But even with this substantial source of income, only a share of future pension payments – which basically are financed by current income – will be matched by revenues from the Pension Fund. Estimates show that the capital in the Fund will only cover some 50-60 per cent of public pension expenditure in the future. One key element of the Fund Management Model is accountability. The role of the political authorities as well as of Norges Bank as manager is clearly defined. Another key feature is transparency and disclosure of information. The management of the Fund is based on two ethical commitments. 16  BIS Review 37/2008  First, there is the consideration relating to future generations. The Fund must ensure high capital returns at a moderate risk, by means of professional management with effective control of operational risk. Since 1997, the average annual net real return has been a little above the expected 4 per cent, partly due to excess return attributable to Norges Bank’s management. Second, the Fund must respect the fundamental rights of those affected by the companies in which the Fund has invested. The instruments used here are the exclusion of companies from the Fund’s investment universe and the active exercise of ownership rights. The Ministry of Finance excludes companies that produce certain types of weapons. They also exclude companies when they identify an unacceptable risk of contributing to gross corruption, severe environmental degradation, and serious violations of human rights and of fundamental ethical norms.
Norges Bank exercises its ownership rights by voting at general meetings and through direct contact with companies. Moreover, priority is given to combating child labour and we look critically at how companies influence the authorities in environmental issues. The combination of accountability and transparency has contributed to building trust in the Pension Fund, both domestically and internationally. Domestically, a high level of confidence is vital in maintaining motivation among Norwegians for saving rather than spending the petroleum wealth. Furthermore, the transparency of the Fund is also viewed in a favourable light by those countries in which we invest, and it obviously exerts a certain disciplinary pressure on the management that improves its quality. Thank you for your attention! BIS Review 37/2008  17