Parliament in the Spring of 2009," said Haldorsen.
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