Abstract
This chapter examines the role of investors, and asks whether they may be able to affect positively international public health. It is often said that most investors primarily take a short-term profit perspective. This chapter introduces the role of universal ownership by large fund managers (mutual funds, retirement funds, and sovereign wealth funds) around the world. Ethics and long-term self-interest can here work together as an engine for positive social change.
In the ten years that have passed since the original publication of this article, some aspects of NBIM’s work have changed, and thus the article does not entirely reflect today’s situation. However, the thrust of the article’s arguments remain fully valid. Also, the original references are admittedly getting old—but most of them remain remarkably valid. The views expressed are of course those of this author and not of NBIM. The article is based on an article published in Corporate Governance, vol. 15, no. 3, 2007, 427–437 (Gjessing and Syse 2007). I am grateful to my co-author Ola Peter Krohn Gjessing for his major contributions to that article, many of which are carried over into this article, including several key formulations and arguments. However, I take full responsibility for the views of the present article. Materials from the previous article are being used with the permission of the original publisher. Thanks to editors Jim Hawley and Andrew Williams as well as the editorial staff and referees for Corporate Governance for their valuable input into the previous article, and to the referees for this book for equally valuable suggestions. Thanks also to my research institute PRIO for affording me the opportunity to continue work on these important issues. For a more recent example of my work on sovereign wealth funds, see Reichberg and Syse 2019.
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Notes
- 1.
See, for instance, the Los Angeles Times story on January 7, 2007, http://www.latimes.com/news/nationworld/nation/la-na-gatesx07jan07,0,4205044,full.story?coll=la-home-headlines. The Gates Foundation has later said that it would review its investment guidelines and policies.
- 2.
See, for instance, www.stmarys-ca.edu/fidcap/about-csfc/Overview/CG_Fid_Cap_UO.html, www.corpgov.net, and www.mercer.com/pressrelease/details.jhtml/dynamic/idContent/1246780. See also issue 3 of vol. 15 of the journal Corporate Governance (which includes Gjessing and Syse 2007).
- 3.
For instance, Robert A.G. Monks discusses the special hallmarks of what he calls “The New Owners” in Monks (1998).
- 4.
See, for instance, Stiglitz (2000).
- 5.
Monks (2001, 105; emphasis in original).
- 6.
For a good overview of the change from a passive to a more active view of institutional shareholder ownership, see Kim and Nofsinger (2004, 78–87).
- 7.
See https://www.regjeringen.no/en/topics/the-economy/the-governmentpension-fund/responsible-management/ethical-guidelines/id447009/ for an overview of the ethical guidelines. This web site also includes an overview of the work of the Council on Ethics, which gives direct advice on ethically based exclusions from the portfolio. The latter are made with reference not to the sustainability or returns of the fund, but with reference to the moral problem of being complicit in the worst forms of human rights abuse and other blatantly unethical or unsustainable actions and activities through one’s investments, however small. The threshold for exclusions is set high, however, meaning that active use of ownership rights remains the main avenue of influence, since the fund (given its size and need for risk limitation and diversification) remains widely diversified rather than positively screened in its investments.
- 8.
Strictly speaking, this interest applies to all reasonably diversified equity investors, not only to investors with shares in thousands of companies. The point is rather that (1) with a very high degree of diversification, the overall market risk dominates over other risk, and (2) with a high number of investee companies, internationally well-diversified funds have a global reach extending to a majority of large-cap companies worldwide.
- 9.
For this (and other) reason(s), corporate governance and related issues (that which we above abbreviated ESG: environmental, social, and governance factors) are customarily labeled “extra-financial”: their effects on investors’ portfolios are hard to measure in exact financial terms, whether on a company or a market level. Several fund managers have, however, worked to show that active investment strategies using corporate governance improvements as a tool to create excess return are indeed successful. A well-known example is the British investment manager Hermes’ “Focus Funds” (see https://www.hermes-investment.com). See also Strenger (2001) for an overview of the argument that large institutional investors profit from attention to corporate governance and related issues.
- 10.
The Stern Review on the economics of climate change, published on October 30, 2006, estimates that the aggregate costs of the impacts and risks associated with climate change could lead to a 5–20% welfare reduction globally. In contrast, the costs of action to reduce greenhouse gas emissions to avoid the worst impacts of climate change could be limited to around 1% of global GDP up to the year 2050. See HM Treasury (2006). Some of the calculations of the Stern Review have been criticized, but there seems to be widespread agreement about the Review’s main conclusion: that the costs of continuing along a business-as-usual (BAU) track when it comes to carbon emissions will have greater financial and human costs than adopting the necessary measures to significantly reduce the emissions.
- 11.
There is, admittedly, still some controversy among governments on the exact contours of the climate change threat. However, if we accept that there is a need to end the rapid growth in man-made emissions, there is little doubt that governmental action will be needed.
- 12.
For instance, former US Vice President Al Gore discusses public campaigning strategies by people linked to US carbon emitters in Gore (2006, 260–269).
- 13.
An initiative that focuses on this issue, including investor strategies for fighting corruption in resource-rich countries, is the Extractive Industries Transparency Initiative (EITI). NBIM is a signatory to the Investors’ Statement of the EITI. (See https://eiti.org).
- 14.
See https://unpri.org for the United Nations Principles of Responsible Investment. See Waygood et al. (2006) for an illustrative example of public health concerns integrated from an investment perspective. The latter case study, from the UK, shows how investors can successfully encourage companies to adopt better health and safety standards.
- 15.
Admittedly, the distinction I am hinting at here between “political agendas” and “ethical issues” is not crystal clear. What I am trying to point to is the difference between (1) particular agendas that include goals that are neither business-oriented nor necessarily oriented towards the common good or of those most in need of protection, and (2) agendas or issues that truly speak to the common good or to the needs of the weakest parties involved, while also encompassing the business case. The former will, negatively speaking, easily be labeled “political” (and thus self-interested in a non business related way), whereas the latter will more positively be understood as “ethical” in a way that does not conflict with the investor’s financial mandate and interest. There is clearly a grey area and much overlap here. For a useful contribution to the debate on constructively integrating the “ethics case” and the “business case” in active ownership and corporate governance, see Solomon and Solomon (2004, 23–29, 187–212).
- 16.
For a strong argument in favor of universal standards and a level playing field in international business, see Smeltzer and Jennings (2001).
References
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Syse, H. (2023). Investments, Universal Ownership, and Public Health. In: Boylan, M. (eds) International Public Health Policy and Ethics. The International Library of Bioethics, vol 106. Springer, Cham. https://doi.org/10.1007/978-3-031-39973-2_12
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