Sustainability is a key element of Norfund’s mandate. Norfund is a financial investor and shall invest in profitable enterprises. In addition, Norfund requires the enterprises to exercise or develop good corporate governance and acceptable standards in terms of the environment and labour conditions. This helps generate the development effects that Norfund aims to achieve. Norfund’s three main goals as a responsible investor are:
- to fulfil the mandate given us by our owners and the principles for Norwegian development assistance
- reduce the risk of negative impacts on the environment and the labour conditions
- contribute to raise the standards of environmental and labour conditions and improve corporate governance
The investment process
When investing, Norfund spends considerable resources on understanding the business concept involved and gaining knowledge of how the investment may have a positive as well as a negative impact on its surroundings. Furthermore, we also assess the quality of the partners and their ability to succeed commercially. Norfund does not expect ‘perfect enterprises’, but we will refrain from financing projects that will lead to irreparable environmental degradation, and from entering into cooperation with partners who demonstrate a lack of willingness to ensure safe and fair labour conditions. Establishing a mutual understanding of the standards that will serve as a basis for the operations and embedding these in a binding agreement between the parties are key steps in this process. Ensuring investment agreements that make room for effective exercise of ownership is a further important element.
Exercise of ownership
Norfund is an active owner. How active this exercise of ownership can become depends on the form of investment, the ownership share and the other co-investors who finance the enterprise. Norfund more often provides equity than loan financing. This implies that Norfund will often have a representative on the board of directors, and this position provides closeness to the operations and an opportunity to have a say in the setting of standards. With an ownership horizon of four to ten years, Norfund aims to contribute to generate a corporate culture for continuous improvement of corporate governance and environmental and social standards. Plans of action are formulated to establish a long-term schedule for how the enterprises should develop from local to international standards.