Foreword by the Governor

Equipped for an uncertain future

Uncertainty and an ever-changing economic landscape require high standards for how we, as an organisation, perform our social mission. While our influence on the global economy is limited, what we can do is ensure that our organisation is as well prepared as possible to meet the changes that occur.

Norges Bank performs important tasks on behalf of the nation. How successful we are is determined both by external factors and by how well-equipped we are, as an organisation, to respond to events.

The year 2023 was marked by continued high inflation and global monetary policy tightening. To restrain the rise in prices in Norway, Norges Bank raised the policy rate from 2.75% to 4.5% in the course of the year. Gains in equity and fixed income markets led to a sharp increase in the value of the Government Pension Fund Global (GPFG).

Much of what we do at Norges Bank is less visible than the policy rate or the value of the GPFG. Payments worth billions of NOK are settled daily in Norges Bank’s settlement system, the very heart of the Norwegian payment system. Managing the GPFG also entails millions of transactions every year, and the infrastructure we use needs to function as intended. In recent years we have enhanced our organisation to ensure operational resilience. In the light of the geopolitical situation, we have stepped up contingency planning and increased our efforts to prevent and respond to cyber attacks.

We need to adapt to a changing economy and a changing world. We need to improve our models and analyses, gather new and better data and perform our tasks in new ways. This requires high standards for Norges Bank as an organisation and workplace. That is why it is important for us to attract and cultivate capable and motivated employees and foster a good working environment with the right to speak up and room for making mistakes.

I am proud of my colleagues who, with their strong engagement and talent, enable us to carry out Norges Bank’s important social mission.

Oslo, 27 February 2024

Ida Wolden Bache
Governor

Annual reports

Norges Bank’s Executive Board

The Executive Board comprises the Governor, the two Deputy Governors and six external board members, all appointed by the King in the Council of State. In addition, two board members are selected by and among employees to participate when administrative matters are on the agenda.

The Governor is Chair and the two Deputy Governors are First Deputy Chair and Second Deputy Chair of the Executive Board. The Executive Board has four preparatory and advisory committees, whose work strengthens and streamlines the Executive Board’s discussions. For more information on the members of the Executive Board, see norges-bank.no

Work of the Executive Board in 2023

The Executive Board held 13 meetings and discussed 218 items of business in 2023. Meetings also take place in the form of seminars for more in-depth presentations and discussions with the administration on the premises for important items on the Board’s agenda. Approximately two thirds of the Board’s time was spent on matters related to the management of the Government Pension Fund Global.

In addition, time is spent by the Executive Board’s four subcommittees on preparing selected matters to be considered by the Executive Board. For more information on the Executive Board’s subcommittees, see norges-bank.no

Table 1 Work of the Executive Board 2019–20231

¹ Upon the establishment of the Monetary Policy and Financial Stability Committee in 2020, some of the Executive Board’s areas of responsibility were transferred to the Committee.

Annual Report of the Executive Board for 2023

Norges Bank is Norway’s central bank, and its main office is in Oslo. The Bank has executive and advisory authority in the area of monetary policy, manages Norway’s foreign exchange reserves and the Government Pension Fund Global (GPFG), and is responsible for promoting robust payment systems and financial markets. In addition, the Bank has the sole right to issue Norwegian banknotes and coins.

The year 2023 was marked by continued high inflation and rising policy rates internationally. The krone depreciated further in 2023, particularly in the period to summer. Prices surged for both imported goods and domestically produced goods and services. To dampen the rise in prices, the Monetary Policy and Financial Stability Committee raised Norges Bank’s policy rate from 2.75% to 4.5% in the course of the year. See the Norges Bank’s Monetary Policy and Financial Stability Committee for further information.

Problems at some US and Swiss banks led to substantial movements in global financial markets in spring 2023. The authorities in these two countries intervened to reduce the risk of contagion to other institutions and prevent a further escalation of the financial market turmoil. The impact on Norway’s financial system was limited.

Global equity markets rose substantially through 2023, contributing to a sharp increase in the market value of the GPFG. Solid returns from GPFG fixed income investments also had a positive impact. In addition, the GPFG’s market value rose owing to the krone depreciation and transfers to the GPFG. A fall in global real estate markets in isolation pulled down the GPFG’s value. Developments in equity and fixed income markets and the krone depreciation also contributed to an increase in the value of Norges Bank’s foreign exchange reserves.

At the start of 2023, a new strategy period for Norges Bank commenced (Strategy 25). For the GPFG, this strategy means continuing and developing the investment strategies further. The ambition is to exploit the GPFG’s characteristics as a large and long-term investor to achieve the highest possible return in a responsible way. To ensure capacity, quality and robustness, Norges Bank Investment Management strengthened its organisation in the course of the year. The work to increase transparency continued, and the GPFG was named the world’s most transparent fund in 2023.

For Central Banking, Strategy 25 will focus on important areas in the payment system. In 2023, work started on deciding the design of the next generation NOK settlement system. At the same time, the Bank’s work on assessing whether to introduce a central bank digital currency continued. In line with Strategy 25, the Executive Board decided to establish a new and modern central banking data and analysis platform, the aim of which is to better facilitate the Bank’s analysis work.

Work on climate and environmental issues are strategic focus areas for both the GPFG and Central Banking. Norges Bank Investment Management continued its work to align the activities of investee companies with the Paris Agreement. In Central Banking, in line with Strategy 25, work has been carried out to improve the Bank’s understanding of the economic impacts of climate change and energy transition.

High priority was given to security and contingency preparedness in 2023, in particular cyber attack prevention and response. However, in light of the geopolitical situation, Norges Bank increased its focus on general contingency preparedness.

During 2023, some changes were made to Norges Bank’s organisation. In March, the Executive Board approved separate HR and Communication departments in both Norges Bank Investment Management and Central Banking. The aim was to achieve clearer divisions of responsibility, a simpler organisation and more tailored support to the two operational areas.

The Executive Board is pleased with the organisation’s performance and thanks the employees for their significant contributions in 2023. Norges Bank’s most important resource is its staff, and work is carried out systematically to ensure job satisfaction, stimulating work and the expertise necessary to perform the Bank’s mission. On an annual basis, the Bank conducts a comprehensive staff survey that also measures and assesses employee engagement, well-being and effectiveness. The survey is an important tool in the Bank’s work to develop its employees, organisation and workplace. The Executive Board is satisfied with the results of the 2023 staff survey and assesses the working environment at the Bank as positive. See the section on Norges Bank’s corporate social responsibility and sustainability for more information on the Bank’s staff and how the Bank works to be an attractive and future-fit workplace.

Government Pension Fund Global

Norges Bank manages the GPFG on behalf of the Ministry of Finance. The objective of the Bank’s investment management is to achieve the highest possible long-term return within the constraints laid down in the mandate from the Ministry of Finance.

The market value of the GPFG increased by NOK 3 336bn through 2023 and was NOK 15 765bn at the end of the year. The market value is affected by the return on investments, capital inflows and withdrawals by the government and exchange rate movements.

Return on the Government Pension Fund Global

In 2023, the return was equivalent to NOK 2 222bn1. A weaker krone increased the market value of the GPFG by NOK 409bn, but this has no bearing on GPFG purchasing power in foreign currency. Net transfers from the Norwegian government were NOK 704bn after the payment of management fees.

Measured in the GPFG’s currency basket, the return for the year was 16.1% before management costs. Equities returned 21.3%. Stock markets were lifted by a surge in prices for technology stocks. A continued rise in central bank policy rates due to high inflation affected bond markets, but a drop in long yields towards the end of the year contributed to a return on fixed income investments of 6.1% in 2023.

Investments in unlisted real estate returned -12.4%, and unlisted renewable energy infrastructure 3.7%. The return on unlisted real estate was weak, both in absolute terms and relative to other asset classes. The return was pulled down by lower valuations as a result of higher real interest rates and decreased demand for office properties since the pandemic.

GPFG investments at the end of the year broke down into 70.9% equities, 27.1% fixed income, 1.9% unlisted real estate and 0.1% unlisted renewable energy infrastructure.

With such a large fund and an equity share of around 70%, we have to be prepared for considerable fluctuations in the GPFG’s return and market value. Each year, Norges Bank publishes the results of both historical and hypothetical stress tests. The tests conducted at the end of 2023 include shocks such as an economic recession linked to high public and private debt, long-term geoeconomic conflict and repricing of the equity market. In these stress tests, the decrease in the value of the GPFG is estimated at around 30% over a period of up to five years.

The Executive Board considers the return on the GPFG over time to have been good. In the period between 1998 and 2023, the average annual return was 6.1%. The annual net real return, after deductions for inflation and management costs, was 3.8% in the same period.

Return relative to the benchmark index

The return achieved by Norges Bank is measured against the return on the GPFG’s benchmark index. In 2023, GPFG return was 0.18 percentage point less than the return on the benchmark index.

Norges Bank’s investment strategies are grouped into three main categories: market exposure, security selection and fund allocation. These strategies are complementary and aim to take advantage of the GPFG’s size and long investment horizon. Each strategy has evolved over time.

Under the strategy for market exposure, the GPFG is invested broadly in equities and bonds included in the benchmark index. The investments are made cost-effectively and with a view to contributing to the objective of the highest possible return. The strategy for security selection is based on fundamental analysis of companies, and Norges Bank uses both internal and external managers. Fund allocation consists of a number of strategies that aim to improve the GPFG’s long-term risk and return characteristics. Investments in real estate and unlisted renewable energy infrastructure are part of the fund allocation strategy.

The results for both market exposure and security selection were good in 2023 and contributed positively to the GPFG’s relative return. However, the results for fund allocation, especially investments in unlisted real estate, meant that the GPFG’s overall return before costs was lower than the return on the benchmark index.

GPFG unlisted real estate investments are almost entirely in office, logistics and retail properties. Office properties account for around half of the portfolio, and investments in office and retail premises are concentrated in a small number of major cities. Higher real interest rates since the pandemic have resulted in weak returns on real estate in general, and especially in the part of the office market where the GPFG is invested. The rise in working from home following the pandemic has also reduced demand for office space. The GPFG’s office properties returned -15.4% in 2023. The valuation of the office portfolio peaked in the first quarter of 2022 and has since been written down by 25.2%.

Unlisted real estate is not part of the benchmark index and is funded by investing less in equities and bonds. Substantial variations may occur between the return on real estate investments and their funding from year to year. The results must be assessed over time. The return on unlisted real estate investments in 2023 was considerably lower than the return on the equities and bonds sold to fund them. This meant that unlisted real estate made a contribution of -0.58 percentage point to the GPFG’s relative return.

Investments in listed real estate returned 16.6% in 2023. In isolation, this made a positive contribution to the GPFG’s relative return of 0.11 percentage point. The value of these investments fluctuated widely during the year but surged in 2023 Q4 along with the rest of the equity market.

There was considerable variation in the results of the different investment strategies in 2023. The Executive Board considers it important for GPFG performance to be assessed as a whole and over time and is satisfied that the overall return over time has been higher than the return on the benchmark index, against which the return is measured.

Norges Bank has reported contributions to the relative return for the same three strategies in the period between 2013 and 2023. In this period, the average annual excess return before management costs was 0.29 percentage point. Market exposure and security selection made positive contributions to the relative return, while fund allocation made a negative contribution.

In the period between 1998 and 2023, the average annual return before management costs was 0.28 percentage point higher than the return on the benchmark index from the Ministry of Finance.

Risk

The objective of the highest possible return is to be achieved with acceptable risk. The risk in the GPFG is measured, analysed and followed up using a broad set of measures and different types of analysis. The management mandate requires Norges Bank to manage the GPFG with a view to ensuring that expected relative volatility (tracking error) does not exceed 1.25 percentage points. Expected relative volatility was 0.34 percentage point at the end of 2023, compared with 0.39 percentage point a year earlier.

Measured over the full period between 1998 and 2023, realised relative volatility was 0.64 percentage point.

Management costs

Management of the GPFG is to be cost-effective. Low costs are not an end in themselves, but cost-effective management supports the objective of the highest possible return after costs. In the period between 2013 and 2023, annual management costs averaged 0.05% of assets under management. In 2023, management costs amounted to NOK 6.6bn, or 0.05% of assets under management. The Executive Board is satisfied that management costs are low compared with other managers (see section on corporate governance for more information).

Responsible investment management and investment strategy

The mandate from the Ministry of Finance requires responsible investment to be an integral part of the management of the GPFG. A good long-term return depends on sustainable economic, environmental and social development. Norges Bank published expectations of companies on consumer interests during the year, as well as views on the responsible use of artificial intelligence.

Climate risk management is a priority for responsible investment, and in 2023, Norges Bank published sharpened expectations for how companies should manage climate risk and views on the use of voluntary carbon credits. A number of companies in the portfolio committed to net zero carbon emissions during the year.

It is hard to measure the effects of work on responsible investment. Provisional results from a research project in 2023 indicate that the Bank’s publication of its voting decisions five days before shareholder meetings leads to increased support for the GPFG’s position from other shareholders.

Norges Bank contributes to the development of the GPFG’s overall investment strategy through its role as an advisor to the Ministry of Finance. In November, the Executive Board submitted its recommendation to the Ministry of Finance to permit parts of the GPFG to be invested in unlisted equities.

The work to promote responsible investment is described in Norges Bank’s work on corporate social responsibility and sustainability.

For more information on the management of the GPFG, see the Government Pension Fund Global Annual Report for 2023.

Foreign exchange reserves

Norges Bank holds foreign exchange reserves for the purpose of crisis management. The foreign exchange reserves are to be sufficiently liquid to be available for use in foreign exchange market transactions or as part of the conduct of monetary policy or with a view to promoting financial stability and to meet Norges Bank’s international commitments. The aim of the management of the foreign exchange reserves is the highest possible return within the applicable risk limits. The reserves are divided into an equity portfolio, a fixed income portfolio and a petroleum buffer portfolio.

Equity and fixed income portfolio

The market value of the total equity and fixed income portfolio was NOK 654.4bn at year-end 2023, which is NOK 72.0bn more than in 2022. At the end of 2023, the value of the equity portfolio was NOK 143.1bn, while the value of the fixed income portfolio was NOK 511.3bn.

In international currency terms, the return on the total equity and fixed income portfolio was NOK 49.5bn in 2023, or 8.2%. The return on the equity portfolio was NOK 30.5bn, equivalent to 25.0%, while the fixed income portfolio returned NOK 19.0bn, equivalent to 4.3%. In NOK terms, the return on the foreign exchange reserves was 12.7%, reflecting higher equity prices, current interest income and lower global interest rates. The krone depreciation further increased the return in NOK terms.

The foreign exchange reserves are managed close to benchmark indexes set by the Executive Board, and the return closely tracks global equity and bond market developments. In 2023, the return on the equity and fixed income portfolios was 0.01 percentage point and 0.03 percentage point higher than the return on the portfolios’ benchmark indexes, respectively. At year-end 2023, expected relative volatility for the equity and fixed income portfolios was 0.05 and 0.02 percentage point, respectively, approximately unchanged through 2023. The foreign exchange reserves’ risk associated with return for Norges Bank arises from market exposure and different currency compositions on both the asset and liability sides. See also the discussion of the balance sheet and financial statements below.

Over the past ten years, the annual return on the equity and fixed income portfolio has been 10.4% and 1.0% in international currency terms, respectively. Overall, annual returns have been 3.5%. The Executive Board is of the opinion that returns have been solid over time.

Petroleum buffer portfolio

The purpose of the petroleum buffer portfolio is to provide for an appropriate management of the government’s need for converting foreign currency and NOK and for any transfers to and from the GPFG. The portfolio normally fluctuates in value owing to the purchase and sale of currency in the market, the purchase of foreign exchange from the State’s Direct Financial Interest (SDFI) and monthly transfers to and from the GPFG. As in recent years, high oil and gas prices have also led to large capital flows and substantial volatility in the petroleum buffer portfolio in 2023.

At the end of 2023, the market value of the petroleum buffer portfolio was NOK 35.4bn, which is NOK 7.8bn more than in 2022. The return on the portfolio was NOK 8.8bn, primarily owing to the krone depreciation. Net transfers amounted to NOK -3.1bn.

Responsible investment and investment strategy

The composition of the equity and fixed income portfolio is to be adapted to the aims of the foreign exchange reserves. The Executive Board has set management limits and principles to ensure that the reserves are invested to meet future liquidity needs. This framework for investment is assessed annually.

The equity portfolio is to be managed according to the same principles and strategies for responsible investment as the equity investments in the GPFG. Among other things, this means that the Bank’s work with responsible investment must be based on a long-term objective whereby investee company operations are in line with the goals of the Paris Agreement.

The work to integrate responsible investment into the management of the foreign exchange reserves is described in the section on corporate social responsibility and sustainability.

For more information on the management of the foreign exchange reserves, see the report Management of Norges Bank’s foreign exchange reserves.

Tasks performed as the government’s bank

In addition to being Norway’s central bank, Norges Bank is also the government’s bank. As the government’s bank, Norges Bank performs a number of tasks on behalf of the government, which includes government debt management and carrying out necessary foreign exchange transactions related to petroleum revenue spending.

NOK transactions on behalf of the government

The volume of foreign exchange transactions carried out by the Bank on behalf of the government has been high, and in 2023, the Bank purchased foreign exchange for NOK 329bn. The transactions in 2023 reflect the very high petroleum prices in 2022 because in the first half of the year, oil companies pay taxes on income earned in the preceding year.

Norges Bank is tasked with converting government revenues from petroleum activities on the Norwegian continental shelf so that the government receives the correct amount of NOK for spending via the central government budget and the correct amount of foreign exchange for saving in the GPFG. The transactions are a task carried out on behalf of the government, completely separate from monetary policy. The weak krone drew attention to the krone sales, which reflect oil companies’ krone purchases. The companies’ revenues are primarily in foreign currency and the companies must purchase NOK in order to pay taxes and duties to the government. A substantial share of these NOK revenues is used to cover the central government budget deficit. Norges Bank therefore only sells part of what the oil companies pay to the government.

Government debt

Norges Bank manages government debt on behalf of the Ministry of Finance. The borrowing requirement is primarily met through issuing long-term bonds. The government also borrows short-term by selling Treasury bills, which are debt instruments with a maturity of one year or less. The government borrows exclusively in NOK.

At the end of 2023, government debt totalled NOK 567bn, with NOK 517bn in government bonds, and NOK 50bn in Treasury bills.

Through the year, bonds amounting to NOK 80bn were issued to the market. In February, a new 10-year bond was issued via syndication in the amount of NOK 22bn. This bond was reopened in the amount of NOK 10bn through a syndication in October. In addition, existing bonds were reopened for NOK 48bn on 22 auction days. On some of these auction days, two different bonds were auctioned.

The average yield for the bonds issued in 2023 was 3.52%, compared with 2.76% in 2022, reflecting the general rise in yields.

Treasury bills worth NOK 52bn were issued to the market at 18 auctions.

Owing to high volatility and uncertainty in fixed income markets in both Norway and other countries, Norges Bank permitted primary dealers to quote larger-than-normal yield spreads in the interdealer market for government bonds and Treasury bills. In autumn, Norges Bank reduced the permitted yield spread somewhat.

Government bond and Treasury bill issuance was carried out in line with the Strategy and borrowing programme for 2023.

The payment system

Norges Bank is tasked with promoting an efficient and secure payment system. Norges Bank is the ultimate settlement system for interbank payments in Norway and issues banknotes and coins. Norges Bank oversees the payment system and other financial infrastructure, contributes to contingency arrangements and is the supervisory authority for interbank systems. The financial infrastructure is considered to be secure and efficient. Operation has been stable, and payments can be made swiftly and at low cost.

Norges Bank’s settlement system

Payment settlement between banks and other financial sector undertakings with an account at Norges Bank takes place in Norges Bank’s settlement system (NBO). Thus, most payments in NOK are ultimately settled in NBO. The operation of the settlement system was stable through 2023, with an average of NOK 355bn in payment transactions handled daily. At year-end 2023, banks’ sight deposits and reserves on deposit with Norges Bank totalled NOK 38bn.

In line with Strategy 25, the decision has been made to begin the process of overhauling the settlement system. The process addresses substantial and sometimes wide-ranging issues including aspects such as secure and stable operation, availability, interoperability, liquidity management, monetary policy, national governance and control, and cost efficiency. A key question is whether the next generation settlement system will build on the current model, with a dedicated solution for Norges Bank, or whether participation in the Eurosystem cooperation on TARGET services is more appropriate.

A well-functioning solution for real-time payments is an important part of an efficient payment system. Instant payments are payment services that ensure that payees receive funds directly in their accounts seconds after the payment is initiated - 24 hours a day, seven days a week. Norges Bank is assessing whether to expand its role as settlement bank by providing financial infrastructure for real-time payments through participation in the Eurosystem’s TARGET Instant Payment Settlement (TIPS) service. Norges Bank has initiated formal discussions with the European Central Bank on possible participation in TIPS.

Cash

Norges Bank has the role of wholesaler in cash distribution and supplies cash to banks from five central bank depots. Retail banks are retailers in cash distribution and provide customers with different cash services. In 2023, the supply of cash in circulation remained at approximately the same level as in previous years and largely reflected the same seasonal variations.

Although cash usage is very low in a global context, cash plays an important role in the payment system. In addition to being central bank money, cash has characteristics that make it part of the contingency arrangements for electronic payment solutions and is important for those that do not have the skills or opportunity to use digital payment solutions.

For cash to be able to fulfil its functions, the public must have real opportunities to obtain and use cash. In recent years, several regulations have been introduced to increase cash availability by clarifying banks’ obligation to offer their customers cash services. For some time, shops and service providers have increasingly turned down cash as a means of payment. In the Executive Board’s view, it is important that consumers’ right to pay cash is clear, and the proposed clarification in a bill from the Ministry of Justice and Public Security will be an important contribution in ensuring that cash remains easy to use. Norges Bank has repeated this view in its publications in 2023.

Central bank digital currency

The structural changes in the payment system raise questions about whether there is a need for Norges Bank to implement measures to ensure that NOK payments can continue to be made efficiently and securely in the future. Norges Bank and many other central banks are now exploring whether to introduce a central bank digital currency (CBDC).

Norges Bank started to explore CBDC in 2016, and in December 2023, Norges Bank published reports from Phase 4 of the exploration project. Phase 4 has consisted of experimental testing of technical solutions, analysis of scenarios for the payment system that would justify the issuance of a CBDC, evaluation of consequences for liquidity management and monetary policy and a review of the legislative changes necessary for an introduction of a CBDC in Norway. The exploration project will be continued in Phase 5 until the end of 2025. In addition to assessing a retail CBDC intended for the general public, the Bank will evaluate if new forms of interbank settlement in wholesale CBDC can facilitate innovation in tokenised bank deposits and other assets in tokenised form. The Bank will cooperate with other central banks and international organisations to gain knowledge and contribute to international standardisation and cooperation.

Cyber security and contingency planning

Cyber incidents are a potential threat to the financial system and financial stability. The cyber resilience of the financial sector needs to be strengthened. This requires extensive public-private cooperation. In collaboration with Finanstilsynet (Financial Supervisory Authority of Norway), Norges Bank has introduced cyber resilience testing according to Threat Intelligence-Based Ethical Red-teaming (TIBER), a framework from the European Central Bank. TIBER-NO is the Norwegian implementation of the framework that has also been adopted by the Nordic countries and many other countries in Europe. The first Norwegian test was conducted in 2023 and several other tests are currently being carried out. In addition, Norges Bank also participates in testing among Nordic countries. There is considerable interest in TIBER testing, and the Bank’s experience so far has been that the framework is appropriate for improving cyber resilience.

Upon the recommendation of Norges Bank, the Ministry of Finance has laid down a mandate for a working group to assess the contingency arrangements in the payment system. The working group will assess the need for measures to increase the safety of electronic payments in different scenarios.

For more information on the payment system, see Financial Infrastructure Report 2023.

Corporate governance

Norges Bank’s governance framework aims to be in line with best practice. The Executive Board follows up the Bank’s operations through periodic reporting on the status of implementing strategy and objectives, resource use, financial and operational risk and compliance.

Norges Bank’s use of resources is to be cost-efficient and prudent, with a cost level that is reasonable compared with that of peer organisations. The Executive Board followed up the budgeting process closely, and planning and the budget for 2024 were discussed at several Executive Board meetings in the latter half of 2023. A number of measures have been implemented to streamline operations, with some also contributing to taking advantage of synergies and economies of scale across the organisation.

Benchmarking, ie external comparisons of the Bank’s use of resources with that of other peer organisations, is used as a corporate governance tool. During 2023, two external cost comparisons were completed for the Bank’s resource use. On behalf of the Ministry of Finance, CEM Benchmarking has compared the management costs of the GPFG with 270 other funds. The GPFG is the fund in the peer group with lowest costs measured as a share of assets under management. According to CEM, the costs are lower because Norges Bank’s share of management carried out internally was higher and more cost efficient. In Central Banking, a comparison of resource use between the Nordic central banks was conducted. The survey shows that the Bank’s use of resources is somewhat lower than that of other peer central banks. The results also show that resource use among a number of the Nordic central banks is increasing, particularly in payment system development.

The Executive Board follows up financial and operational risk and compliance through periodic status reports. Valuations, performance measurement, management and control of risk comply with internationally recognised standards and methods. See the notes to the financial statements. There were no material breaches of the limits for the management of the GPFG or the foreign exchange reserves in 2023, and operational risk exposure was within the Board’s risk tolerance limit.

The Executive Board submits an annual risk assessment to Norges Bank’s Supervisory Council based on reporting by the administration and Internal Audit. No material deficiencies in the risk management and control regime were identified in 2023 and the Executive Board assesses the control environment and control systems at Norges Bank as satisfactory.

No directors’ and officers’ liability insurance has been provided for the members of the Executive Board or the chair of the Board, ie the Governor, in her role as general manager of Norges Bank. In practice, the Board members have limited liability risk, and the Bank self-insures any liability for damages on behalf of Board members or equivalent executive management positions. This is in line with practice in other Nordic central banks.

Balance sheet and financial statements

Balance sheet

Norges Bank’s balance sheet contains a number of items directly related to the Bank’s mission. The balance sheet total at year-end 2023 was NOK ١٦ ٦٢٩bn, compared with NOK 13 ٢٠٠bn at year-end 2022.

In line with the management mandate for the GPFG, the Ministry of Finance has placed a portion of the government’s assets in a separate account in Norges Bank (the GPFG krone account), presented as a liability to the Ministry of Finance. Norges Bank reinvests these funds, in its own name, and presents this as net value GPFG. The value of the GPFG krone account will always equal the value of the investment portfolio less accrued management fee and deferred tax. Norges Bank, in its role as asset manager, bears no financial risk associated with the management of the GPFG. At year-end 2023, the market value of GPFG investments was NOK ١٥ ٧٦٥bn, compared with NOK 12 ٤٢٩bn at year-end 2022. See the separate section above for more details on the management of the GPFG. Detailed financial reporting for the investment portfolio of the GPFG is presented in Note 20 to the financial statements. In addition, an annual report on the management of the GPFG is produced.

Excluding the GPFG, the foreign exchange reserves are Norges Bank’s largest balance sheet asset. The foreign exchange reserves are primarily invested in equities, fixed income instruments and cash. Net foreign exchange reserves amounted to NOK ٦٩٠bn at year-end 2023, compared with NOK ٦١٠bn at year-end 2022. See the separate section above for more details on the management of the foreign exchange reserves.

Under the government’s consolidated account system, all government liquidity is collected daily in government accounts at Norges Bank. At year-end 2023, deposits amounted to NOK 282bn, compared with NOK ٣٠٥bn at year-end 2022. Except for the GPFG krone account, this is the largest liability item on the balance sheet. However, this item fluctuates considerably through the year owing to substantial incoming and outgoing payments over the government’s accounts and transfers to and withdrawals from the GPFG.

Banknotes and coins in circulation are a liability item for Norges Bank. Norges Bank guarantees the value of this money. The amount of cash in circulation is driven by public demand. In recent years, lower demand for cash has reduced the amount in circulation. At year-end 2023, banknotes and coins in circulation amounted to NOK 40bn, unchanged compared with year-end 2022.

Deposits from banks, comprising sight deposits, reserve deposits and F-deposits, are managed by Norges Bank in accordance with its liquidity management policy. At 31 December 2023, these deposits amounted to NOK ٥٨bn, compared with NOK ٢٧bn at year-end 2022.

Norges Bank administers Norway’s financial obligations and rights ensuing from participation in the International Monetary Fund (IMF). Norges Bank has therefore both claims on and liabilities to the IMF. At year-end 2023, Norway’s net position with the IMF amounted to a claim of NOK 27bn, compared with NOK ٢٣bn in 2022. See Note 14 in the notes to the financial statements for more details on the relationship between Norges Bank and the IMF.

Norges Bank’s equity at 31 December 2023 was NOK 322bn, compared with NOK 270bn at 31 December 2022. The Bank’s equity consists of the Adjustment Fund and the Transfer Fund. At year-end 2023, the Adjustment Fund stood at NOK 286.7bn and the Transfer Fund at NOK 35.2bn, compared with NOK 253.3bn and NOK 16.2bn, respectively, at year-end 2022. Norges Bank’s equity, excluding the GPFG krone account, was 36.9% of the balance sheet total, compared with 35.0% in 2022.

The Executive Board deems that the Bank’s equity is sufficient to fulfil the Bank’s purpose (cf Section 3-11, Sub-section 1, of the Central Bank Act). This balance sheet composition is normally expected to generate a positive return over time, excluding foreign currency effects, as returns on the Bank’s investments in equities and fixed income instruments are expected to exceed the cost of the Bank’s liabilities.

Norges Bank’s assets are primarily invested in foreign currency, whereas its liabilities are primarily in NOK. Given the Bank’s balance sheet composition, income will largely be affected by developments in global fixed income, equity and foreign exchange markets. Considerable volatility in income should be expected from year to year. Future increases in the value of the GPFG will be affected by, among other things, transfers to/from the GPFG.

Income statement

Net income/-expense from financial instruments

Net income from financial instruments was NOK ٤٠.٩bn in 2023, compared with net expense of NOK ٥٥.١bn in 2022. Equity investments posted a gain of NOK ٣٠.٥bn, while fixed income investments posted a gain of NOK ١٨.٦bn, compared with losses of NOK ١٥.٩bn and NOK ٣٨.٣bn, respectively, in 2022. Net income from financial instruments also includes a gain of NOK ٣٠.٣bn as a result of foreign currency effects. Foreign currency effects in 2022 resulted in a gain of NOK ٤٥.٥bn.

Government Pension Fund Global

The GPFG’s total comprehensive income showed a profit of NOK ٢ 616.4bn, comprising a gain on the portfolio of NOK ٢ ٦٢٣.٠bn net of management costs of NOK 6.6bn. Equity investments posted a gain of NOK 2 031bn, while fixed income investments posted a gain of NOK 232bn. The gain on the portfolio also includes a gain of NOK 409bn owing to foreign currency effects. Norges Bank’s total comprehensive income for 2022 showed a loss of NOK 1 000.5bn, comprising a loss on the portfolio of NOK 995.3bn and costs related to the management fee of NOK 5.2bn.

Total comprehensive income for 2023 was recognised against the GPFG krone account at 31 December 2023. The return on the portfolio, after management costs reimbursed to Norges Bank have been deducted, is transferred in its entirety to the krone account and thus does not affect Norges Bank’s total comprehensive income or equity.

Other operating income

In accordance with the management mandate for the GPFG, Norges Bank is reimbursed for its expenses related to the management of the GPFG up to a limit. Norges Bank was reimbursed by the Ministry of Finance in the amount of NOK ٦.٦bn in 2023, compared with NOK ٥.٢bn in 2022. Norges Bank also earns income from other services provided to banks and rent from external tenants. Income from these activities totalled NOK ١٦١m in 2023, compared with NOK ١٤٩m in 2022.

Operating expenses

Operating expenses amounted to NOK 8.0bn in 2023, compared with NOK 6.4bn in 2022. NOK 6.6bn of the operating expenses in 2023 is related to the management of the GPFG, compared with NOK 5.2bn in 2022. See Note 19 in the notes to the financial statements for more details on the management fee received by Norges Bank under the management mandate. The increase in expenses compared with 2022 is mainly related to external management of the GPFG, personnel expenses, foreign currency effects and IT services, systems and data. Higher fees to external managers primarily reflect high excess return from external management and the fact that a larger share of the GPFG is managed externally. Higher personnel expenses largely reflect a strengthening of the organisation in the form of more employees.

Total comprehensive income

Change in actuarial gains and losses showed a loss of NOK ٣٥m in 2023, compared with a loss of NOK 504m in 2022. Norges Bank’s total comprehensive income for 2023 showed a gain of NOK 70.0bn, compared with a loss of NOK ١١.١bn in 2022.

Distribution of total comprehensive income

The distribution of total comprehensive income follows guidelines on the reserves and on the allocation of Norges Bank’s profit, laid down by Royal Decree of 13 December 2019 pursuant to Section 3-11, Sub-section 2, of the Central Bank Act. Total comprehensive income shall be allocated to the Adjustment Fund until this fund has reached 40% of the Bank’s net foreign exchange reserves. Any surplus is allocated to the Transfer Fund. A third of the Transfer Fund is transferred annually to the Treasury.

Norges Bank’s net gain of NOK ٧٠.0bn will be covered by a provision to the Adjustment Fund of NOK ٣٣.٤bn and a transfer to the Transfer Fund of NOK ٣٦.٦bn. A further NOK ١٧.٦bn will be transferred from the Transfer Fund to the Treasury. The annual transfers and allocations for 2023 were made in accordance with the guidelines.

Norges Bank’s Executive Board
Oslo, 8 February 2024

Ida Wolden Bache (sign.)
Governor / Chair of the Executive Board

Pål Longva (sign.)
First Deputy Chair

Øystein Børsum (sign.)
Second Deputy Chair

Karen Helene Ulltveit-Moe (sign.)

Kristine Ryssdal (sign.)

Arne Hyttnes (sign.)

Hans Aasnæs (sign.)

Nina Udnes Tronstad (sign.)

Egil Herman Sjursen (sign.)

Mona Helen Sørensen (sign.)
Employee representative

Truls Oppedal (sign.)
Employee representative

An account of sustainability has been prepared pursuant to Section 3-3c of the Accounting Act. The report is presented in a separate document in the Annual Report. The report on sustainability is an integral part of the Executive Board’s report.

Norges Bank’s Monetary Policy and Financial Stability Committee

The Monetary Policy and Financial Stability Committee is responsible for Norges Bank’s role as the executive and advisory monetary policy authority and is also tasked with promoting financial stability.

The Monetary Policy and Financial Stability Committee comprises the Governor, the two Deputy Governors and two external members.

The external members are appointed by the King in the Council of State for terms of four years. The Governor chairs the Committee, and the two Deputy Governors are First and Second Deputy Chairs. For more information on the Committee’s members, see norges-bank.no

The Committee had 22 meetings and discussed 76 items of business in 2023.

The Committee’s work structure

The Monetary Policy and Financial Stability Committee normally holds eight scheduled meetings a year, where policy rate decisions are made. Four of the meetings coincide with the publication of the Monetary Policy Report. At the interim monetary policy meetings, where the Monetary Policy Report is not published, the Committee also sets the level of the countercyclical capital buffer.

The Committee’s meeting schedule is primarily determined by the dates of the eight monetary policy meetings. In connection with the monetary policy meetings that coincide with the publication of the Monetary Policy Report, the Committee meets four times. In connection with the monetary policy meetings without a report, the Committee meets twice.

Bank staff prepare and present relevant analyses and projections that provide the basis for the Committee’s discussions and advise the Committee on policy decisions. To ensure that the discussion basis is as far as possible the same for all the Committee members, all have access to the same information and analyses provided by Bank staff.

The Committee is committed to transparent and clear external communication and seeks consensus on its assessments and decisions through in-depth discussion. The “Monetary policy assessment”, published in connection with policy rate decisions, and the “Assessment of the countercyclical capital buffer requirement”, published in connection with the buffer decisions, reflect the view of the majority. Topics of particular concern to the members in the discussions are highlighted in the assessments. Members that disagree with the assessment of the majority may dissent, and dissenting views are published together with a brief written explanation in the minutes and in the assessments published at the same time as the rate decision. All of the Committee’s decisions were unanimous in 2023. To underpin the Committee’s form as a collegial committee, the Committee Chair, the Governor, normally speaks on behalf of the Committee. Other Committee members may issue statements by agreement with the Committee Chair.

Annual Report of the Monetary Policy and Financial Stability Committee for 2023

The year 2023 was marked by continued high inflation and rising policy rates internationally. The krone depreciated further in 2023, particularly in the period to summer. Global inflation slowed considerably towards the end of the year. Lower energy prices curbed consumer price inflation in Norway as well, but it was still clearly above target. Higher-than-expected inflation and prospects that inflation would remain high for a longer period contributed to a faster and sharper rise in the policy rate than the Committee envisaged at the beginning of the year.

After the policy rate had been reduced to 0% during the coronavirus pandemic, Norges Bank started raising the policy rate again in autumn 2021 as economic activity recovered. In spring 2022, inflation accelerated, and the policy rate was raised further to 2.75% in the course of the year. The policy rate rise continued in 2023, partly as a result of both higher-than-expected inflation and economic activity. Higher wage growth and a depreciation of the krone contributed to pushing up inflation in the projections. To bring inflation down to target, the policy rate was raised several times, to 4.5% by the end of 2023.

Overall, the financial stability outlook did not change materially in 2023. Norwegian banks are solid and well equipped to absorb higher losses while maintaining lending activity. Creditworthy households and firms had ample access to credit through 2023. Losses have been low, but there is still an elevated risk that debt- and property price-related vulnerabilities may amplify an economic downturn. As decided in March 2022, the countercyclical capital buffer for banks was raised from 2% to 2.5% on 31 March 2023.

Monetary policy

International economy

In the wake of the pandemic, consumer price inflation rose markedly internationally. Freight rates and prices for energy, metals and agricultural products rose sharply. Russia’s invasion of Ukraine further pushed up prices for energy and other commodities. In many countries, inflation had not reached such a high level for several decades.

Energy prices declined towards the end of 2022 and were significantly lower throughout 2023 than the previous year. Nevertheless, gas and electricity prices were still at a high level. Oil prices rose somewhat through summer and after the outbreak of the war between Israel and Hamas in October but fell again to close to USD 80 towards the end of the year, which was about the same level as a year earlier. In 2023, cross-border goods trade flowed more normally again, and freight rates dropped. Throughout the past year, consumer price inflation slowed, particularly through the second half of the year. Underlying inflation among trading partners also slowed.

To reduce inflation, central banks internationally have raised policy rates considerably over the past two years. When inflation slowed through autumn, market policy rate expectations fell as well. Towards the end of 2023, central banks were expected to reduce policy rates in the course of spring 2024. Most central banks communicated that it would be necessary to maintain a tight stance for some time ahead to bring inflation down to target.

Economic activity among trading partners gained further momentum in 2023, but high inflation and higher policy rates contributed to slowing growth throughout the year. Unemployment remained low, and wage growth was high in a number of countries. Growth prospects improved somewhat through the year. In December, there were prospects that economic growth would pick up somewhat in the course of 2024.

Long-term interest rates rose sharply through 2022 and towards autumn 2023, to the highest levels in over a decade. Since then, rates edged down again and were close to the levels observed a year earlier at year-end. International stock indexes advanced through 2023.

Problems at some banks in the US and Switzerland led to large movements in global financial markets in spring 2023. The authorities in the two countries intervened to reduce the contagion effects on other institutions and prevent a further amplification of the market turbulence. The turbulence only had a limited impact on funding costs for Norwegian banks and other financial institutions.

Financial conditions in Norway

The krone depreciated further in 2023, particularly in the period to summer. The depreciation must be viewed in the context of the larger rate hikes abroad than in Norway and the low interest rate differential. Periods of heightened uncertainty in financial markets and a fall in oil prices probably also contributed to the depreciation. After the krone had depreciated through autumn, it appreciated again following the publication of the December 2023 Monetary Policy Report. This is probably attributable to the fact that the policy rate hike in December was not expected in the market and that policy rate expectations abroad had fallen.

Household interest expenses have risen as a result of the policy rate increases. From the time the rise in policy rates began in autumn 2021 and up until the end of 2023, close to 90% of the increase in the policy rate has passed through to mortgage rates. The pass-through from the policy rate to deposit rates has been close to 60%.

As a result of higher interest rates, corporate funding from banks and in the bond market has also gradually become more expensive. Higher risk premiums in the bond market have also pushed up funding costs, particularly for commercial real estate. The benchmark index on the Oslo Stock Exchange was somewhat higher at the end of the year than one year earlier.

Norwegian economy

Activity in the Norwegian economy picked up rapidly after the pandemic and remained high through 2022. Savings made it possible for a large number of households to sustain consumption in spite of high inflation and higher interest rates. Unemployment fell to a low level, and the share of employment rose to the highest level in over 10 years.

CHART 2 Interest rate differential against Norway’s trading partners. Three-month average. Percent 2014 Q1-2023 Q4

Sources: LSEG datastream and Norges Bank

The Norwegian economy seems to have peaked towards the end of 2022. Into 2023, activity remained high, and the labour market was tight. Pressures in the economy gradually subsided, and through autumn it became increasingly evident that the Norwegian economy was cooling down. Growth was low and unemployment had edged up. According to Norges Bank’s Regional Network, recruitment difficulties had eased. In November, enterprises as a whole expected a decline in activity in the next quarter.

Chart 4 Unemployment. Registered unemployed as a percentage of the labour force. 2018 Q1-2026 Q4

Sources: Norwegian Labour and Welfare Administration (NAV) and Norges Bank

Economic activity was higher than envisaged at the beginning of the year. Household consumption and mainland business investment in particular were higher than expected. High inflation and higher interest expenses nevertheless contributed to a decline in household consumption in 2023. At the same time, housing investment fell considerably more than expected.

There were wide differences across industries, however. Oil service companies experienced strong growth owing to high petroleum investment. The depreciation of the krone improved profitability and resulted in increased activity for export-oriented enterprises. At the same time, lower household demand and weak new home sales contributed to a decline in retail trade and in the construction industry.

While sales of new homes slowed, activity held up better in the secondary housing market. The number of unsold homes rose to a high level, but resale house prices were higher than expected and were 0.5% higher in December than in the same month a year earlier.

The labour market held up better than expected in 2023. Employment continued to rise, and unemployment remained low at year-end. Wage growth rose further and was higher than projected earlier. According to Statistics Norway, annual wage growth was 5.3% in 2023, which is the highest in 15 years. The rise in wage growth reflects high inflation, solid profitability in some business sectors and continued labour market tightness. At year-end, there were prospects of high nominal wage growth in 2024 too, but probably somewhat lower than in 2023.

Consumer prices rose faster than expected through spring, and inflation was markedly above target throughout 2023. The rise in prices must be seen in conjunction with the considerable increase in business costs during recent years. Moreover, continued high demand made it possible to pass on much of the cost increases to selling prices. With rising wage growth and the krone depreciation, there were prospects that inflation would remain above target for some time. While in 2022 the sharpest price rises were primarily confined to energy, food and some other goods, rents and prices for other services increasingly contributed to the rise in prices through 2023.

Lower energy prices dampened the rise in the consumer price index (CPI) through the year. The annual rise in the CPI was 5.5% in 2023, which was slightly lower than the previous year. The consumer price index adjusted for tax changes and excluding energy products (CPI-ATE) rose by 6.2% in 2023, which is the highest annual increase since Statistics Norway began publishing the index in 2001. There was a sharp rise in prices for both imported goods and domestically produced goods and services.

High inflation has likely pushed up inflation expectations in recent years. Norges Bank’s Expectations Survey shows that inflation expectations in the coming years have risen since mid-2021 but declined somewhat again towards the end of 2023. At year-end, long-term inflation expectations were still somewhat above the inflation target of 2%.

Monetary policy trade-offs

The operational target of monetary policy is annual consumer price inflation of close to 2% over time. Inflation targeting shall be forward-looking and flexible so that it can contribute to high and stable output and employment and to countering the build-up of financial imbalances.

In its monetary policy assessments through 2023, the Committee emphasised that inflation was markedly above target. The inflation forecasts were revised upwards, and there were prospects that inflation would remain high for some time. Economic activity was still at a high level, and the labour market was tight. The depreciation of the krone contributed to boosting activity and increasing import prices, which made it more demanding to reduce inflation. The Committee gave weight to the need for higher policy rates to bring inflation down towards the target. The Committee’s assessment was that if monetary policy was not tightened, prices and wages could continue to rise rapidly, and inflation could remain high for a long period. It could then be more costly to bring inflation down again at a later stage. The policy rate was raised both to a further extent and more rapidly than previously projected.

Chart 6 Estimated output gap. Percent. 2018 Q1–2026 Q4.

Source: Norges Bank

Consumer price inflation slowed after summer, but still remained markedly above target. At the same time, the Norwegian economy was cooling down. The Committee’s assessment was that monetary policy was having a tightening effect on the economy and that the full effects of previous policy rate increases were yet to be seen. The Committee was concerned with the risk that a too tight stance could contribute to an abrupt slowdown in the Norwegian economy, with a risk of a rapid rise in unemployment. Weight was given to not increasing the policy rate more than needed in order to tackle high inflation. The policy rate was therefore raised more gradually towards the end of the year.

The forecasts in the December 2023 Monetary Policy Report indicated that the policy rate will lie around 4.5% until autumn 2024, before gradually moving down. Economic growth was projected to remain low in 2024, before picking up again. Unemployment was projected to edge up. There were prospects that inflation would recede and approach the target somewhat further out.

Financial stability and the decision basis for the countercyclical capital buffer and systemic risk buffer

Since September 2021, Norges Bank has had decision-making responsibility for the countercyclical capital buffer and formalised advisory responsibility for banks’ systemic risk buffer. The two buffer requirements account for a substantial portion of banks’ total capital requirements. The Committee decides on the countercyclical capital buffer every quarter and advises on the systemic risk buffer at least every two years. The next time the Committee will issue advice will be in 2024.

The Committee’s assessment in the semi-annual Financial Stability Report was that vulnerabilities in the Norwegian financial system remained relatively unchanged in 2023, but that there was a heightened risk that vulnerabilities could amplify a downturn in the Norwegian economy (see Financial Stability Report 2023 – H2). Many households are heavily indebted and property prices have risen considerably over many years. The buffer requirements ensure that Norwegian banks have satisfactory capital adequacy.

Over the past two years, household debt has grown less than income, and saving during the pandemic contributed to reducing household vulnerabilities. Many households have spent from their savings in the face of high inflation and higher interest rates.

House prices rose slightly in 2023. Turnover in secondary market was close to normal, but the number of unsold homes increased markedly. New home sales are at a low level. House price developments ahead are more uncertain than normal. The risk of a sharp fall in house prices is dampened by low residential construction and low unemployment.

Most households can service their debt in the face of higher policy rates and consumer prices, but indebted households are forced to spend a larger share of their income on interest expenses. A considerable number of households are compelled to reduce consumption. In the event of a sharp tightening of consumption, the result may be losses on corporate loans and an amplified economic downturn owing to tighter bank lending standards. Losses are limited by banks’ relatively low exposure to consumer-exposed industries. Owing to solid capital adequacy and high earnings, banks are well-equipped to absorb higher losses.

Sources: Statistics Norway and Norges Bank Banks’ large commercial real estate (CRE) exposures are an important financial system vulnerability. During a long period, low policy rates contributed to a sharp rise in commercial real estate prices. Over the past year, prices have fallen, and price developments ahead are more uncertain than normal. CRE companies experience reduced profitability as a result of higher interest expenses, and lower CRE prices weaken their financial strength. This makes refinancing maturing loans more demanding. This may lead to fire sales of property and amplify a fall in property prices.

In spring 2023, problems at some banks in the US and Switzerland led to large movements in financial markets. Norwegian banks remained relatively unaffected, and creditworthy households and firms have had ample access to bank credit. In Norges Bank’s quarterly lending surveys in 2023, banks as a whole reported approximately unchanged credit standards for households and firms through the year, but at the same time some tightening for CRE companies.

The objective of the countercyclical capital buffer is to strengthen banks’ resilience and prevent banks’ credit standards from amplifying an economic downturn. In March 2022, the Committee decided to increase the countercyclical capital buffer rate from 2% to 2.5% with effect from 31 March 2023. The requirement has remained unchanged through 2023. The buffer helps ensure that banks are well equipped to absorb higher losses. The requirement for the systemic risk buffer is 4.5%. The requirement reflects the assessment of structural vulnerabilities such as high household debt, banks’ high commercial real estate exposures and the fact that one bank’s funding is another bank’s liquidity reserves. Banks meet capital and liquidity requirements by a good margin, have solid profitability, and interest margins have increased since the policy rate rise began in 2021. Losses have been low. The interest margin is expected to decline and losses to increase somewhat, but profitability will likely continue to be high.

Norges Bank’s Monetary Policy and Financial Stability Committee
Oslo, 24 January 2024

Ida Wolden Bache (sign.)
Governor / Chair of the Executive Board

Pål Longva (sign.)
First Deputy Chair

Øystein Børsum (sign.)
Second Deputy Chair

Ingvild Almås (sign.)

Steinar Holden (sign.)

Corporate social responsibility and sustainability

Sustainable development and a transition to net-zero emissions are important for society and the economy, and are of importance to us as a central bank and manager of the Government Pension Fund Global (GPFG), as well as an employer and workplace. Norges Bank has drawn up a sustainability strategy, which includes our objectives for our work on climate and the environment, society and social conditions, corporate governance, ethics and culture.

This section provides an overview of Norges Bank’s work with key sustainability topics. Among other things, it discusses what the Bank does to ensure a sound working environment and promote diversity and gender equality and describes the Bank’s work on climate risk and climate impact.

Sustainability strategy

Norges Bank’s sustainability strategy is divided into three main areas with specified objectives for each area. The full strategy is published on Norges Bank’s website.

Our employees

Norges Bank’s employees are the Bank’s most important resource. At the end of 2023, Norges Bank had 1 079 permanent employees. Of these, 654 were employed in Norges Bank Investment Management, 417 in Central Banking and 8 in the Office of the Supervisory Council.

Norges Bank is a global organisation with 25% of its employees at offices in London, New York and Singapore. In addition, the Bank has real estate offices in Paris, Luxembourg and Tokyo. Norges Bank has employees representing 38 different nationalities, 12 in Central Banking and 37 in Norges Bank Investment Management.

Attractive and future-fit workplace

Norges Bank promotes the well-being of all employees so that they are challenged and have the expertise to fulfil the Bank’s mission. Norges Bank’s employees are the Bank’s most important resource, which is why the Bank must attract, develop and retain skilled and engaged employees. A sound and safe working environment must be standard for all the Bank’s employees and others who work in the Bank. The Bank has facilitated a flexible working arrangement with the opportunity to work outside the office.

On an annual basis, the Bank conducts a comprehensive staff survey that also measures and assesses employee engagement, well-being and effectiveness. The survey is an important tool in the Bank’s work to develop its employees, organisation and workplace. Survey results are discussed by the Executive Board, management groups and various working committees, and measures are implemented based on management and individual team discussions.

Compared with other organisations across the Norwegian labour market, Norges Bank has a higher average score in all comparable areas. The working environment is generally seen as supportive and appreciative. In 2023, the areas of work-life balance, autonomy and personal development opportunities have shown improvements.

To ensure sound employment relationships, active cooperation between management and employee representatives has been established through the Working Environment Committee and the Bank’s safety representatives.

In the assessment of Norges Bank’s operations, nothing was identified that would suggest a risk of, or grounds to assume the occurrence of, violations of either fundamental human rights or decent working conditions at the Bank.

Pages 52 to 63 describe Norges Bank’s work on equality and anti-discrimination, in accordance with Norway’s activity duty and the duty to issue a statement.

Diversity and inclusion

The Executive Board has laid down HR principles at Norges Bank. These include work on equity, anti-discrimination, diversity and inclusion. Under the Bank’s ethical rules there is zero tolerance for discrimination, harassment or bullying. Norges Bank sets clear requirements and expectations that employees must be treated with respect and strives to maintain a culture where it is viewed as positive to report wrongdoing and unacceptable conditions. The Bank’s ambitions for the working environment are set in its work on strategy and action plans.

Norges Bank aims to be recognised as a leading institution in its fields of expertise and believes that increased diversity and inclusion are beneficial. Diversity adds perspectives, stimulates creativity and improves decision-making. The Bank seeks to safeguard diversity and inclusion in its processes to recruit, develop and retain employees and managers. When recruiting, the Bank starts with the department’s overall needs and discusses how the recruitment process can be designed to complement team diversity. Salary discussions, development and succession planning are seen in context to safeguard both equal rights and equal opportunities for promotion to senior and management roles.

Norges Bank’s annual staff survey measures employee engagement and underlying factors such as leadership and collaborative culture. The 2023 survey showed that women and men experience equal opportunities for development in their roles.

The share of employees reporting bullying and harassment in the staff survey is low and, in some units, lower compared with 2022.

Gender balance and distribution

Norges Bank is committed to the Women in Finance Charter and its ambition of increasing the share of women in financial institutions, particularly in management and specialist positions. This is done by setting specific targets, management accountability and systematic work in HR processes such as recruitment, advancement and succession planning. Through the development of various HR data, staff surveys, performance appraisals and HSE work, the Bank also works systematically to identify the risk of discrimination or other obstacles to gender equality.

At the end of 2023, 393 women and 686 men were employed in Norges Bank, ie a 36% share of women, which is an increase from 35% in 2022 and 34% in 2021. The share of women in Norges Bank Investment Management was 33% in 2023, an increase from 29% in 2022 and 27% in 2021. In Central Banking, the share of women was 42% in 2023, a reduction from 43% in 2022 and 44% in 2021. The relocation of employees from one operational area to another, in connection with reorganisation, largely explains the internal changes between 2022 and 2023.

Table 2 Share of women and men by job category at Norges Bank’s head office in Oslo

¹ In 2022, the job categories analyst and chief analyst were established in the framework for job categories across Central Banking and Norges Bank Investment Management. Previously, these were included in the categories advisor and special advisor, which will therefore entail a change to the job category sample for 2022.

The gender balance within certain job categories reflects current labour market challenges. Fewer women than men apply for management positions and for positions in the financial and IT sector in general. At the end of 2023, the gender balance was in line with a target of at least 40% in most of the job categories below management level. Developments at management level are positive and in line with the target for Executive Directors. For other management and specialist categories, the target has not been reached.

Table 3 Share of women in executive and specialist positions1

¹ Specialists include chief analysts and special advisors

Under Strategy 25, the Bank will continue to pursue and intensify its efforts to promote diversity and inclusion by also implementing further measures to improve gender balance. In its efforts to achieve the gender balance target of at least 40%, both overall in the Bank and among executives and specialists, Norges Bank works to highlight female employees in the Bank as role models in various arenas. In addition, women across the organisation are encouraged to apply for senior positions internally. In the period ahead, the Bank will make dedicated efforts to ensure that recruitment and promotion processes, development activities and succession plans provide candidates and employees with equal opportunities.

Part-time and temporary employees

Most employees at Norges Bank are employed on full-time contracts. Involuntary part-time work is therefore not considered a challenge. The majority of temporary employment contracts at Norges Bank are related to research and some hourly paid work.

Table 4 Share of temporary and part-time employees at Norges Bank’s head office in Oslo

Recruitment

Norges Bank works systematically to attract and recruit the best candidates from among the foremost national and international professionals. Variation in experience and perspectives is desirable, and to increase diversity in the organisation, the Bank recruits across nationality, gender, age, background, knowledge and skills.

Through Norges Bank’s Knowledge Centre, corporate presentations and lectures at schools and universities, the Bank works to increase students’ and pupils’ knowledge of the Bank. Through the Norges Bank Teaching Initiative and NBIM Teach, Bank staff offer lectures on economics, finance and technology at universities. The Bank also organises an annual nationwide case competition for students. Both Central Banking and Norges Bank Investment Management offer part-time student internships. An important focus area in Norges Bank Investment Management to attract young talent is summer trainee positions for students and the graduate programme.

There has been a significant increase in the applicant pool in the period between 2022 and 2023, reflecting increased focus on recruitment efforts, more targeted recruitment communication and a looser labour market.

In Central Banking, the gender distribution among applicants in 2023 was 65% men and 35% women, with 56% men and 44% women employed. The corresponding figures for Norges Bank Investment Management were 66% men and 23% women among applicants (11% did not wish to disclose their gender), with 61% men and 39% women employed.

Management and employee development

Expectations of Norges Bank’s leadership role are clarified through the introduction of management principles. Managers must promote employees and build common culture through regular follow-up and targeted, inclusive and supportive management. The management principles are highlighted at management meetings and training sessions throughout the year.

As a supplement to the management principles, Norges Bank Investment Management has launched employee expectations, thereby adopting a holistic approach to manager and employee interaction.

Offering managers and employees development opportunities is an important part of retaining motivated and engaged employees. The Bank has updated development processes to facilitate positive discussions on individual and team development.

The Bank regularly works on skills development. In 2023, the Bank, among other things, held courses on energy transition, dissemination and various forms of data analysis. Through access to an online course platform, employees gain access to thousands of courses from leading universities. Employees can also apply for residency and further training at other academic institutions.

Through temporary internships in other units, the Bank facilitates for employees to gain experience across operational areas and increase understanding across disciplines. Employees may also apply for residency at other central banks and other relevant institutions.

In 2023, Norges Bank Investment Management introduced a career framework with a professional development path. This means that all of Norges Bank has a career framework with a career ladder that describes responsibilities at various levels, so that steps to achieve career progression are clear.

The Bank works with succession planning to provide opportunities for internal candidates and to avoid vulnerabilities related to critical positions and expertise. In the period ahead, the Bank will ensure that development and succession planning are safeguarded holistically and strategically across departments, in order to safeguard diversity, development opportunities and gender balance in senior and management roles.

The Bank facilitates a gradual transition to retirement when desired. Through the retiree consultant scheme, an experienced workforce can be retained and the Bank can help employees participate in working life even after the transition to retirement.

Salaries and salary differences

The Executive Board sets the framework for Norges Bank’s remuneration schemes and monitors how they are put into practice. Salary levels are to be competitive, but not market-leading. Salary determination is individual and reflects the responsibilities of the position, competence, experience and achievements of the position holder.

The remuneration system in investment management follows, with necessary adjustments, the requirements of the regulation pursuant to the Act on Securities Funds in line with the mandate for the management of the GPFG laid down by the Ministry of Finance. The Remuneration Committee of the Executive Board contributes to thorough and independent consideration of matters relating to Norges Bank’s remuneration schemes. In addition, Internal Audit at Norges Bank provides an independent opinion on compliance with the rules and guidelines for remuneration. A review in 2023 confirmed that the 2022 salary system had been practised in line with regulations. There have been no significant changes to the scheme in 2023.

See also Note 15 to the annual financial statements for further information on the payroll system and benefits to senior executives and governing bodies.

For the Bank as a whole, women’s salary as a share of men’s average fixed salary is 78%. At the Oslo office, this share is 86%. Broken down between Central Banking and Norges Bank Investment Management, the share is 86% and 88%, respectively. For all Norges Bank Investment Management employees, including the offices abroad, the share is 79%.

Tables 5-8 show the Bank’s survey of wage differences, fixed salaries and remuneration paid at the head office in Oslo. Job categories are based on management levels in the Bank and the job structure for employees in the Bank’s agreements. Total remuneration includes fixed salary, performance pay and paid overtime. All employees working on investment decisions are eligible for performance pay. Figures for fixed salaries and remuneration paid are rounded to the nearest NOK 1000.

The tables highlight variation in the wage gap within some job categories. The Bank works systematically to ensure that remuneration is in line with the principle of equal pay for positions with an equal degree of responsibility and complexity, and regularly analyses salary and salary developments among employees to ensure fair wage practices. The analysis compares compensation for comparable roles, at the same level and the same location. Any deviations at the individual or group level are investigated further to ensure that gender-neutral criteria are applied.

Salary differences between women and men in Central Banking are most pronounced in lower job categories. The differences reflect the uneven gender distribution within different fields of expertise. In some areas of expertise where men dominate, salary levels are higher owing to market conditions. The substantial differences in remuneration paid reflect a preponderance of men in certain fields of expertise involving tasks that require more overtime.

In Norges Bank Investment Management, differences in salary between men and women reflect a preponderance of men in positions involving investment decisions. Positions with investment responsibility generally offer higher salaries in the market compared with positions at the same level in other fields of expertise.

For both operational areas, the preponderance of men in higher positions contributes to the difference between men and women in the figures for total pay. The Bank’s work to improve gender balance among managers and specialists will contribute to reducing salary differences.

Table 5 Fixed salaries by job category in Central Banking

Table 6 Total remuneration by job category in Central Banking

Table 7 Fixed salaries by job category in Norges Bank Investment Management

Table 8 Total remuneration by job category in Norges Bank Investment Management

For privacy reasons, there must be at least five of each gender per job category to be able to publish pay data. For certain job categories or for the offices abroad, it is therefore not possible to show the results of the survey.

Health, safety and the environment

In the annual staff survey, incidents related to discrimination and undesirable behaviour are also identified. The survey covers both the physical and psychosocial working environment. Overall, the results of the survey show that our employees enjoy working at Norges Bank.

In 2023, Norges Bank continued its efforts to promote a positive psychosocial working environment. Several initiatives throughout the year have focused on how managers and employees ensure a positive working environment and the significance of psychological safety and communicative openness in the working environment.

Norges Bank works closely with the occupational health service and has continued to develop the Bank’s systematic HSE work in 2023. In order to reduce the risk of musculoskeletal disorders, the occupational health service has contributed with ergonomic adaptation of the workplace in both the office and the home office. The Bank has good training facilities and has provided facilities to enable employees to cycle to work. In the ongoing work to upgrade the head office, emphasis is placed on improving the indoor climate.

The safety representative service, with safety representatives and chief safety representatives, does an important job of safeguarding employees’ interests in working environment matters. They are consulted during the planning and follow-up of working environment measures. Management effectively cooperates with the safety representative service and the Working Environment Committee, with a strong mutual commitment to safeguarding the systematic HSE work.

Sickness absence in Norges Bank is stable at a low level and was 2.1% in 2023, down from 2.3% in 2022. The Inclusive Working Life Agreement (IA agreement) now covers all areas of the Norwegian labour market, and the Bank works systematically to prevent sickness absence. The practice of additional self-certification days for employees has been retained, in line with the intentions of the IA agreement.

In 2023, 11 HSE-related incidents related directly to work in the Bank’s office premises, courses or conference centre were reported. No injuries or accidents have been sufficiently severe to require reporting to the Labour Inspection Authority.

Table 9 Parental leave1 of head office employees in Oslo

¹ Number of weeks taken out in the calendar year and not the number of weeks the employee has taken out in total.

Norges Bank offers fully paid gender-neutral parental leave of 16 weeks in addition to 10 weeks of maternity leave for employees at all the Bank’s offices abroad.

Cooperation with trade unions

The relationship between the Bank’s management, the employees and their representatives is based on dialogue, trust and mutual respect. The Bank’s management maintains close contact with the trade unions, for example in employee and personnel committees, in the Working Environment Committee and in regular contact meetings with trade union representatives at several levels in the Bank. The employees have two representatives on the Executive Board who are involved in dealing with administrative matters.

Rules on ethics and personal trading

The Executive Board’s ethical principles state that Norges Bank shall maintain high ethical standards, respect human rights, act in a socially responsible manner and comply with applicable laws and regulations. The rules cover, inter alia, employees’ personal trading, handling of conflicts of interest, gifts and loyalty to the bank in general. In autumn 2023, the Executive Board updated the ethical principles that apply to all employees. The Governor of Norges Bank and the CEO of Norges Bank Investment Management regularly update supplementary rules adapted to the different tasks and risk of conflicts of interest in Norges Bank’s two operational areas.

The Ministry of Finance has adopted separate rules on impartiality for members of Norges Bank’s Executive Board and members of the Monetary Policy and Financial Stability Committee. This impartiality policy was updated with effect from 1 April 2023. As a supplement, the Executive Board has adopted separate rules on conflicts of interest and restrictions on personal trading for the external members of these two bodies. These regulations were also updated in 2023.

Norges Bank has zero tolerance for all forms of corruption. A framework and programme to counteract corruption has been established, which includes management support, risk management, ethical rules, processing of whistleblower reports, procurement procedures, background checks of employees and suppliers, financial reporting and systematic training and controls. In 2023, special training was conducted in the handling of conflicts of interest and anti-corruption measures for all employees of Norges Bank Investment Management. There were no known incidents related to corruption in 2023.

Considerable emphasis is placed on training and raising awareness of the most important risk areas. Measures include introductory courses, one-on-one training, annual tests and confirmation from all employees that they have reviewed the ethical rules. Employees are obliged to report on various matters related to the ethical rules, and all reporting is continuously checked by the compliance functions.

The Executive Board has laid down principles for internal whistleblowing on misconduct at Norges Bank. There are whistleblowing routines where employees and employees of suppliers can report anonymously about unethical or illegal behaviour. All reports must be treated in a proper manner, in accordance with external and internal whistleblowing requirements, and without the risk of retaliation against the whistleblower. In 2023, three whistleblowing cases were reported.

Responsible investment management of the Government Pension Fund Global

Work on climate risk in the Government Pension Fund Global

Climate risk management is an integral part of the responsible investment management of the Government Pension Fund Global (GPFG). The 2025 Climate action plan describes the Bank’s work on managing climate risk and the measures we plan to implement during the period 2022-2025. The purpose of this work is to improve market standards, including frameworks for climate reporting, increase the portfolio’s resilience to climate risk, and implement a targeted active ownership.

The core of this work is active ownership to drive investee companies towards net zero emissions by 2050, and for them to set credible targets and plans for reducing their direct and indirect greenhouse gas emissions (scopes 1, 2 and 3). By the end of 2023, 27% of the investee companies had set 2050 net zero targets based on recognised standards such as the Science Based Targets initiative (SBTi) or similar initiatives. If weighted according to emissions, such targets cover about 68% of the fund's investee companies' emissions (scopes 1 and 2).

The 2025 Climate action plan also aims for more disclosures on climate risk in the portfolio. The disclosures will be developed in line with leading international standards and are included in the GPFG’s overall reporting on responsible investment. Among other things, a separate overview of climate risk is presented, which follows the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Analyses and stress tests against various climate scenarios are presented, including a scenario consistent with global warming of 1.5 degrees Celsius. The methods for such analyses are still evolving and do not provide a basis for ranking direct financial outcomes of various climate scenarios. The stress tests nevertheless illustrate the potential effects of climate change on future risks and returns.

Norges Bank has measured and published the carbon footprint of investee companies in the equity portfolio and benchmark index since 2014, based on reported and modelled data for scope 1 and 2 emissions. This year we have also provided an estimate for the equity portfolio’s financed scope 3 emissions. Although they are subject to uncertainty, carbon footprint analyses provide insight into the extent of greenhouse gas emissions of investee companies in which the GPFG is invested. The analysis can also provide insight into risks and opportunities across industries. There are still many companies that do not report their emission data or whose reporting still varies in frequency and quality. Large parts of the GPFG’s carbon footprint have therefore been calculated using models.

Norges Bank’s reporting of the GPFG’s financed emissions is in line with guidance from PCAF. The GPFG’s financed emissions for scopes 1 and 2, were 59 million tonnes of CO₂ equivalent in 2023, which is 12% lower than the corresponding figure for the benchmark index. The financed emissions for scope 3 are estimated at 61 million tonnes of CO₂ equivalent, which is 8% lower than the benchmark index. This is based on an estimation model that the Bank has reason to believe underestimates actual scope 3 emissions. The Bank has used a single source for reported and estimated emission data, as recommended by the PCAF.

Investee companies in the GPFG’s equity portfolio emitted 104 tonnes of CO₂ equivalent per million USD in revenue, based on data reported or estimated in 2023. This is referred to as the equity portfolio’s carbon intensity in 2023, 8% lower than that of the benchmark index, and 23% lower than in 2022. For corporate bonds, the portfolio’s carbon intensity was 124 tonnes of CO₂ equivalent per million USD in revenue, which is 2% higher than the carbon intensity of the benchmark index, and 7% lower than in 2022. The change since 2022 partly reflects increases in the revenues of emission-intensive companies owing to energy and commodity price developments.

The Bank’s understanding of the effects of climate change on the global economy and financial markets will develop in the future. At the same time, governments will introduce new regulations, new technological advances will be seen, consumer preferences will change, and companies will adapt their strategies accordingly. These developments will affect the GPFG’s climate risk. Given the GPFG’s mandate and investment strategy, the GPFG’s climate risk will primarily depend on government measures that ensure an orderly and predictable climate transition, and on companies achieving their net zero targets.

Work on climate risk in real estate management in the Government Pension Fund Global

We consider climate change in our real estate investments. The Bank’s real estate portfolio is exposed to both physical climate risk, such as extreme weather, gradually rising sea levels and flooding, and transition risk, such as a statutory reduction of energy consumption or lower demand for buildings with high emissions. A growing number of tenants are setting targets for net zero emissions for their own businesses, and therefore prefer energy efficient buildings powered by renewable energy sources. The 2025 Climate action plan sets targets for net zero emissions by 2050 for the real estate portfolio and reduced operational carbon emissions intensity (scopes 1 and 2) by 40% by 2030. In order to achieve these targets, the Bank will work to reduce emissions linked to the real estate portfolio and integrate climate risk assessments into investment processes.

Climate change is a key consideration for real estate investment.

The Bank measures progress towards the net zero target in the real estate portfolio using emission pathways consistent with global warming of 1.5 degrees Celsius for various real estate markets, developed by the Carbon Risk Real Estate Monitor (CRREM). By the end of 2022, 41% of the unlisted real estate portfolio by value was aligned with the CRREM decarbonisation pathway. The portfolio is also measured against the Global Real Estate Sustainability Benchmark (GRESB). In 2023, the real estate portfolio achieved a total point score of 83 out of 100. This is 7 percentage points higher than the score of comparable investment portfolios that report to GRESB.

Further information on the work on climate risk in the GPFG is presented in the report Responsible investment Government Pension Fund Global and the publication on climate risk on Norges Bank Investment Management website.

Responsible investment management of the Government Pension Fund Global

The Executive Board has laid down principles for responsible investment management in Norges Bank. The principles are based on international principles and guidelines for sound corporate governance and responsible business conduct from the United Nations (UN) and the Organization for Economic Co-operation and Development (OECD). The objective for the management of the GPFG is to achieve the highest possible return with acceptable risk. Responsible investment supports the GPFG’s objective in two ways. First, by promoting long-term value creation in investments. Second, by reducing the financial risk associated with environmental and social conditions in companies. Separate due diligence assessments are conducted, seeking to identify and manage investments with a risk of negative impact on people and the environment.

The GPFG’s mission is to safeguard and develop financial assets for future generations. The management mandate states that work on responsible investment shall be integrated into the management of the GPFG. Long-term returns depend on sustainable growth, well-functioning and legitimate markets and sound corporate governance. Work on responsible investment can be divided into three main areas: the market, the portfolio and the companies.

Market

The GPFG is a global fund. It owns a small portion of over 8 800 listed companies in 72 countries and benefits from global solutions to address common challenges such as climate change. Norges Bank contributes to the development of relevant international standards, and is, for example, represented by the Vice-Chair of the International Sustainability Standards Board (ISSB)’s Investor Advisory Group (IIAG). In 2023, Norges Bank participated in 27 public consultations related to responsible investment. All consultation responses are published on Norges Bank Investment Management’s website. The consultations addressed important issues such as corporate reporting, corporate governance and responsible business conduct.

Norges Bank supports selected initiatives in which several companies or investors join forces to find common standards for sustainable business. Such initiatives are particularly appropriate when several companies in one industry or value chain face the same challenge. Norges Bank currently participates in a number of different collaborations with investors, companies and civil society.

Norges Bank participates, within the scope of its management mandate, in initiatives that do not impose constraints on its voting or investment decisions, or primarily target political authorities. Norges Bank makes thorough assessments of cost, complexity and benefit before it launches or enters into an initiative.

Since 2008, Norges Bank has formulated clear expectations for how investee companies should address relevant sustainability challenges linked to their operations, and emphasised that their boards should establish appropriate strategies, control functions and reporting procedures. The expectations form the basis for dialogue with investee companies and the investee companies’ work is measured against these expectations on an annual basis. In 2023, Norges Bank presented new expectations concerning investee companies’ management of consumer interests. During the year, Norges Bank’s expectations of how investee companies address challenges and opportunities related to climate change, biodiversity and ecosystem services, as well as tax and transparency, were updated. The Bank has also presented its positions on different corporate governance issues in order to enhance corporate governance and protect stakeholder interests.

Portfolio

Norges Bank assesses corporate governance and sustainability to gain a better understanding of risks and opportunities associated with investments. The GPFG monitors how the portfolio is exposed to risks and identifies industries and companies for further follow-up. To carry out these analyses, relevant, comparable and reliable data on environmental, social and governance issues must be available. Norges Bank therefore encourages investee companies to move from words to numbers in their reporting to provide a better understanding of financial opportunities and risks.

Norges Bank uses four main approaches to identify and manage risks associated with environmental, social and governance conditions in the portfolio. The first is quarterly pre-screening companies due to enter the GPFG’s benchmark index for equities. The second is continuous monitoring of investee companies through daily analyses of news reports, as well as more in-depth thematic analyses of specific markets and sectors. The third approach involves conducting quarterly due diligence assessments on investee companies against Norges Bank’s sustainability expectations. The fourth approach is thematic analysis of particular ESG topics.

When Norges Bank identifies companies with heightened ESG risk, further analysis is conducted to assess whether dialogue should be initiated with the company, whether Norges Bank’s voting should be affected, or whether the company should be considered for a risk-based divestment. Relevant information is also shared with the Council on Ethics, an independent body established by the Ministry of Finance.

To limit the GPFG’s exposure to unacceptable risk, Norges Bank can, within the limits of the mandate, divest from investee companies. This applies principally to activities that burden other companies and society as a whole with substantial costs, which are therefore deemed unsustainable in the long term. Risk-based divestments may be appropriate if it is considered that the investee company poses particularly high long-term financial risk if investments are not substantial and if active ownership is not considered to be a suitable instrument. Unlike ethical exclusion, risk-based divestments are made within the limits of the management mandate and are not based on independent advice from the Council on Ethics.

In 2023, Norges Bank divested from 86 investee companies following risk assessments related to environmental, social and governance issues. The Bank has divested from a total of 526 investee companies since 2012. Since 2012, risk-based divestments have contributed positively to the cumulative return on equity management by 0.44 percentage point, or about 0.02 percentage point annually.

Norges Bank identifies investment opportunities by analysing, among other things, companies’ governance, operations and environmental and social risks and opportunities. In emerging markets, the GPFG can also benefit from the knowledge of external managers with in-depth knowledge of the markets, industries and companies in which they are invested. This is particularly important as it can often be difficult to obtain relevant company data in emerging markets.

Up to 2% of the GPFG may also be invested in unlisted renewable energy infrastructure. In January, Norges Bank acquired a 49% ownership share of a 1.3 GW portfolio of wind and solar electricity production in Spain. The portfolio is a combination of operational and development projects. In March, the Bank acquired a 16.6% ownership share of a 960MW German offshore wind farm project. The project is under development and is expected to be operational by the end of 2025.

Companies

As a long-term investor, Norges Bank engages in regular dialogue with the largest companies. The dialogue is intended to contribute to good corporate governance and responsible business conduct. The size of the investments provides access to board members, senior executives and specialists in the companies. The Bank is interested in understanding how companies are governed and how they address essential sustainability issues. In addition to meetings, the Bank also has written contact with the companies. In 2023, a total of 3 298 meetings with 1 358 investee companies were held. Of these meetings, governance-related topics were discussed at 1 611 meetings with 805 companies. At 1 589 meetings with 822 companies, different sustainability topics were discussed. Overall, ESG topics were discussed at 64% of the meetings with companies accounting for 62% of the value of the equity portfolio.

Norges Bank assesses companies’ sustainability-related reporting on their governance structure, strategy, risk management and objectives based on its public expectations of companies and use of third-party data. Investee companies with weak or limited reporting, in high-risk sectors, are contacted and encouraged to improve their reporting in accordance with the expectation documents, including by using recognised reporting standards. In 2023, letters were sent to 88 investee companies regarding their reporting.

Voting is one of the most important tools Norges Bank has for safeguarding GPFG assets. At the end of 2023, the GPFG held a stake in 8 859 companies worldwide. In 2023, Norges Bank voted on 115 266 proposals at 11 468 shareholder meetings. This corresponds to 98% of the portfolio and 98% of shareholder meetings. Voting guidelines are publicly available.

Since 2021, Norges Bank has published its voting intentions five days before each shareholder meeting with a brief explanation each time Norges Bank votes against the board’s recommendations. In 2023, Norges Bank expanded its transparency by publishing an explanation also when the Norges Bank votes, in line with the company’s recommendation, against a shareholder proposal. The voting intentions are available on Norges Bank Investment Management’s website. Users can search for individual companies or download the full dataset of the votes since 2013 and obtain access to daily updates on voting intentions five days before the shareholder meeting. In 2023, Norges Bank presented a separate, public voting review after the first half of the year. The summary provides information on trends and results from voting at investee companies’ shareholder meetings.

The Ministry of Finance has issued guidelines for the observation and exclusion of companies from the GPFG, based on their products or conduct. The Council on Ethics and Norges Bank are responsible for following up these guidelines. Decisions concerning the observation and exclusion of companies from the GPFG are made by Norges Bank’s Executive Board, based on recommendations from the Council on Ethics. By not investing in such companies, the GPFG’s exposure to unacceptable risk is reduced. In 2023, Norges Bank announced the exclusion of six companies and placed another five under observation. In addition, Norges Bank revoked the exclusion of two companies, ended the observation of two and extended the observation of another. The Bank ended its active ownership under the guidelines in two cases and extended its active ownership in two cases. Since 2006, the equity benchmark index has returned 1.7 percentage points less than it would have done without any ethical exclusions. On an annualised basis, the return has been 0.03 percentage point lower.

Further information on responsible investment is provided in the report Responsible investment Government Pension Fund Global 2023.

Work on climate and climate risk in Central Banking

Climate change and measures to mitigate its effects have an impact on the Norwegian and global economy. Thus, they also influence Norges Bank’s core tasks.

Efforts to strengthen understanding of the effects of climate change and the energy transition are priority areas in Norges Bank’s Strategy 2025. In 2023, the Bank worked actively to strengthen expertise and integrate climate and energy transition into the Bank’s analyses. Norges Bank has ambitions to share new knowledge through its publications and conferences.

Since 2018, Norges Bank has been a member of the Network for Greening the Financial System (NGFS), a network for central banks and supervisory authorities. The network facilitates sharing experiences and best practice, performing analyses and contributes to the development of environmental and climate risk management in the financial sector. Norges Bank cooperates with the NGFS and other institutions, such as the International Banking Research Network (IBRN), the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and other central banks to increase expertise on the effects of climate-related changes. In 2023, the Bank strengthened its participation in projects organised by the NGFS.

Climate and monetary policy

Climate change and a transition to a low-carbon economy may have an impact on monetary policy assessments. Climate-related changes affect the economy through various channels. For example, extreme weather events such as drought and flooding affect global food prices. In addition, energy prices are weather-dependent and are also affected by the transition to renewable energy. Higher solar and wind power capacity may lead to more volatility in energy prices in the short term than historically observed.

In Norway, green manufacturing projects are boosting investment. At the same time, the transition to a low-carbon economy may increase uncertainty about future revenues and investment in the petroleum industry. In the longer term, the structure of the Norwegian economy will change.

Norges Bank analyses how various climate-related factors affect the Norwegian economy. The climate transition is essentially an energy transition. Norges Bank closely monitors developments in energy markets and is working to better integrate these markets into its analytical framework. In order to increase knowledge about the effects of climate-related changes, Norges Bank conducts annual surveys of the effects of climate change and the climate transition on enterprises in the Bank’s Regional Network. Through the NGFS, Norges Bank contributes to analyses of how climate-related factors affect the macroeconomy in the near and medium term.

Climate risk and financial stability

Norges Bank is responsible for promoting a robust financial system. Norges Bank decides on the level of the countercyclical capital buffer and provides advice on the macroprudential stance and on factors that may threaten financial stability. Climate transition affects banks’ risk assessments through various channels, and the regulatory regime has been changed to take into account climate challenges. Financial institutions must ensure that they are well equipped to assess and manage climate-related transition risks. Norges Bank is working to incorporate climate risk into its analyses and include this risk in advice on macroprudential instruments where relevant.

Well-functioning financial markets are important for financing investments that can face climate change. Reliable information on climate risk is important, and climate scenarios are an instrument in the work to identify the consequences of climate change over time. Through the NGFS, Norges Bank has participated in the development of climate scenarios that are publicly available.

Climate stress tests are the most important tool used by central banks to understand the effect of climate change on the financial system. In 2024, Norges Bank plans to publish a climate stress test to assess how climate change affects risk in Norwegian banks and credit institutions.

Climate risk in the foreign exchange reserves

The Executive Board’s decisions on principles for responsible investment and Norges Bank’s sustainability strategy are part of the framework for the management of the foreign exchange reserves, including the management of climate-related issues and climate risk.

The foreign exchange reserves consist of a fixed income portfolio and an equity portfolio. The fixed income portfolio is intended to ensure that the foreign exchange reserves are sufficiently liquid for contingency purposes and that Norges Bank is able to meet its international commitments. The fixed income portfolio therefore consists of cash and liquid government bonds. So far, climate-related issues have had little impact on the composition of the fixed income portfolio. Norges Bank closely monitors developments related to the assessment of government bonds against governments’ climate impact.

The equity portfolio of the foreign exchange reserves is managed according to the same principles and strategies for responsible investment as the equity investments in the Government Pension Fund Global (GPFG). This means that the GPFG’s climate action plan, including the ambition that investee companies achieve net zero emissions by 2050, also applies to the equity portfolio of the foreign exchange reserves.

In 2023, Norges Bank calculated the financed emissions for the foreign exchange reserves for the first time. The financed emissions (scopes 1 and 2) of the foreign exchange reserves, which are calculated based on the carbon emissions of companies in the equity portfolio weighted and summed up according to the Bank’s share of their enterprise value including cash, amounted to 566 273 tonnes of CO₂ equivalent in 2023. The foreign exchange reserves’ financed emissions for scope 3 amounted to 634 411 tonnes, based on an estimation model that Norges Bank has reason to believe underestimates real scope 3 emissions. Carbon intensity, expressed as tonnes of CO₂ equivalent for scopes 1 and 2 per million USD in revenue, was 89 tonnes in 2023, which is 30% lower than in 2022. This is primarily attributable to the rise in market values in the technology sector relative to more carbon-intensive sectors during 2023.

Responsible investment management in the foreign exchange reserves

Responsible investment and the management of climate-related issues in foreign exchange reserve management are set out in Norges Bank’s principles for responsible investment and the Bank’s sustainability strategy.

Norges Bank Investment Management exercises active ownership on behalf of the foreign exchange reserves’ equity portfolio by formulating clear expectations of investee companies, voting at shareholder meetings and engaging in dialogue with selected companies.

Decisions on risk-based divestment from individual companies implemented for the GPFG’s equity portfolio are also followed up in the equity portfolio of the foreign exchange reserves. In 2023, Norges Bank divested from a total of 41 companies in the foreign exchange reserves’ equity portfolio. In addition, a total of nine companies were excluded from the foreign exchange reserves’ benchmark index and 10 companies were put under observation based on ethical guidelines. The observation of one company ended in 2023.

Climate impact of Norges Bank’s operations

Norges Bank aims to reduce emissions from its own operations in line with the Paris Agreement, and the Bank works systematically on measures to reduce its own emissions. The Bank will ensure that its own emissions are measured, managed and reported in line with best practice.

Norges Bank calculates its carbon footprint for its own operations in accordance with the standard set by the Greenhouse Gas Protocol Initiative (GHG protocol) and the Eco-Lighthouse certification scheme. The Bank’s carbon accounts include direct and indirect carbon emissions.

TABLE 10 Annual carbon accounts for Norges Bank’ operations

¹ Includes the gases: CO₂, CH₄, N₂0, HFCs, PFCs, SF₆ and NF₃. Norges Bank mainly uses the Department for Energy Security & Net Zero’s (DESNZ, formerly DEFRA) emission factors.

² Norges Bank has selected 2019 as a reference year. This is the most recent year with normal activity and reliable underlying data.

³ Norges Bank’s carbon accounts include Norges Bank offices where the Bank has operational control in Oslo, London, New York and Singapore. The Shanghai office was included until it was decided to close the office.

Greenhouse gas emissions totalled 8 884 tonnes of CO₂ equivalent at the end of 2023, a reduction of 9% compared with the reference year 2019. Data for 2022 are affected by the pandemic and are therefore not directly comparable. Air travel was the largest source of emissions, accounting for 89% of total emissions. In 2023, travel activity picked up following a decrease during the Covid-19 pandemic, but total emissions from air travel remained 5% lower than in the reference year 2019. Developments must be viewed in the light of a 15% increase in the number of employees since the reference year, as well as work to raise awareness of and ambitions to reduce greenhouse gas emissions from the Bank’s own operations in line with the Bank’s sustainability strategy.

Norges Bank is working to reduce emissions from energy consumption at its offices. At the Bank’s head office, ventilation units and other technical installations have been replaced by more energy-efficient versions in recent years. Measures to reduce energy consumption related to lighting, ventilation and heating systems have been implemented. Climate-related work is key in the ongoing upgrade programme deployed at the head office, and equipment is being replaced with more energy-efficient alternatives. At offices abroad, where the Bank is a tenant, action has been taken to reduce energy consumption from lighting, and indoor temperatures have been adjusted.

Norges Bank’s head office at Bankplassen 2, the course and conference venue Vindåsen and the Venastul resort are Eco-Lighthouse certified. This provides access to tools that support the Bank in measuring and improving environmental performance.

External data centres and cloud platforms

In 2023, Norges Bank also started collecting data related to emissions from the operation of data centres. The emissions include Norges Bank’s percentage of emissions from suppliers of external data centres and cloud platforms. Norges Bank requires data centres to be constructed and operated in an eco-friendly manner to ensure efficient resource utilisation and the use of renewable sources. The emissions are not given in the carbon accounts as all desired data has yet to be obtained. Based on information from four of the five external providers, calculated emissions amounted to 76 tonnes of CO₂ equivalent in 2023.

Responsible procurement

Norges Bank procured goods and services totalling approximately NOK 5.1bn in 2023.

Norges Bank is subject to public procurement regulations and is enjoined to set requirements for wage and working conditions pursuant to regulations on wage and working conditions in public contracts. Suppliers and any subcontractors must, upon request, be able to document compliance with wage and working conditions.

Norges Bank aims to have a responsible and sustainable supply chain and sets environmental requirements for procurements where relevant. In 2023, controls of wage and working conditions were carried out at 32 of the Bank’s suppliers. Seven violations of wage and/or working conditions were detected for personnel working for Norges Bank. At Norges Bank’s request, the suppliers confirmed that the conditions were rectified and that any outstanding wage claims will be met.

The public procurement Act includes a requirement that limits the number of tiers in the supply chain for procurements in sectors with a high incidence of work-related crime, such as construction and cleaning services. Norges Bank accepts no more than two tiers of subcontractors. All suppliers with access to the Bank’s premises or systems are responsible for ensuring that personnel performing services or work for Norges Bank are aware of the ethical rules.

Limited assurance of sustainability indicators

Norges Bank has engaged EY to perform a limited assurance engagement on sustainability information in Norges Bank’s Annual Report for 2023. See EY’s report, Independent accountant’s assurance report.

Norges Bank does not make ongoing reference to sustainability indicators in Norges Bank’s Annual Report for 2023. The table below refers to the reporting standard and the indicator on which the information compiled is based. The reported information is for the period between 1 January 2023 and 31 December 2023. Information provided is attested by EY.

Financial statements

Main points

Income statement

Balance sheet

Norges Bank’s Executive Board
Oslo, 8 February 2024

Ida Wolden Bache (sign.)
Governor / Chair of the Executive Board

Pål Longva (sign.)
First Deputy Chair

Øystein Børsum (sign.)
Second Deputy Chair

Karen Helene Ulltveit-Moe (sign.)

Kristine Ryssdal (sign.)

Arne Hyttnes (sign.)

Hans Aasnæs (sign.)

Nina Udnes Tronstad (sign.)

Egil Herman Sjursen (sign.)

Mona Helen Sørensen (sign.)
Employee representative

Truls Oppedal (sign.)
Employee representative

Statement of cash flows

Statement of changes in equity

Notes

Note 1 General information

1. Introduction

Norges Bank is Norway’s central bank. The Bank is a separate legal entity and is owned by the State. The Bank’s main office is at Bankplassen 2, Oslo, Norway.

Norges Bank shall promote economic stability and manage substantial assets on behalf of the nation. The Bank conducts monetary policy, monitors financial stability, promotes robust and efficient payment systems and financial markets and manages Norway’s foreign exchange reserves.

Norges Bank manages the Government Pension Fund Global (GPFG) on behalf of the Ministry of Finance in accordance with section 3, second paragraph, of the Government Pension Fund Act and the management mandate for the GPFG issued by the Ministry of Finance.

The GPFG shall support government saving to finance future expenditure and underpin long-term considerations relating to the use of Norway’s petroleum revenues. The Norwegian Parliament has established the legal framework in the Government Pension Fund Act, and the Ministry of Finance has formal responsibility for the fund’s management. The Executive Board of Norges Bank has delegated day-to-day management of the GPFG to Norges Bank Investment Management (NBIM).

The Ministry of Finance has placed funds for investment in the GPFG in the form of a Norwegian krone deposit with Norges Bank (the krone account). Norges Bank manages the krone account in its own name by investing the funds in an investment portfolio consisting of equities, bonds, real estate and infrastructure for renewable energy. The GPFG is invested in its entirety outside of Norway.

Transfers are made to and from the krone account in accordance with the management mandate. When the Norwegian State’s petroleum revenue exceeds the use of petroleum revenue in the fiscal budget, deposits will be made into the krone account. In the opposite situation, withdrawals will be made. Transfers to and from the krone account lead to a corresponding change in Owner's capital in the GPFG..

For further information about the management mandate for the GPFG, Norges Bank’s governance structure and risk management see note 20.9 Investment risk. For further information about transactions between Norges Bank and the GPFG, see note 19 Related parties.

Norges Bank is not exposed to financial risk from its management of the GPFG. The return on the portfolio, less the management fee to Norges Bank, is transferred in its entirety to the krone account and does not affect total comprehensive income or equity in Norges Bank. The investment portfolio under management is equal to the amount on deposit in the krone account at the time in question, less the accrued management fee and deferred tax. This is presented on a separate line as an asset in Norges Bank’s balance sheet, and the krone account is presented as a liability in the same amount to the Ministry of Finance.

2. Approval of the financial statements

The annual financial statements of Norges Bank for 2023 were approved by the Executive Board on 8 February 2024 and approved by the Supervisory Council on 22 February 2024. The annual financial reporting for the GPFG is an excerpt of Norges Bank’s financial reporting and is included in Norges Bank’s annual financial statements as note 20.

Note 2 Accounting policies

This note describes accounting policies, significant estimates and accounting judgements that are relevant to the financial statements as a whole. Additional accounting policies, significant estimates and accounting judgements are included in the respective statements and notes.

1. Basis of preparation

Pursuant to section 4-3 of the Central Bank Act, the annual financial statements of Norges Bank have been prepared in accordance with the Accounting Act and Regulation on the financial reporting for Norges Bank (the Regulation), laid down by the Ministry of Finance.

The Regulation entails that the financial reporting of the GPFG is prepared in accordance with IFRS Accounting Standards as adopted by the EU, subject to the additions and exemptions specified in the Accounting Act and the Regulation. It sets forth that the return on the investment portfolio and the return assigned to the krone account of the GPFG shall be presented on separate lines in the income statement, the net value of the GPFG and the deposits in the krone account of the GPFG shall be presented on separate lines in the balance sheet, inflows to and withdrawals from the krone account of the GPFG shall be presented on separate lines in the statement of cash flows and the annual financial reporting of the GPFG shall be presented in a separate note in Norges Bank’s annual financial statements, see note 20 Government Pension Fund Global (GPFG). In addition, subsidiaries that are included in the consolidation for the preparation of consolidated financial reporting for the investment portfolio are excluded from the consolidation in Norges Bank’s annual financial statements. See also section 4.2 Subsidiaries below for the consolidation of certain subsidiaries in the GPFG.

The financial statements are presented in a manner that is most relevant to an understanding of the Bank’s financial performance.

The rules on global minimum taxation (Pillar 2) are expected to be implemented with effect from 2024. The current assessment is that Norges Bank will be exempt from the scope. Therefore, no change in tax expense is expected as a result of the implementation.

The annual financial statements are prepared with a closing date of 31 December, and are presented in Norwegian kroner (NOK), and unless otherwise stated, rounded to the nearest million. Rounding differences may occur.

Norges Bank's annual financial statements are prepared under a going concern basis.

2. Changes in accounting policies, including new and amended standards and interpretations, in the period

Accounting policies applied are consistent with the policies applied in the previous accounting year. There are no new or amended IFRS standards and interpretations that have become effective for the accounting year beginning on 1 January 2023 that have had any material effect on the Bank’s financial statements.

3. New and amended standards and interpretations effective from 2024 or later

Issued IFRS standards, changes in existing standards and interpretations issued with effective dates from 2024 or later are expected to be immaterial or not applicable for the Bank’s financial reporting at the time of implementation.

4. Accounting policies for the financial statements as a whole

4.1 Financial assets and liabilities

Recognition and derecognition

Financial assets and liabilities are recognised in the balance sheet upon becoming a party to the instrument’s contractual provisions.

Financial assets are derecognised when the contractual rights to the cash flows expire, or when the financial assets and substantially all the risks and rewards of ownership are transferred. See note 9 Secured lending and borrowing and note 20.13 Secured lending and borrowing for details on transferred assets that are not derecognised.

Financial liabilities are derecognised when the obligation is extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires.

Purchase or sale of a financial asset where the contractual terms require settlement in accordance with normal market conditions, is recognised on the trade date.

Classification and measurement

Financial assets are classified based on the business model used for managing the assets and their contractual cash flow characteristics.

The investment portfolio of the GPFG is managed in accordance with the management mandate issued by the Ministry of Finance, the investment mandate issued by the Executive Board of Norges Bank and investment strategies issued by the management of Norges Bank Investment Management. These mandates and strategies, including the risk management strategies, entail that financial assets are managed and evaluated on a fair value basis. The financial assets in the GPFG are therefore measured at fair value through profit or loss, except for Management fee receivable, which is not part of the investment portfolio. Management fee receivable is measured at amortised cost.

The foreign exchange reserves are managed in accordance with the principles issued by the Executive Board and are managed and their performance evaluated on a fair value basis. Other financial assets are measured at amortised cost.

Financial liabilities are measured at amortised cost, except for financial liabilities designated as at fair value through profit or loss. This applies to financial liabilities in the foreign exchange reserves that are managed and their performance evaluated on a fair value basis. For the GPFG, financial liabilities, except for Management fee payable and Deferred tax, are integrated into the investment portfolio that is managed and evaluated on a fair value basis, and are therefore designated at fair value through profit or loss. Management fee payable is measured at amortised cost.

Financial derivatives are measured at fair value through profit or loss.

For further specification of the classification of financial instruments, see note 6 Measurement and table 6.2 Classification of financial instruments.

Impairment

For financial assets classified as measured at amortised cost, an allowance for expected credit losses is recognised. Expected credit losses are estimated per loan and are based on the loan’s exposure at default, probability of default and loss given default. The recognised amount comprises expected credit losses within the 12 months after the reporting date. In the event of a substantial increase in credit risk since initial recognition, an expected loss allowance is recognised over the expected life of the asset.

4.2 Subsidiaries

Investments in real estate and infrastructure for renewable energy are made through subsidiaries of Norges Bank, which are exclusively established as part of the management of the fund. Subsidiaries are controlled by the GPFG and are included in the financial reporting for the GPFG in accordance with section 3-4 of the Regulation. Control over an entity exists when the GPFG is exposed to or has rights to variable returns from its involvement in the entity and is able to influence those returns through its power over the entity. For further information, see note 20.16 Interests in other entities.

The GPFG is an investment entity in accordance with IFRS 10 Consolidated financial statements. IFRS 10 defines an investment entity and introduces a mandatory exemption from consolidation for investment entities.

Subsidiaries measured at fair value through profit or loss

Subsidiaries that invest in real estate or infrastructure for renewable energy through ownership interests in other entities, are investment entities. These subsidiaries are measured at fair value through profit and loss in accordance with the principles for financial assets, as described in section 4.1 Financial assets and liabilities above. Subsidiaries that invest in real estate are presented in the balance sheet of the GPFG as Unlisted real estate. Subsidiaries that invest in infrastructure for renewable energy are presented in the balance sheet of the GPFG as Unlisted infrastructure. See note 20.6 Unlisted real estate and note 20.7 Unlisted renewable energy infrastructure for supplementing policies.

Consolidated subsidiaries

Subsidiaries that perform investment-related services, and which are not investment entities themselves, are consolidated. Consolidated subsidiaries do not own, neither directly nor indirectly, investments in real estate or infrastructure for renewable energy.

Note 3 Income/expense from equities and bonds

Table 3.1 Income/-expense from equities

Table 3.2 Income/-expense from bonds

Tax expense

Norges Bank is exempt from income tax on its operations in Norway but is liable to taxes in some other jurisdictions. Tax expense comprises income tax that will not be refunded under local tax rules or tax treaties to Norges Bank. This pertains primarily to withholding tax on dividends related to the foreign exchange reserves’ equity investments.

Tax expense for 2023 was NOK 39 million, compared with NOK 2 million in 2022.

Japan and Germany are the markets with the highest tax expense in 2023, amounting to NOK 10.5 million and NOK 10.8 million, respectively. Norway’s tax treaties with these countries entail a tax rate of 15 percent. Tax expense in other respects refers to smaller amounts divided among several other jurisdictions.

Accounting policies for taxation are further detailed in note 20.10 Tax.

Note 4 Holdings of equities and bonds

Table 4.1 Equities

¹ Equities lent is exclusively related to equity investments in the foreign exchange reserves.

Table 4.2 Bonds

¹ Nominal values have been translated into NOK at the closing rate at the balance sheet date. The nominal value comprises the face value of the instrument or principal.

Bonds in Norges Bank’s balance sheet are in their entirety associated with management of the foreign exchange reserves. Norges Bank issues government debt and enters into financial contracts in the area of government debt management in the name of the Ministry of Finance. Transactions related to government debt management are recognised in the government accounts and not in Norges Bank’s income statement or balance sheet.

Bank for International Settlements (BIS)

The Bank for International Settlements (BIS) acts as a bank for central banks, and its mission is to serve central banks in their pursuit of monetary policy and financial stability by fostering international cooperation in those areas.

The BIS is a limited liability company owned by central banks. Norges Bank has 8 000 voting shares (with a face value of SDR 5 000) in the BIS, in addition to 564 non-voting shares (with a face value of SDR 5 000), for a total of 8 564 shares. Norges Bank’s share of the total shares in the BIS was equal to 1.5 percent at year-end 2023, the same as at year-end 2022.

When the shares were issued, the BIS required payment of only 25 percent of the share capital, with the remaining 75 percent committed capital not recognised in the balance sheet. The committed capital was NOK 438 million at year-end 2023, compared with NOK 422 million at year-end 2022.

Dividends from the BIS are distributed annually. Dividends received from the BIS was NOK 35 million in 2023, compared with NOK 31 million in 2022.

Note 5 Foreign exchange reserves

The foreign exchange reserves are to be available for use in foreign exchange market transactions or as part of the conduct of monetary policy, with a view to promoting financial stability and to meet Norges Bank’s international commitments. The foreign exchange reserves are divided into a fixed income portfolio, an equity portfolio and a petroleum buffer portfolio. See further discussion in note 7 Investment risk.

The petroleum buffer portfolio is intended to receive the government’s cash flow from petroleum activities in foreign currency and any transfers to and from the GPFG. The purpose of the portfolio is to provide for an appropriate management of the government’s need for converting foreign currency and NOK.

See note 8 Currency for a specification of the foreign exchange reserves’ currency breakdown.

Tables 5.1 and 5.2 show income statements and balance sheets, respectively, for the foreign exchange reserves by portfolio. Since the foreign exchange reserves are presented as they are operationally managed by Norges Bank, there may be minor differences between this presentation and presentation under the IMF definition of foreign exchange reserves.

Table 5.1 Foreign exchange reserves by portfolio, income statement

Table 5.2 Foreign exchange reserves by portfolio, balance sheet

Note 6 Measurement

Introduction

Fair value for the vast majority of assets and liabilities is based on quoted market prices or observable market data. If the market is not active, fair value is established by using standard valuation techniques. Estimating fair value may be complex and require the use of judgement, in particular when observable inputs are not available. The valuation risk is addressed by the control environment at Norges Bank, which is responsible for fair value measurement.

The fair value hierarchy

All securities in the foreign exchange reserves are measured at fair value. The securities have been classified in the fair value hierarchy presented in table 6.1 Foreign exchange reserves’ investments by level of valuation uncertainty. The classification is determined by the observability of the market inputs used in the fairvalue measurement:

• Level 1 comprises assets that are valued based on unadjusted quoted prices in active markets. An active market is a market in which transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Assets and liabilities classified as Level 2 are valued using models with inputs that are either directly or indirectly observable. Inputs are considered observable when they are based on market data reflecting actual events or transactions.
• Assets classified as Level 3 are valued using models with significant use of unobservable inputs. Inputs are considered unobservable when market data are not available and the input is developed using the best information available about the assumptions that market participants would use when pricing the asset.

An overview of models and valuation techniques with their respective observable and unobservable inputs, categorised by type of instrument, is described in this note.

Table 6.1 Foreign exchange reserves’ investments by level of valuation uncertainty

¹ Other comprises other assets and liabilities limited to money market instruments, including reverse repurchase agreements, deposits in banks, short-term borrowing, unsettled trades and other assets and liabilities.

At year-end 2023, the valuation uncertainty for the foreign exchange reserves was generally unchanged compared with year-end 2022. The majority of foreign exchange reserves are associated with low valuation risk and are classified as Level 1. At year-end 2023, 99.5 percent of equity holdings and 97.5 percent of bond holdings are classified as Level 1, and valuation is thus based on quoted market prices.

Movements between levels in the hierarchy

There have been no substantial movements between levels in the fair value hierarchy.

Valuation techniques

Norges Bank has defined hierarchies for which price sources are to be used for valuation. Holdings that are included in the benchmark indices are normally valued in accordance with the index providers’ prices, while the remaining holdings of equities and bonds are valued almost exclusively using prices from other reputable external price providers. For equities and derivatives traded in active markets (Level 1), the close price is used. For bonds traded in active markets, the bid price is generally used.

The next section sets out the valuation techniques used for equities and bonds classified as Level 2 in the fair value hierarchy.

Equities (Level 2)

Equities that are valued based on models with observable inputs provided by vendors are classified as Level 2 in the fair value hierarchy. These holdings are not traded in active markets and include listed shares in companies where trading has been suspended. The valuation models take into account various observable market inputs, such as the price of comparable equity quotes, last traded price and volume.

Bonds (Level 2)

Bonds classified as Level 2 are valued based on observable market inputs from comparable issues, in addition to direct indicative or binding quotes. These holdings usually consist of less liquid bonds than those classified as Level 1, i.e. where there is not an activity volume for binding trades and a low activity volume for indicative price quotes at the measurement date.

Control environment

The control environment for fair value measurement is organised around a formalised and documented valuation policy and guidelines, which are supported by work and control procedures. The portfolios managed by Norges Bank Markets contain only liquid government securities, where valuation risk is very low. Any questions are discussed by a separate management committee.

The valuation environment has been adapted in accordance with market standards and established practices for valuation. This is implemented in practice in the form of daily valuation of all holdings. These processes are scalable to market changes and are based on internal and external data solutions.

All holdings and investments are generally valued by external, independent price providers. They have been chosen on the basis of analyses performed by the Norges Bank units responsible for valuation.

Price providers are monitored on an ongoing basis through regular discussions, controls and price challenges for individual securities. For a large portion of holdings, prices from independent price providers are based on quoted market prices. For holdings that are not sufficiently liquid for valuation to be based on quoted prices, widely accepted models are used. Observable inputs are used where possible, but in some cases, owing to illiquid markets, unobservable inputs are used.

The valuation process is subject on a daily basis to numerous controls by the valuation departments. Controls are based on defined thresholds and sensitivities, which are monitored and adjusted in accordance with prevailing market conditions. At each month-end, more extensive controls are performed to ensure valuation in accordance with fair value.

In NBIM, valuation memos and reports are prepared at each quarter-end, documenting the results of the controls performed and the most important sources of uncertainties in the valuations.

The NBIM investment meeting, which includes NBIM’s leader group, is held every quarter prior to the publication of the financial reporting. The committee reviews the documentation, discusses major pricing issues and approves the valuation.

Other investments

Norges Bank holds equity investments in the BIS and Swift, which are not part of the foreign exchange reserves. These are investments undertaken by Norges Bank in its role as Norway’s central bank and to preserve Norway’s international obligations in this area. The obligations involve long-term commitments that do not have economic gain as an objective and are not, by their nature, financial investments. This is primarily related to shares in the Bank for International Settlements (BIS) which are valued at NOK 231 million and would have been allocated to Level 3 in the fair value hierarchy. Valuation is uncertain owing to a lack of activity in the market. These shares are valued using models that use a substantial degree of non- observable inputs. See note 4 Holdings of equities and bonds for further information on equities in the BIS.

Classification of financial instruments

Financial assets are classified in three measurement categories: fair value through profit or loss (designated or mandatory), fair value through other comprehensive income (OCI) and amortised cost. The measurement category is determined at initial recognition of the asset.

Financial liabilities shall generally be measured at amortised cost, except for financial liabilities in the foreign exchange reserves and financial derivatives, which are measured at fair value through profit or loss.

The carrying amount of financial assets and liabilities measured at amortised cost is considered a reasonable estimate of fair value, thus comparable fair value amounts have not been calculated.

Table 6.2 Classification of financial instruments

Note 7 Investment risk

The aim of the management of the foreign exchange reserves is to attain the highest possible return within established guidelines and risk limits. Investment risk is mitigated by managing and controlling the investment management risks to which Norges Bank is exposed. In addition, a well-defined division of roles and responsibilities has been established for the risk management process.

Organisation

The Executive Board has the overarching responsibility for risk management at Norges Bank and has established principles for risk management in Central Banking Operations, including financial risk. The Executive Board also lays down the overarching principles for the management of Norges Bank’s foreign exchange reserves, including strategic asset allocation, benchmark indexes, investment universe and overarching risk measures.

The Risk and Investment Committee is a preparatory and advisory body to strengthen and improve the Executive Board’s work related to investment strategy and risk limits for the foreign exchange reserves.

The Governor is responsible for the management of the foreign exchange reserves. The Governor has operationalised the Executive Board’s principles in guidelines issued for the management for the equity portfolio, fixed income portfolio and petroleum buffer portfolio. Operational responsibility for management has been delegated to NBIM and Norges Bank Markets, respectively, with supplemental guidelines.

The division of roles and responsibilities in the risk management system is organised along three lines of defence. The first line of defence comprises the operational risk management and control activities that are performed by the operating units. The second line of defence comprises the central risk management and compliance functions, which are tasked with advising and supporting the operating units. Their task is to challenge the assessments of the first line of defence and ensure that the first line of defence performs adequate controls. The third line of defence is the internal audit function. Internal audit is placed under the Executive Board, independently of the administration, and shall assess whether risk management and compliance function as required.

Framework

The composition of the foreign exchange reserves and associated risk depends primarily on the strategic equity allocation and the portfolios’ benchmark indexes, which are both defined by the Executive Board. The strategic equity allocation of the total equity and fixed income portfolio is 20 percent.

The benchmark index for the equity portfolio is a tax-adjusted version of the FTSE ALL World Developed Market Index, limited to euro area countries, the US, the UK, Japan, Canada, Australia, Switzerland, Sweden and Denmark. The equity portfolio may be invested in cash deposits and equities listed on a regulated and recognised exchange.

The benchmark index for the fixed income portfolio is a market-weighted index of all nominal government bonds with a residual maturity of between one month and 10 years issued by France, Germany, Japan, China, the UK and the US. The fixed income portfolio may be invested in cash deposits, Treasury bills and government bonds issued by the countries in the benchmark index.

No benchmark index has been set for the petroleum buffer portfolio. The purpose of the portfolio is to provide for an appropriate management of the government’s need for converting foreign currency and NOK and for any transfers to and from the GPFG. The petroleum buffer portfolio is invested in short-term fixed income instruments.

Through management of the foreign exchange reserves, Norges Bank is exposed to various types of financial risk, including market risk, credit risk and counterparty risk. For the management of the foreign exchange reserves, risk management is defined as the management of these risks. The units with operational responsibility for management have the responsibility for managing risk in accordance with current principles and guidelines.

Risk management process

Norges Bank employs several measurement methodologies, processes and systems to control investment risk. Robust and widely accepted risk management systems and processes are complemented by internally developed measurement methods and processes.

Market risk

Market risk is defined as the risk of loss or a change in the market value of the portfolio, or parts of the portfolio, as a result of changes in the equity, fixed income or foreign exchange market, including changes in credit premiums.

Continuous monitoring, measurement and assessment of market risk are performed along multiple dimensions. Combining different and complementary risk measures provides a better insight into the portfolios’ risk profile. Norges Bank measures both absolute and relative risk for the investments in the portfolios.

Allocation by geography and industry

The foreign exchange reserves primarily contain investments in sovereign bonds and listed companies. In accordance with the investment management framework, the investments are allocated to several countries and currencies. The following tables show investments broken down by geography and industry.

Table 7.1 Foreign exchange reserves’ allocation by asset class and region/sovereign issuer

Table 7.2 Equity portfolio by industry

¹ Includes other asset and liability items in the equity portfolio

Table 7.3 Foreign exchange reserves’ 10 largest holdings of equities

¹ Percentage of the total equity portfolio.

Foreign exchange rate risk

Foreign exchange rate risk is the risk that the value of financial instruments will change owing to movements in foreign exchange rates. Norges Bank has, primarily through the foreign exchange reserves, invested in securities issued and traded in currencies other than NOK. Consequently, the value of these investments is exposed to foreign exchange rate risk. See note 8 Currency for further information on the exchange rates used and the currency distribution in the foreign exchange reserves.

Interest rate risk

A substantial portion of the foreign exchange reserves is invested in sovereign bonds issued by the US, Germany, France, the UK, Japan and China. The value of fixed income instruments is affected by changes in interest rates in these countries. The investments’ interest rate sensitivity is measured by modified duration. At year-end 2023, modified duration was 3.54 percent for the fixed income portfolio. In isolation, this means that a 1 percent fall in yields corresponds to a 3.54 percent rise in bond prices. By comparison, modified duration at year-end 2022 was 3.59.

Volatility and correlation risk

Norges Bank uses models to quantify the risk of value changes associated with the foreign exchange reserves. This is measured by the standard deviation of the return and is usually referred to as volatility. Expected volatility is defined as one standard deviation. Absolute volatility provides an estimate of how much the portfolio value can be expected to change in the course of a year, given the current portfolio composition. Relative volatility (tracking error) provides an indication of how much the portfolio is expected to fluctuate compared with its benchmark index. In accordance with the Executive Board’s principles for management of the foreign exchange reserves, the maximum expected relative volatility is set at 50 basis points for the equity and fixed income portfolios, respectively. This implies that that the relative return on the portfolios is expected to lie within the range of ±50 basis points in two out of three years.

The risk models make it possible to estimate the risk in a portfolio across asset classes, markets, currencies, securities and instruments. Risk is then expressed as a single numerical value, which takes into account the correlation between risk factors. The models use historical relationships, which provide reliable forecast in markets that are not experiencing substantial changes in volatility and correlation. Estimates will be less reliable in periods marked by significant market movements. Regular testing of the models is performed to validate the model’s ability to estimate risk. Reported risk measures are annualised.

Table 7.4 Portfolio risk, Expected volatility

At year-end 2023, expected absolute volatility was measured at 14.0 percent for the equity portfolio and 10.7 percent for the fixed income portfolio. This means that value fluctuations on the order of NOK 20 billion and NOK 55 billion, respectively, can be expected in two out of three years. In these cases, the calculation of expected value fluctuations excludes expected returns. At year-end 2022, the corresponding expected value fluctuations were NOK 17 billion and NOK 69 billion, respectively. At year-end 2023, expected relative volatility for the equity and fixed income portfolios was 5 and 2 basis points, respectively, compared with 6 and 3 basis points, respectively, at year-end 2022.

Credit risk

Credit risk is defined as the risk of loss due to an issuer being unable to meet its payment obligations.

The fixed income portfolio comprises only sovereign bonds issued by the US, Germany, France, the UK, Japan and China, all rated investment grade by external credit rating agencies. The credit risk of bond investments in the foreign exchange reserve is therefore regarded as low.

Table 7.5 Bonds specified by sovereign issuer and credit rating

Counterparty risk

Counterparty risk is defined as the risk of loss due to a counterparty default on its obligations. Counterparty risk includes the risk associated with counterparty insolvency, settlement risk and custodial risk. Counterparty risk is primarily related to securities lending, reverse repurchase agreement, unsecured bank deposits, foreign exchange contracts and futures.

In the management of the foreign exchange reserves a large number of counterparties are used to limit concentration. To reduce counterparty exposure, requirements have been set for the credit quality of counterparties. Norges Bank’s counterparties usually have credit rating from several independent credit rating agencies. An internal credit evaluation can only be used as the basis for counterparty approval in instances when the counterparty risk is considered very low. Credit ratings of Norges Bank’s counterparties are monitored and complemented by alternative credit risk indicators.

Counterparty risk is also reduced by setting exposure limits for individual counterparties. Netting agreements are in place for trades in securities lending, currency contracts and reverse repurchase agreements, and there are collateral requirements for counterparty net positions with a positive market value. Minimum requirements have also been set relating to the credit quality, time to maturity and concentration of the collateral. Netting and collateral agreements are entered into for all counterparties approved for these types of trades. For securities lending transactions, a premium is added to the market value to reflect the position’s volatility, and these positions are also adjusted for netting and actual collateral received and posted when determining net exposure. See note 10 Collateral and offsetting for further information.

At year-end 2023, counterparty risk is regarded as low. Collateral has been posted in excess of the exposure in the open reverse repurchase agreements, and unsecured bank deposits almost exclusively comprise deposits with the Federal Reserve (US dollar) or with other central banks.

Table 7.6 Counterparties1 by credit rating

¹ Counterparties in the category “Brokers” are defined as equity and bond brokers and futures brokers. Counterparties in other transactions are classified as “non brokers”. In cases where a counterparty is used for trading securities and for other transactions, the same counterparty will be included in both categories. As counterparties are counted per legal entity, several counterparties may be included per corporate group. Counterparties that are central banks are not included in the table.

Leverage

Leverage may be used to ensure effective management of the investments in the equity portfolio, but not with the aim of increasing the economic exposure to risky assets. Leverage is the difference between total net exposure and the market value of the portfolio. Leverage in the portfolio was 0.09 percent at year-end 2023, compared with 0.11 percent at year-end 2022.

Sale of securities that Norges Bank does not own (“short sale”)

The sale of securities that Norges Bank does not own is not permitted in the management of the foreign exchange reserves.

Liquidity risk

Liquidity risk is the risk of being unable to meet financial obligations at the agreed time. As a central bank, Norges Bank is not exposed to this type of liquidity risk in local currency. There is little or no liquidity risk associated with the Bank’s liabilities, which are primarily in NOK. The majority of assets are held in foreign currency and are highly liquid financial instruments. They may be realised at short notice without a substantial change in value, and the liquidity risk associated with them is therefore regarded as low. Assets in foreign currency are regarded as sufficient for meeting foreign currency obligations.

Climate risk

Climate risk is defined as the risk related to future physical climate changes and changes related to the transition to a low-carbon society.

The Executive Board has decided that the equity portfolio in the foreign exchange reserves shall be managed according to the same principles and strategies for responsible management as the equity investments in the GPFG. Among other things, it means that the Bank’s work with responsible management is based on a long-term goal that the companies in the investment portfolio align their operations with the goals of the Paris Agreement. The fixed income portfolio in the foreign exchange reserves consists exclusively of government bonds, and climate related issues will have little effect on the composition of the bond portfolio.

Other risk

Credit risk associated with lending to banks

Credit and counterparty risk associated with F-loans and intraday/overnight loans (D-loans) is managed by requiring collateral for such loans, in the form of securities pledged to Norges Bank. The total lending facility for banks is determined by collateral pledged to Norges Bank, F-deposits and deposits with the Scandinavian Cash Pool.

Norges Bank stipulates more detailed terms for pledging securities and fund units as collateral for loans in Norges Bank pursuant to section 6 of the Regulation on the Access of Banks to Borrowing and Deposit Facilities in Norges Bank etc. The current guidelines have been issued in Norges Bank’s Circular No. 5/2022 from November 2022. See note 12 Loans and deposits for more information.

The rules for pledging collateral are intended to limit Norges Bank’s risk associated with lending to banks and facilitate appropriate levels of bank borrowing. Risk is limited, since only high-quality securities are eligible and since the loan value is lower than the market value of the collateral (haircut).

Loans to the IMF

The Kingdom of Norway is a member of the IMF. Norges Bank shall, in accordance with the Central Bank Act, manage the country’s rights and obligations as a member of the IMF. This includes making currency available for IMF lending. Norges Bank considers the risk related to IMF loans to be low. See note 14 International Monetary Fund (IMF) for further information.

Expected credit losses

Financial assets measured at amortised cost are allocated on the reporting date to Stages 1, 2 or 3.

On initial recognition, assets are allocated to Stage 1. Stage 1 requires an estimation of a 12-month expected credit loss. The expected loss in Stage 1 reflects the entire loss on an asset weighted by the probability that the loss will occur in the next 12 months. On each reporting date, an assessment shall be made of whether the credit risk of an asset has increased significantly since initial recognition. If this is the case, the exposure must be moved to Stages 2 or 3. Stages 2 and 3 require estimation of an expected credit loss over the entire life of the exposure.

Table 7.7 Expected credit loss for financial assets measured at amortised cost

No loss provisions have been made for expected credit losses at year-end 2023 and 2022.

Note 8 Currency

Table 8.1 Foreign exchange reserves by currency

Total comprehensive income is affected by exchange rate movements. A 1 percent depreciation of NOK against all currency crosses will result in a positive impact on the income statement of around NOK 7 billion, and a corresponding negative impact on the income statement from a 1 percent appreciation of NOK.

Table 8.2 Exchange rates

¹ Percentage change in the exchange rate.

² See note 14 International Monetary Fund (IMF) for further description

Note 9 Secured lending and borrowing

Secured lending and borrowing comprises transactions in which securities or cash is transferred or received secured by other securities or cash. Transactions are carried out under various agreements such as securities lending agreements and reverse repurchase agreements.

Table 9.1 Income/expense from secured lending and borrowing

The purpose of secured lending and borrowing is to generate additional income from securities and cash holdings as a part of liquidity management and contributes to efficient market pricing. The share of securities lent shall not exceed 20 percent of the equity portfolio’s market value. Lending is governed by demand for the equities in the portfolio and market pricing. All lending is secured by sufficient collateral received.

Table 9.2 Lending associated with securities financing transactions

Table 9.3 Transferred financial assets and secured borrowing

Cash collateral received is reinvested in its entirety. No securities received as collateral were reinvested at year-end 2023 or 2022. Therefore, these securities are not recognised in the balance sheet.

Note 10 Collateral and offsetting

Collateral

The balance sheet lines Cash collateral posted and Cash collateral received are exclusively associated with derivative transactions. In connection with secured lending and borrowing transactions, collateral will be posted or received in the form of securities or cash, see note 9 Secured lending and borrowing for further information.

Offsetting

For various counterparties and transaction types, cash collateral will be both posted to and received from the same counterparty. Therefore, received cash collateral can be netted against posted cash collateral and vice-versa, as shown in table 10.1 Assets and liabilities subject to netting agreements. The table shows an overview of financial assets and liabilities, the effects of legally enforceable netting agreements and related collateral to reduce credit risk. The column Amount in the balance sheet subject to netting shows the carrying amounts of financial assets and liabilities that are subject to legally enforceable netting agreements. These amounts are adjusted for effects of potential netting of recognised financial assets and liabilities, together with posted or received cash collateral, with the same counterparty. The remaining net exposure is presented in the column Amount after netting and collateral.

In the event of counterparty default, a collective settlement between Norges Bank and the bankruptcy estate could be performed for certain groups of instruments, irrespective of whether the instruments belong to the GPFG or Norges Bank’s foreign exchange reserves. Such cross nettings will be settled between these portfolios, but are therefore not adjusted for in this table.

Table 10.1 Assets and liabilities subject to netting agreements