Minutes

Minutes of the Executive Board meeting of 9 October 2017

Present:

Executive Board:

Øystein Olsen, Jon Nicolaisen, Egil Matsen (items 183-192), Hilde Myrberg, Kjetil Storesletten, Karen Helene Ulltveit-Moe, Kathryn M. Baker and Steinar Juel

Alternates:

Arne Hyttnes and Kristine Landmark

Employee representatives:

Mona H. Sørensen (items 181-182 and 190-192)

Apologies:

Nina Larsson Midthjell

Office of the Supervisory Council:

Jan Frode Jakobsen (items 181-183,185 and 190)

Management:

Yngve Slyngstad (181-190a), Trond Grande (181-190a), Age Bakker (182), Dag Huse (183,186-188), Lise Lindbäck (185), Bjørn Taraldsen (190a), Merethe Riddervold (181-188,190a), John Tore Vatnar (183,185-188), Marius Ryel (190), Alexander Behringer (190), Ingrid Katrine Rogne (190b), Ingunn Valvatne (181-185,190b), Birger Vikøren (183-185,190-192), Runar Malkenes (183-188,190), Bjarne Gulbrandsen (181-192), Sigrid Igland (181-188,190-192)

There were no comments on the meeting notice and agenda.

Item 181/2017 Minutes of the Executive Board meeting of 20 September 2017

The Executive Board approved the minutes of its meeting of 20 September 2017.

Item 182/2017 New model for the provision of IT services

Discussion documents:

Memo from NBIM of 4 October 2017

Yngve Slyngstad presented the topic.

The Executive Board exchanged views, including on IT security, the risk related to the changes and the costs associated with the project. The Executive Board took note of the presentation of the new model for the provision of IT services. The Executive Board will consider the matter again in connection with the budget for 2018.

Item 183/2017 Government Pension Fund Global ¬- Approval of government bond issuers

Discussion document:

Memo from NBIM of 4 October 2017

On 31 August, the Ministry of Finance adopted changes to the mandate for the Government Pension Fund Global (GPFG). Section 4-10 of the mandate stipulates that the Executive Board must approve all issuer countries and that approval must be based on an assessment of all relevant investment and operational risks. Furthermore, under a new provision in Section 6-2 of the mandate, the Bank must describe routines and systems for the approval of government bonds in annual reports on the management of the GPFG.

Yngve Slyngstad presented the topic. Egil Matsen referred to the discussion in the Risk and Investment Committee and the aspects that particularly drew its attention.

The Executive Board exchanged views and approved the method and criteria for the assessment of investment and operational risk for individual government bond issuers.

The Executive Board approves GPFG investment in government bonds issued by the following countries:

Australia
Belgium
Brazil
Bulgaria
Canada
Chile
Colombia
Denmark
Estonia
Philippines
Finland
France
Greece
Hong Kong
India
Indonesia
Ireland
Iceland
Israel
Italy
Japan
China
Croatia
Cyprus
Latvia
Lithuania
Luxembourg
Malaysia
Malta
Mexico
Netherlands
New Zealand
Peru
Poland
Portugal
Romania
Russia
Singapore
Slovakia
Slovenia
South Africa
South Korea
Spain
UK
Switzerland
Sweden
Taiwan
Thailand
Czech Republic
Turkey
Germany
Hungary
US
Austria

The investment mandate for the CEO of NBIM will be updated in accordance with the decision.

Item 184/2017 The Executive Board's mandate for the Real Estate Investment Board (REIB)

Discussion documents:

Memo from NBIM of 4 October 2017
Memo from the Risk and Investment Committee of 3 October 2017

A separate investment committee, the Real Estate Investment Board (REIB), was established by the Executive Board in 2015 as part of the decision-making process for investments in unlisted real estate. The Executive Board is continuously informed on the work of the committee with copies of reports from the REIB meetings.

Yngve Slyngstad presented the discussion document and the recommendation for changes to the mandate for the REIB.

Egil Matsen presented the discussions on the Risk and Investment Committee and the topics that particularly drew its attention, including the relationship between the mandate for the REIB and the investment mandates for the CEOs of NBIM and NBREM, respectively.

The Executive Board took note of the presentation and resolved to amend the Executive Board's mandate for the REIB in line with the recommendation.

Item 185/2017 Investment strategy for the Government Pension Fund Global

Discussion document:

Memo from NBIM of 4 October 2017

According to the Executive Board's strategic plan for NBIM for 2017-2019, the Bank will base its advice to the Ministry of Finance on somewhat broader perspective on wealth. The Executive Board has previously discussed, including in a seminar on 15 August, how the vulnerability of the Norwegian economy to persistently lower oil prices can be reduced by shifting the composition of the GPFG away from investments with returns that fluctuate in tandem with oil prices.

Yngve Slyngstad presented the topic and Egil Matsen referred to the discussion in the Risk and Investment Committee.

The Executive Board exchanged views and approved the submission of a letter to the Ministry of Finance recommending the removal of oil and gas equities from the GPFG's benchmark index. The recommendation is based exclusively on financial arguments and does not reflect any particular view on oil prices, future profitability or sustainability in the oil and gas sector.

Item 186/2017 Recommendations from the Council on Ethics of 29 June 2017 to exclude companies and to place a company under observation.

Discussion document:

Memo from the Ownership Committee of 3 October 2017

On 29 June 2017, Norges Bank received recommendations from the Council on Ethics to exclude the companies Evergreen Marine Corp (Taiwan) Ltd, Korea Line Corp, Precious Shipping PCL and Thoresen Thai Agencies PCL from the GPFG. On the same date, Norges Bank received a recommendation from the Council on Ethics to place the company Pan Ocean Co, Ltd under observation. The recommendations are based on the unacceptable risk of severe environmental damage and either serious or systematic violations of human rights (cf section 3(c)(a) of the guidelines for observation and exclusion from the Government Pension Fund Global).

Egil Matsen presented the discussions on the Ownership Committee and its position.

The Executive Board endorsed the Ownership Committee's position:

Evergreen Marine Corp (Taiwan) Ltd, Korea Line Corp, Precious Shipping PCL and Thoresen Thai Agencies PCL should be excluded from the Government Pension Fund Global's portfolio.
The Ministry of Finance is to be informed of the decision on exclusion.
The exclusions enter into force on 1 January 2018. The Governor was authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations.
Pan Ocean Co., Ltd is to be placed under observation.
The Council on Ethics is to be informed of the decision on observation.
The Governor was authorised to set a date for publishing the decision on exclusion and observation.

Item 187/2017 Recommendation from the Council on Ethics of 25 August 2017 to exclude a company

Discussion document:

Memo from the Ownership Committee of 3 October 2017

On 25 August 2017, Norges Bank received a recommendation from the Council on Ethics to exclude the company Atal SA. The recommendation is based on the unacceptable risk of serious or systematic violations of human rights (cf section 3(a) of the guidelines for observation and exclusion from the Government Pension Fund Global).

Egil Matsen presented the discussions on the Ownership Committee and its position.

The Executive Board endorsed the Ownership Committee's position:

Atal SA should be excluded from the Government Pension Fund Global's portfolio.
The Ministry of Finance is to be informed of the decision.
The exclusion enters into force on 1 January 2018. The Governor was authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations.
The Governor was authorised to set a date for publishing the decision.

Item 188/2017 Recommendations from the Council on Ethics of 17 March and 22 April 2016 to exclude companies

Discussion document:

Memo from the Ownership Committee of 3 October 2017

At a meeting on 5 October 2016, the Executive Board considered recommendations from the Council on Ethics of 17 March and 22 April 2016 on the exclusion of companies based on the product-based weapons criteria in the guidelines for observation and exclusion. The Executive Board resolved to submit a letter to the Council on Ethics with a request for a more detailed account, and to inform that further consideration of the recommendations would be deferred.

At the Executive Board's meeting of 19 January 2017, the Ownership Committee was informed that the Council on Ethics would begin work to help clarify the operationalisation of the weapons criteria. In a letter of 29 August 2017, the Council on Ethics concludes, on the basis of the clarification, that it finds no basis to amend its recommendations of 17 March and 22 April 2016.

Egil Matsen presented the discussions on the Ownership Committee and its position.

The Executive Board exchanged views and noted that the operations related to the nuclear weapons capacity of NATO countries has in recent years increasingly been outsourced to private companies including those that are listed. This may pertain to large industrial companies where only a small share of the company's activities may be related to nuclear weapons facilities. With contracts of a limited duration, the current interpretation of the weapons criteria may pose challenges when considering both the role of long-term owner and with repeated transactions.

The Executive Board endorsed the Ownership Committee's position:

AECOM, BAE Systems, Fluor Corp and Huntington Ingalls Industries Inc. should be excluded from the Government Pension Fund Global's portfolio.
The Ministry of Finance is to be informed of the decision.
The exclusions enter into force on 1 January 2018. The Governor was authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations.
The Governor was authorised to set a date for publishing the decisions.
Exclusion of Honeywell International Inc. is retained.

Item 189/2017 Briefing on current issues in investment management

Yngve Slyngstad gave a briefing on current issues in investment management.

Item 190/2017 The Central Bank Law Commission's Report NOU 2017:13

190 a) Input from NBIM for the consultation response on the Central Bank Law Commission's Report

Discussion document:

Memo from NBIM of 3 October 2017

Yngve Slyngstad presented NBIM's input for the consultation response on the Central Bank Law Commission's Report.

The Executive Board took note of the presentation and exchanged views on Section 1.2 of the draft consultation response: The organisation of the management of the Government Pension Fund Global.

190 b) Draft consultation response from Norges Bank

Discussion document:

Memo from the General Secretariat of 4 October 2017

The Governor and Birger Vikøren presented Norges Bank's draft consultation response.

The Executive Board exchanged views and endorsed the key message of the draft. Management administers the feedback and comments from the Executive Board's discussion for the remaining work with the consultation response. The consultation response will be presented to the Executive Board for final consideration at the meeting on 25 October.

Item 191/2017 Briefing on current issues in Central Banking Operations

The Governor gave a briefing on current issues in Central Banking Operations.

Item 192/2017 Any other business

There was no other business.

The following documents were distributed for information together with the discussion documents:

Minutes of the Ownership Committee's meeting of 19 June 2017
Report and self-evaluation of the Ownership Committee of 12 September 2017
Minutes of the Risk and Investment Committee meeting of 14 August 2017
Report and self-evaluation of the Risk and Investment Committee of 4 September 2017
Report and presentation from meetings with the Ministry of Finance of 22 February and 25 April 2017.
Government Pension Fund Global - Changes to the mandate laid down by the Ministry of Finance.
Letter of 31 August 2017 from the Ministry of Finance and memo of 29 September 2017 from NBIM
Semi-annual report on the Real Estate Investment Board's operations and decisions. Memo from NBIM of 3 October 2017