Minutes

Minutes of the Executive Board meeting of 23 October 2019

Present:

Executive Board:
Øystein Olsen, Jon Nicolaisen, Egil Matsen, Kjetil Storesletten, Karen Helene Ulltveit-Moe, Steinar Juel and Kristine Ryssdal

Deputy members:
Arne Hyttnes and Kristine Landmark

Apologies:
Kathryn Baker

Employee representatives:
Mona H. Sørensen (items 198-205) and Kjersti-Gro Lindquist (items 198-205)

Office of the Supervisory Council:
Jan Frode Jakobsen (items 184, 187-188 and 200-204)

Deloitte:
Henrik Woxholt (items 187-188)

Management:
Ørjan Agdesteen (items 184, 187-188, 202 and 204), Ida Wolden Bache (item 182), Tom Bernhardsen (item 185), Henrik Borchgrevink (item 183), Katrine Godding Boye (item 182), Olav Bø (items 184-186), Anne Berit Christiansen (item 182), Monique Erard (item 183), Karsten Gerdrup (item 183), Hege Gjerde (items 187-188 and 200-202), Trond Grande (items 187-197 and 200-203), Bjarne Gulbrandsen (items 182-205), Renate Haugen (items 203-204), Pål Haugerud (items 194-196 and 200-201), Jane Haugland (items 202 and 204-205), Erlend Hellum (item 182), Stephen Hirsch (items 201-203), Dag Huse (items 184, 187-194 and 203), Torbjørn Hægeland (items 182-183 and 186), Carine Smith Ihenacho (items 187-193), Rønnaug Johansen (item 183), Karsten Kallevig (item 194), Per Gunnar Bull Karlsen (item 184), Mads Kristensen (item 203), Per Espen Lilleås (item 182), Lise Lindbäck (items 195-196), Runar Malkenes (items 182, 186-192, 195-196 and 198), Sara Meyer (item 182), Nina Larsson Midthjell (item 182), Bård Ove Molberg (items 183-185), Kyrre Nilsen (items 182-196 and 200-205), Kjell Bjørn Nordal (item 183), Geir Øyvind Nygård (item 203), Arne Osnes (item 184), Ketil J. Rakkestad (items 184-185), Lisa Reiakvam (item 183), Ingrid K. Rogne (item 185), Marius Ryel (item 198), Yngve Slyngstad (items 187-197 and 200-203), Jan Thomsen (item 203), Lars Tore Turtveit (item 183), Ingunn Valvatne (items 184, 187-188 and 200-204), John Tore Vatnar (items 187-196), Birger Vikøren (items 194-199), Sindre Weme (item 183)

There were no comments on the meeting notice and agenda.

Item 182/2019 - The current monetary policy situation

Discussion documents:

a. Norges Bank’s policy rate – Executive Board’s meeting of 23 October 2019

STRICTLY CONFIDENTIAL memo from Monetary Policy of 22 October 2019

b. The Executive Board’s assessment and information on developments since the September 2019 Monetary Policy Report

STRICTLY CONFIDENTIAL memos from Monetary Policy of 17 and 22 October 2019

c. Report from the meeting between the Ministry of Finance and Norges Bank on 17 September 2019

d. Presentations from Monetary Policy

Ida Wolden Bache outlined the main economic developments since the previous Monetary Policy Report and the assessment of developments in relation to defined monetary policy strategy. The Governor outlined management's recommendation.

Against this background, the Executive Board discussed the matter. The Executive Board’s assessment is that new information indicates that the outlook for the policy rate for the period ahead is little changed since the September Report. The upturn in the Norwegian economy continues approximately as projected in September. Underlying inflation has been in line with projections. Uncertainty about global developments has persisted and foreign interest rates are very low. At the same time, the weak krone may push up inflation ahead.

The Executive Board decided to keep the policy rate unchanged at 1.50%. The Executive Board’s current assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at the present level in the coming period. The decision was unanimous.

Item 183/2019 - Financial Stability Report 2019

Discussion document:

Memo from Financial Stability of 17 October 2019

Torbjørn Hægeland presented the main elements of the report.

Against this background, the Executive Board discussed the matter. The Executive Board approved the proposed “Executive Board’s assessment” subject to the remarks made during the meeting, and took note of the descriptive part of Financial Stability Report 2019. The report is to be published on 5 November 2019.

Item 184/2019 - Financial risk and management of the foreign exchange reserves 2019 Q3

Discussion documents:

Memo from Markets and ICT of 17 October 2019
Memo from the Audit Committee of 22 October 2019
Memo from the Risk and Investment Committee of 22 October 2019

Olav Bø presented the main elements of the report.

Karen Helene Ulltveit-Moe and Egil Matsen reported on the discussions in the Audit Committee and the Risk and Investment Committee and the issues of particular concern to the committees. The committees recommended that the Executive Board follow management’s guidance.

The Executive Board took note of the report on financial risk and management of the foreign exchange reserves for 2019 Q3. A public version of the report is to be published on Norges Bank’s website on 1 November 2019.

Item 185/2019 - Draft of new lending regulation

Discussion document:

Memo from Markets and ICT of 15 October 2019

Olav Bø presented the matter for discussion.

The Executive Board discussed the matter and approved the circulation for comment of the draft new lending regulation and consultation letter.

Item 186/2019 - Briefing on relevant matters for Norges Bank Central Banking Operations (NBCBO)

The Governor and Deputy Governors gave a briefing on relevant matters for NBCBO.

Item 187/2019 - Norges Bank Investment Management (NBIM) return and risk 2019 Q3

Discussion documents:

Memo from NBIM of 17 October 2019
Memo from the Risk and Investment Committee of 22 October 2019

Yngve Slyngstad and Dag Huse presented the main elements of the report.

Egil Matsen reported on the Risk and Investment Committee’s discussions and the issues of particular concern to the Committee, including the results of the benchmark portfolio for interest-bearing instruments. The Committee recommended that the Executive Board follow management’s guidance.

The Executive Board took note of NBIM’s report on return and risk for 2019 Q3.

Item 188/2019 - GPFG – Public report for 2019 Q3

Discussion documents:

Memo from NBIM of 17 October 2019
Memo from the Audit Committee of 22 October 2019
Memo from the Risk and Investment Committee of 22 October 2019

Yngve Slyngstad presented the main elements of the report.

Henrik Woxholt from Deloitte confirmed that nothing had come to its attention during its review causing it to believe that the interim financial information had not in all material respects been prepared in accordance with relevant accounting standards.

The Executive Board approved the public report on the management of the Government Pension Fund Global (GPFG), including the interim financial reporting for the investment portfolio for 2019 Q3.

Item 189/2019 - Council on Ethics recommendation of 23 May 2019

Discussion document:

Memo from the Ownership Committee of 16 October 2019

Norges Bank has received a recommendation of 23 May 2019 from the Council on Ethics to exclude the companies Formosa Taffeta Co Ltd and Formosa Chemicals & Fibre Corp. The reason given for the recommendation is the risk of the companies being responsible for systematic human rights violations (cf. the conduct-based criterion in Guidelines for observation and exclusion from the Government Pension Fund Global, Section 3 a).

Egil Matsen reported on the Ownership Committee’s discussions and the Committee’s position.

The Executive Board endorsed the Ownership Committee's position:

The companies Formosa Taffeta Co Ltd and Formosa Chemicals & Fibre Corp. are to be excluded from the GPFG’s portfolio.
The Ministry of Finance is to be informed of the decision.
The exclusions enter into force on 1 January 2020. The Governor is authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations. The Governor is authorised to set a date for publishing the decision and the decision basis.
The Executive Board is to be informed when the publication date has been set.

Item 190/2019 - Council on Ethics recommendation of 27 May 2019

Discussion document:

Memo from the Ownership Committee of 17 October 2019

Norges Bank has received a recommendation from the Council on Ethics to exclude the company Centráis Elèctricas Brasileiras SA. The reason given for the recommendation is the risk of the company being responsible for systematic human rights violations (cf. the conduct-based criterion in Guidelines for observation and exclusion from the Government Pension Fund Global, Section 3 a).

Egil Matsen reported on the Ownership Committee’s discussions and the Committee’s position.

The Executive Board endorsed the Ownership Committee’s position:

The company Centráis Elèctricas Brasileiras SA is to be excluded from the GPFG’s portfolio.
The Ministry of Finance is to be informed of the decision.
The exclusion is to enter into force on 1 January 2020. The Governor is authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations. The Governor is authorised to set a date for publishing the decision and the decision basis.
The Executive Board is to be informed when the publication date has been set.

Item 191/2019 - Council on Ethics recommendation of 12 June 2019

Discussion document:

Memo from the Ownership Committee of 16 October 2019

Kristine Ryssdal recused herself while this item was considered.

Norges Bank received a recommendation from the Council on Ethics on 12 June 2019 to exclude company Vale SA. The recommendation was based on the risk of the company being complicit in, or responsible for severe environmental damage, cf. the conduct-based criterion in Guidelines for Observation and Exclusion from the Government Pension Fund Global, section 3(1)(c).

Egil Matsen reported on the Ownership Committee’s discussions and the Committee’s position.

The Executive Board endorsed the Ownership Committee’s position:

The company Vale SA is to be excluded from the GPFG’s portfolio.
The Ministry of Finance is to be informed of the decision.
The exclusion is to enter into force on 1 January 2020. The Governor is authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations. The Governor is authorised to set a date for publishing the decision and the decision basis.
The Executive Board is to be informed when the publication date has been set.

Item 192/2019 - Council on Ethics recommendation of 2 July 2019

Discussion document:

Memo from the Ownership Committee of 17 October 2019

Norges Bank received a recommendation from the Council on Ethics on 2 July 2019 to exclude company EISewedy Electric Co. The recommendation was based on the risk of the company being complicit in, or responsible for, severe environmental damage, cf. the conduct-based criterion in Guidelines for Observation and Exclusion from the Government Pension Fund Global, section 3(1)(c).

Egil Matsen reported on the Ownership Committee’s discussions and the Committee’s position.

The Executive Board endorsed the Ownership Committee’s position:

The company EISewedy Electric Co is to be excluded from the Government Pension Fund Global’s portfolio.
The Ministry of Finance is to be informed of the decision.
The exclusion is to enter into force on 1 January 2020. The Governor is authorised to grant exemptions from the deadline in situations with challenging liquidity or other special situations. The Governor is authorised to set a date for publishing the decision and the decision basis.
The Executive Board is to be informed when the publication date has been set

Item 193/2019 - Discontinuation of specific exercise of ownership rights

Discussion document:

On 20 December 2016, the Council on Ethics recommended to place the companies Eni SpA and Saipem SpA under observation based on the risk of the companies being responsible for gross corruption, cf. the conduct-based criterion in Guidelines for Observation and Exclusion from the Government Pension Fund Global, section 3(1)(e).

Section 6(3) of the guidelines reads: “Before making a decision on observation, exclusion and revocation in accordance with Section 6(1), the Bank shall consider whether other measures, including the exercise of ownership rights, may be more suited to reduce the risk of continued norm violations, or whether such alternative measures may be more appropriate for other reasons.” Based on such an assessment, the Executive Board decided on 5 April 2017 not to place the companies under observation, but to raise the issue of the risk of gross corruption with the companies by exercising active ownership of the companies.

NBIM has now considered the situation and concluded that the companies have implemented measures that reduce the risk for future norm violations. In NBIM’s assessment, the basis for specific ownership activities no longer applies.

Egil Matsen reported on the Ownership Committee’s discussions and the Committee’s position.

The Executive Board endorsed the Ownership Committee’s position:

Norges Bank is discontinuing the specific ownership activities with Eni SpA and Saipem SpA.
The Executive Board supports the submission of a letter to the Council on Ethics in line with the attached draft. The Governor is authorised to finalise the letter in line with the remarks agreed on by the Executive Board in the meeting.
Discontinuation of specific ownership activities with Eni SpA and Saipem SpA is announced in the more detailed information on responsible investment in 2019.

Item 194/2019 - GPFG – Investment in unlisted real estate with a single partner

Discussion document:

Memo from NBIM of 17 October 2019

Yngve Slyngstad and Karsten Kallevig presented the matter for discussion.

The Executive Board discussed the matter and took note of the presentation. The Executive Board will consider the determination of a limit for how much of the investment portfolio can be invested with a single counterparty in the meeting on 20 November.

Item 195/2019 - GPFG – Phasing-out of equity investments in upstream companies

Discussion document:

Memo from NBIM of 17 October 2019

The Ministry of Finance proposes the removal of companies classified as producers of crude oil from the GPFG’s benchmark index and investment universe, and in a letter of 1 October 2019 proposes how this should be regulated in the management mandate for the GPFG. Norges Bank was asked to submit comments to the proposed changes.

Yngve Slyngstad presented the draft letter.

The Executive Board approved the submission of a letter to the Ministry of Finance in line with the attached draft. The Governor was authorised to finalise the letter in line with the remarks made at the meeting.

Item 196/2019 - GPFG – Follow-up of items from the Ministry of Finance

Discussion document:

Memo from NBIM of 17 October 2019

Yngve Slyngstad presented the matter for discussion.

The Executive Board took note of the schedule for the Executive Board’s consideration of the advice and assessments to be submitted to the Ministry of Finance.

Item 197/2019 - Briefing on relevant matters for NBIM

Yngve Slyngstad gave a briefing on relevant matters for NBIM.

Item 198/2019 - Organisation NBIM

Discussion document:

CONFIDENTIAL memo from the General Secretariat of 22 October 2019

The Governor informed that Yngve Slyngstad has expressed a wish to step down as CEO of Norges Bank Investment Management.

The Executive Board discussed the matter and took note of Yngve Slyngstad’s wish to step down as CEO of NBIM. The Executive Board authorised the Governor to enter into an agreement with Yngve Slyngstad on the date and conditions for his resignation, and to initiate a preliminary process to select and appoint a new CEO of NBIM.

Item 199/2019 - Minutes of the Executive Board meetings of 18 September and 9 October 2019

Discussion document:

Draft minutes

The Executive Board approved the minutes of its meetings of 18 September and 9 October 2019.

Item 200/2019 - Governance at NBIM – Report for 2019 Q

Discussion document:

Memo from NBIM of 17 October 2019

Trond Grande presented the main elements of the report.

The Executive Board took note of NBIM operations report 2019 Q3.

Item 201/2019 - NBIM compliance and control 2019 Q3

Discussion documents:

Memo from NBIM of 17 October 2019
Memo from the Audit Committee of 22 October 2019

Stephen Hirsch presented the main elements of the report.

Karen Helene Ulltveit-Moe reported on the Audit Committee’s discussions and the issues of particular concern to the Committee, including implemented risks and measures related to organisational changes. The Committee recommended that the Executive Board follow management’s guidance.

The Executive Board took note of the report on compliance and control at NBIM for 2019 Q3.

Item 202/2019 - Investment management – Budget 2020

Discussion document:

Memo from NBIM of 17 October 2019

Trond Grande and Hege Gjerde presented the matter for discussion.

The Executive Board discussed the matter and approved the submission of a letter to the Ministry of Finance with a proposed limit for management costs for the GPFG in 2020 in line with the attached draft. The Governor was authorised to finalise the letter based on the Executive Board’s remarks at the meeting.

The final proposed 2020 budget for investment management is to be presented to the Executive Board for approval at the meeting of 20 November 2019.

Item 203/2019 - Summary of audit reports – NBIM

Discussion documents:

Memo from Internal Audit of 17 October 2019
Memo from the Audit Committee of 12 August 2019

Ingunn Valvatne presented the main elements of six audit reports.

- 1903 NBIM GDPR

- 1904 NBIM MiFiD II Assessment

- 1907 NBIM Security lending – tax management

- 1906 NBIM Equity Enhanced Indexing

- 1808 Real Assets Risk Management

- 1911 NBREM IT security

Geir Øyvind Nygård gave a supplementary presentation related to the audit report 1907 NBIM Security lending – tax management.

Karen Helene Ulltveit-Moe reported on the Audit Committee’s discussions and the issues of particular concern to the Committee in the individual audit reports. The Audit Committee was satisfied with the management’s answers and recommended that the Executive Board follow Internal Audit’s guidance.

The Executive Board took note of Internal Audit's summary of the audit reports.

Item 204/2019 - Summary audit report from NBCBO

Discussion documents:

Memo from Internal Audit of 17 October 2019
Memo from the Audit Committee of 22 October

Ingunn Valvatne presented the main elements of the audit report.

- 1916 NBCBO Financial management

Karen Helene Ulltveit-Moe reported on the Audit Committee’s discussions and the issues of particular concern to the Committee, including the suitability of the implementation of management’s action plan to safeguard Internal Audit’s recommendations in the long term. The committee recommended that the Executive Board follow Internal Audit’s guidance.

The Executive Board took note of Internal Audit's summary of the audit report.

Item 205/2019 - Any other business

The Governor gave a briefing on the status of the reorganisation of administrative functions.

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

- NBIM Report: GPFG Performance and Risk Report - September 2019