Present:

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

Alternates: Arne Hyttnes and Kristine Landmark

Employee representatives: Mona H. Sørensen (items 209-212), and Kjersti-Gro Lindquist (items 209-212)

Office of the Supervisory Council: Jan Frode Jakobsen (items 207, 210-213 and 217-218)

Management: Ørjan Agdesteen (items 209-211), Ida Wolden Bache (item 206), Henrik Borchgrevink (item 208), Katrine Godding Boye (item 206), Jon Marius Bremnes (item 207), Olav Bø (item 207), Ivar Eriksen (item 213), Hege Gjerde (items 210-211), Trond Grande (items 210-211 and 213-219), Bjarne Gulbrandsen (items 206-220), Pål Haugerud (items 214-218), Jane Haugland (items 209-211), Dag Huse (items 213-218), Torbjørn Hægeland (item 208), Lise Lindbäck (items 216-218), Runar Malkenes (items 208-211 and 213-220), Bård Ove Molberg (items 206-207), Kyrre Nilsen (items 206-218 and 220), Arne Osnes (item 207), Johann Rud (item 207), Marius Ryel (item 212), Yngve Slyngstad (items 210 and 213-219), Carine Smith Ihenacho (items 213-215), Stian Solheim (item 211), Ola Stavem (items 214-216), Ingunn Valvatne (items 207, 209-213 and 216-218), John Tore Vatnar (items 210-211 and 213-218)

There were no comments on the meeting notice and agenda.

Item 206/2019 Response to interest rate decision – monetary policy meeting of 23 October

Discussion document:

• Memo from Monetary Policy of 6 November 2019

Ida Wolden Bache presented the matter for discussion and the Executive Board took note of the matter.

Item 207/2019 Review of strategy and framework for the foreign exchange reserves 2019

Discussion documents:

• Memo from Markets and ICT of 14 November 2019
• Memo from the Risk and Investment Committee of 18 November 2019

Olav Bø presented the matter for discussion. Egil Matsen presented the topics that particularly drew the attention of the Risk and Investment Committee.

The Executive Board discussed the matter and had a number of concrete comments on the principles for the management of the foreign exchange reserves. The Executive Board asked for the main purpose of the management of the Bank’s foreign exchange reserves, liquidity, to be clarified in the principles.

The Executive Board approved the following:

• The strategic weights of the bond and equity portfolios to be kept unchanged at 80% and 20%, respectively.
• Work is to be continued on [censored text]. Management is to return with a status report on this work and proposed changes to the Executive Board’s principles in the course of spring 2020.
• Upstream companies to be removed from the benchmark index for the equity portfolio. The companies are not to be removed from the GPFG’s investment universe. The Governor was authorised to determine a schedule for the phasing out of the companies.

Item 208/2019 Briefing on relevant matters for Norges Bank Central Banking Operations (NBCBO)

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

Item 209/2019 Minutes of the Executive Board meeting of 23 October 2019

Discussion document:

Draft minutes

The Executive Board approved the minutes of its meeting of 23 October 2019.

Item 210/2019 2020 - Budget for investment management at Norges Bank

a. 2020 budget for investment management at Norges Bank
Discussion document: Memo from NBIM of 14 November 2019
b. Budget for personnel expenses and limits for the accrual of performance-based pay in investment management 2020
Discussion documents: Memo from NBIM of 14 November 2019
Memo from the Remuneration Committee of 20 November 2019

Trond Grande presented the matter for discussion. Arne Hyttnes presented the discussions and position of the Remuneration Committee on total personnel expenses and limits for the accrual of performance-based pay in investment management.

The Executive Board discussed the matter and approved the proposed budget for 2020 for Norges Bank Investment Management (NBIM). As part of the Executive Board's budget decision, the Executive Board approved the proposed budget for total personnel expenses including performance-based pay. The budget for performance-based pay is based on a continuation of the scheme whereby up to 100 investment area employees at offices outside of Norway may be granted contracts that include performance-based pay limited to 200% of fixed salary.

The Executive Board asked NBIM to assess for next year’s budget whether the limit for the number of employees earning performance-based pay exceeding 100% of fixed salary can be revised downwards.

Item 211/2019 - Proposed 2020 budget for Norges Bank

Discussion document:

• Memo from Corporate and Shared Services of 15 November 2019

Ørjan Agdesteen presented the budget proposal.

The Executive Board discussed the matter and approved the proposed budget for Norges Bank for 2020. The proposed budget is to be sent to the Supervisory Council for approval.

The Governor was authorised to update the financial statement forecasts following the Executive Board’s assessment of the budget and to finalise the document based on the Executive Board’s remarks.

It is assumed that the Supervisory Council authorises the Executive Board to make use of budget allocations within the investment limits. The Executive Board further authorises the Governor to make use of allocations within the investment limits.

Item 212/2019 - Executive Board’s principles for following up the anti-money laundering provisions

Discussion document:

• Memo from General Counsel of 13 November 2019

Marius Ryel presented the matter for discussion.

The Executive Board discussed the matter and approved the “principles for following up the anti-money laundering provisions” in line with the recommendation. The amendments are to enter into force with immediate effect.

Item 213/2019 GPFG – presentation of the work on climate risk
Discussion document: Memo from NBIM of 14 November 2019

Yngve Slyngstad and Carine Smith Ihenacho presented the topic.

The Executive Board discussed the matter and approved the submission of a letter to the Ministry of Finance in line with the draft letter. The Governor was authorised to finalise the letter based on the Executive Board’s discussion.

Item 214/2019 - Recommendation on exclusion and observation of companies – Product-based coal criterion

Discussion document:

• Memo from NBIM of 14 November 2019
• Memo from the Ownership Committee of 19 November 2019

Following the Storting’s consideration of Report No. 20 (2018-2019) The Government Pension Fund 2019, the Ministry of Finance added new thresholds in the product-based coal criterion in the guidelines for observation and exclusion. The new thresholds were added as new letters c) and d) in section 2 of the guidelines. The amendments entered into force on 1 September 2019.

NBIM has reviewed the companies in the portfolio and compared them with the new thresholds in the coal criterion. Egil Matsen reported on the Ownership Committee’s discussions and position.

The Executive Board endorsed the Ownership Committee’s position:

• The companies AGL Energy Ltd, Anglo American PLC, Glencore PLC, RWE AG and Sasol Ltd are to be excluded from the Government Pension Fund Global’s portfolio.
• The Ministry of Finance is to be informed of the decision.
• The exclusions are to be effective from 1 February 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 companies BNP Group Ltd, Enel SpA, Uniper SE and Vistra Energy Corp are to be placed under observation.
• The Executive Board is to be informed when the publication date has been set.

Item 215/2019 - Recommendation from the Council on Ethics of 13 November 2019 on revocation of observation decision

Discussion document:

• Memo from the Ownership Committee of 19 November 2019

Norges Bank has received a recommendation of 13 November 2019 from the Council on Ethics to revoke the decision to observe Petroleo Brasileiro SA. The decision to observe Petroleo Brasileiro SA (Petrobras) was published by Norges Bank on 28 January 2016 based on a recommendation from the Council on Ethics based on the risk of gross corruption.

Section 5(5) of the Guidelines for Observation and Exclusion from the Government Pension Fund Global stipulates: “The Council on Ethics shall regularly assess whether the basis for observation or exclusion still exists. In light of new information, the Council may recommend that the Bank revoke an observation or exclusion decision.”

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

The Executive Board endorsed the Ownership Committee’s position:

• The decision to observe Petroleo Brasileiro SA is to be revoked.
• The Governor is authorised to set a date for publishing the decision.

Item 216/2019 GPFG – investments in renewable energy infrastructure

Discussion documents:

• Memo from NBIM of 14 November 2019
• Memo from the Risk and Investment Committee of 18 November 2019

Yngve Slyngstad presented the matter for discussion. Egil Matsen presented the discussions in the Risk and Investment Committee and the topics that particularly drew its attention, including the involvement of the Executive Board in the first infrastructure investments. The Committee recommended that the Executive Board follow management’s guidance.

The Executive Board discussed the matter in detail.

1. The Executive Board decided on the following limits for the GPFG’s unlisted investments in renewable energy infrastructure.

Limits for direct investments:

• Direct investments in renewable energy infrastructure may only be undertaken in developed markets in Europe and North America.
• Direct investments in renewable energy infrastructure may not be undertaken in emerging markets.
• Investments in projects in a construction phase may not exceed 40% of the maximum allocation to unlisted renewable energy infrastructure.
• The portfolio of unlisted renewable energy infrastructure must be managed in such a way that the debt ratio of the portfolio over time does not exceed 60%.
• The debt ratio for single investments in the portfolio of unlisted renewable energy infrastructure must not exceed 70%.
• The GPFG may only invest in unlisted companies or other legal entities where unlisted renewable energy infrastructure represents 80% of operations.

Limits for indirect investments:

• Investments in funds for renewable energy may not exceed 10% of the maximum allocation to unlisted renewable energy infrastructure.
• The GPFG may only invest in infrastructure funds that target a minimum of 70% of their investments to be in unlisted renewable energy infrastructure.

2. The Executive Board decided on the following limits for the GPFG’s unlisted portfolios:

• Unlisted investments in real estate and renewable energy infrastructure above USD 500 million are subject to the approval of the Executive Board.
• Co-investment with a single investment partner in unlisted real estate or unlisted infrastructure for renewable energy may generally not exceed 0.5% of the net asset value of the investment portfolio.

3. The Executive Board agreed that the limits for direct and indirect investments and for the GPFG’s unlisted portfolios are to be included in the mandate of the CEO of Norges Bank Investment Management and that the mandate is to be submitted to the Ministry of Finance so that the limits enter into force on 1 January 2020.

4. The Executive Board agreed that the Executive Board’s risk principles and responsible investment principles be amended in line with the proposal.

The Executive Board asked that all of the first renewable energy infrastructure investments be submitted to the Board irrespective of the limit specified in point 2, first sub-item above.

The Executive Board also asked management to return with a more detailed discussion on the need for direct investments in projects in a development phase. Management was also asked to return with a detailed briefing on different types of funds that can be used for investments in renewable energy and a proposal on potential supplementary limits for such investments.

Item 217/2019 GPFG – method for calculating relative volatility

Discussion documents:

• Memo from NBIM of 14 November 2019
• Memo from the Risk and Investment Committee of 18 November 2019

Yngve Slyngstad and Dag Huse presented the matter for discussion.

Egil Matsen reported on the Risk and Investment Committee’s discussions and the issues of particular concern to the Committee. The Committee recommended that the Executive Board follow management’s guidance.

The Executive Board discussed the matter and adopted an updated method for calculating expected relative volatility in accordance with the presentation. The Executive Board approved the submission of a letter about this matter to the Ministry of Finance.

Item 218/2019 GPFG – Mandate for the Government Pension Fund Global – proposed changes

Discussion document:

• Memo from the General Secretariat of 14 November 2019

In its letter of 25 October 2019, the Ministry of Finance proposes changes to the mandate for the Government Pension Fund Global. The Ministry asks Norges Bank to submit its comments.

Pål Haugerud presented the draft response.

The Executive Board discussed the matter and provided input and comments on the draft. A revised version will be sent to the Executive Board. The Governor was authorised to finalise the letter based on the Executive Board’s discussions.

Item 219/2019 Briefing on relevant matters in investment management

Yngve Slyngstad gave a briefing on relevant matters for NBIM.

Item 220/2019 Any other business

Egil Matsen gave a briefing on the process to appoint a new CEO of NBIM.

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

• Letter to the Ministry of Finance of 24 October – GPFG phasing out of equity investments in upstream companies.
• Draft of new Norges Bank papers on a framework for advice on the countercyclical capital buffer.
• Memo from Financial Stability of 15 November 2019
• Report from the Audit Committee meeting of 21 October 2019.
• Minutes of the Risk and Investment Committee meeting of 12 August 2019
• GPFG – Reports and presentations from meeting with the Ministry of Finance
• Memo from NBIM of 14 November 2019
• Norges Bank’s annual report for 2019
• Memo from the General Secretariat of 13 November 2019