Abstract
Sovereign Wealth Funds (SWFs) are public investment vehicles, owned and managed directly or indirectly by governments and set up to achieve a variety of macroeconomic purposes. As institutional investors, SWFs have the fiduciary duty to act in the best long-term interest of their beneficiaries. In this context, socially responsible investment may enable a SWF to increase its financial profitability. However, the fiduciary duties of SWFs towards their beneficiaries go beyond the economic maximization of returns on their investments. In the aftermath of the financial crisis, SWFs have established themselves as important financial markets participants. This paper will, first, address the existing international regulatory frameworks that govern the responsibility and accountability of SWFs, and, second, discuss ways to improve those frameworks in order to enable SWFs to become sustainable investors. The focus of the paper is on evaluating the leverage of SWFs in the global economy, as well as their potential to promote corporate social responsibility and, therefore, to lead the financial sector towards greater sustainability.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
Sarkar (2010), p. 623.
- 2.
- 3.
The OECD estimates the total of SWF assets around US $2.6 trillion, see Blundell-Wignall et al. (2008), p. 121.
- 4.
Richardson (2013), p. 227.
- 5.
- 6.
See the SWF ranking, available at http://www.swfinstitute.org/sovereign-wealth-fund-rankings (accessed 18 January 2016).
- 7.
See http://www.swfinstitute.org/sovereign-wealth-fund-rankings/ (accessed 18 January 2016); Senn (2009), p. 4.
- 8.
- 9.
The GIC subscribed to a mandatory convertible bond of US $ 11.5 billion issued by UBS, created by conditional capital that has been approved by the UBS shareholders on an Extraordinary General Meeting on February 2008. According to the terms of the agreement and subject to the approval of UBS shareholders, the GIC will become a significant shareholder in UBS when the notes are converted into ordinary shares. See Senn (2010), p. 154.
- 10.
- 11.
- 12.
Rose (2008), p. 107; Bassan (2011), p. 31; Van der Zee (2012), p. 142; International Working Group of Sovereign Wealth Funds, Sovereign Wealth Funds Generally Accepted Principles and Practices—Santiago Principles, October 2008, http://imf.org/external/np/pp/eng/2008/022908.pdf (accessed 19 January 2016).
- 13.
- 14.
- 15.
Santiago Principles (2008), supra, n. 12, p. 3.
- 16.
OECD (2007), p. 42.
- 17.
- 18.
Van der Zee (2012), p. 142.
- 19.
Ibid.
- 20.
- 21.
Anabtawi and Stout (2007–2008), p. 1307.
- 22.
- 23.
Richardson (2013), p. 227.
- 24.
Ghahramani (2015), p. 322.
- 25.
- 26.
See Sullivan and Hachez (2012), p. 221.
- 27.
Ghahramani (2011), p. 87.
- 28.
Richardson (2013), p. 230.
- 29.
Demeyere (2011), p. 199; Emilio Agustín Maffezzini v Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000, para 77: “… a finding that the entity is owned, directly or indirectly [by the State], gives rise to a rebuttable presumption that it is a state entity”.
- 30.
Demeyere (2011), pp. 199 ff.
- 31.
Ibid., p. 200.
- 32.
For a classification of SWFs according to their investment objectives see Kunzel et al. (2010), table 1, 4.
- 33.
International Forum of Sovereign Wealth Funds, ‘Santiago Principles: 15 case studies’, Doha November 2014, http://www.ifswf.org/pst/SantiagoP15CaseStudies1.pdf (accessed 20 January 2016); Munari (2015), pp. 339 ff.
- 34.
- 35.
Van der Zee (2012), p. 147.
- 36.
Sullivan and Hachez (2012), p. 218.
- 37.
Ibid.; see also Henkin (1999), p. 25.
- 38.
Sullivan and Hachez (2012), p. 219.
- 39.
Davis et al. (2006), p. 18.
- 40.
Burgstaller (2011), p. 167.
- 41.
- 42.
- 43.
According to the OECD, FDI is “a category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy other than that of the direct investor. The accepted threshold for a FDI relationship is 10 % or more of the voting rights of the investee company. See OECD (2008), p. 234 http://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf (accessed 19 January 2016).
- 44.
Raeschke-Kessler and Gottwald (2008), p. 587.
- 45.
UNCTAD (2013), pp. 10–12.
- 46.
Ibid.
- 47.
Ibid.
- 48.
- 49.
Richardson and Lee (2015), p. 398.
- 50.
Nystuen et al. (2011), p. 3.
- 51.
Principle 2 UN-PRI.
- 52.
Cummine (2014), p. 168.
- 53.
- 54.
See the UN-PRI website http://www.unpri.org/signatories/signatories/#asset_owners (accessed 15 January 2016).
- 55.
- 56.
United Nations, Guiding Principles on Business and Human Rights, New York and Geneva 2011, http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf?v=1392752313000/_/jcr:system/jcr:versionStorage/53/b6/9c/53b69c6d-0745-4070-99b2-68e02dde1b99/1.4/jcr:frozenNode (accessed on 19 January 2016).
- 57.
Frankental (2012), pp. 221 ff.
- 58.
See http://www.reports-and-materials.org/sites/default/files/reports-and-materials/Ruggie-report-7-Apr-2008.pdf (accessed 11 January 2016).
- 59.
Sullivan and Hachez (2012), p. 229.
- 60.
Guiding Principles on Business and Human Rights, commentary of the Principle 19, p. 21.
- 61.
Van der Zee (2012), p. 147.
- 62.
As the commentary of Principle 4 clearly states: “Where a business enterprise is controlled by the State or where its acts can be attributed otherwise to the State, an abuse of human rights by the business enterprise may entail a violation of the State’s own international law obligations”, Guiding Principles on Business and Human Rights (2011), p. 7.
- 63.
See www.unglobalcompact.org (accessed on 11 January 2016); for a general overview of the UN Global Compact see Banerjee (2007), pp. 97–99.
- 64.
See www.unglobalcompact.org (accessed on 11 January 2016).
- 65.
- 66.
Nystuen et al. (2011), p. 5.
- 67.
Cummine (2014), p. 171.
- 68.
Dixon (2014), p. 581.
- 69.
Truman (2010), p. 103.
- 70.
Ibid.
- 71.
Van der Zee (2012), pp. 146 ff.
- 72.
Rose (2013), p. 914.
- 73.
Richardson (2013), p. 227.
- 74.
Ghahramani (2015), p. 323.
- 75.
Bengtsson (2008), p. 978.
- 76.
Shemirani (2011), p. 52.
- 77.
The company exclusion list is available online, see https://www.regjeringen.no/en/topics/the-economy/the-government-pension-fund/internt-bruk/companies-excluded-from-the-investment-u/id447122/ (accessed 5 January 2016).
- 78.
Guidelines for the Observation and Exclusion of Companies from the Government Pension Fund Global’s Investment Universe https://www.regjeringen.no/en/topics/the-economy/the-government-pension-fund/responsible-investments/guidelines-for-observation-and-exclusion/id594254/ (accessed 20 January 2016).
- 79.
About the notion of complicity and due diligence of SWFs under international norms, see Ghahramani (2015), pp. 329 ff.
- 80.
Richardson (2013), p. 241.
- 81.
Ibid., p. 227; Cummine (2014), p. 172.
- 82.
Ibid.
- 83.
Richardson (2013), p. 227.
References
Anabtawi I, Stout L (2007–2008) Fiduciary duties for activist shareholders. Stan L Rev 60:1255–1308
Backer LC (2010) Sovereign investing in times of crisis: global regulation of sovereign wealth funds, state-owned enterprises, and the Chinese experience. TLCP 19(3):3–144
Balding C (2008) A Portfolio Analysis of Sovereign Wealth Funds. University of California Irvine Working Papers 6(5) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1141531 Accessed 21 Feb 2015
Banerjee S (2007) Corporate social responsibility. Edward Elgar, Northampton
Bassan F (2011) The law of sovereign wealth funds. Edward Elgar, Northampton
Bengtsson E (2008) A history of Scandinavian socially responsible investing. JBE 82(4):969–983. doi:10.1007/10551-007-9606-y
Blundell-Wignall A, Hu Y, Yermo J (2008) Sovereign Wealth and Pension Fund Issues. OECD Working Papers and Private Pensions. OECD Publishing, http://www.oecd.org/finance/private-pensions/40345767.pdf. Accessed 21 Feb 2015
Burgstaller M (2011) Sovereign wealth funds and international investment law. In: Brown C, Miles K (eds) Investment treaty law and arbitration. Cambridge University Press, Cambridge, pp 163–186
Cappelen A, Urheim R (2012) Pension Funds, Sovereign Wealth Funds and Intergenerational Justice’, Norges Handelshoyskole – Department of Economics, Discussion paper 193:1–3. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2156964. Accessed 20 Jan 2016
Castelli M, Scacciavillani F (2015) SWFs and State investments: a preliminary general overview. In: Bassan F (ed) Research handbook on sovereign wealth funds and international investment law. Edgar Elgar, Northampton, pp 234–295
Coffee J (1991) Liquidity versus control: the institutional investor as corporate monitor. Colum L Rev 6:1277–1368. doi:10.2307/1123064
Collier J (2011) Sovereign wealth funds – a significant and growing global force. In: Tencati A, Perrini F (eds) Business ethics and sustainability. Edward Elgar, Northampton, pp 100–112
Cummine A (2014) Ethical sovereign investors: sovereign wealth funds and human rights. In: Bohoslavsky JP, Letnar Cernic J (eds) Making sovereign financing and human rights work. Hart Publishing, Oxford, pp 163–178
Davis S et al (2006) The new capitalists: how citizen investors are reshaping the corporate agenda. Harvard Business School Press, Cambridge
Demeyere B (2011) Sovereign wealth funds and (un) ethical investment. In: Nystuen G, Follesdal A, Mestad O (eds) Human rights, corporate complicity and disinvestment. Cambridge University Press, Cambridge, pp 183–221
Dixon A (2014) Enhancing the transparency dialogue in the “Santiago Principles” for sovereign wealth funds. Seattle L Rev 37:581–595
Fairfax L (2011) Shareholder democracy – a primer on shareholder activism and participation. Carolina Academic Press, Durham
Frankental P (2012) Business and human rights. In: Haynes K, Murray, Dillard J (eds) corporate social responsibility. Routledge, London, pp 221–228
Ghahramani S (2011) Governments, financial markets, and international human rights: the state’s role as shareholder. Yale J Int Affairs 6(1):85–95
Ghahramani S (2015) SWFs and human rights protection. In: Bassan F (ed) Research handbook on sovereign wealth funds and international investment law. Edgar Elgar, Northampton, pp 321–332
Gill A (2008) Corporate governance as social responsibility: a research agenda. Berkeley J Int’l L 26(2):452–478. doi:10.15779/Z38MS9P
Hahn A (2012) State immunity and veil piercing in the age of sovereign wealth funds. SZW 84:103–118
Henkin L (1999) The universal declaration of human rights at 50 and the challenge of global markets. Brook J Int’l L 25(1):17–34
Kaufmann C (2013) Wirtschaft und Menschenrechte – Anatomie einer Beziehung. AJP 5:744–753
Keenan P, Ochoa C (2009) The human rights potential of sovereign wealth funds geo. J Int’l L 40:1151–1179
Kunzel P et al (2010) Investment Objectives of Sovereign Wealth Funds – A Shifting Paradigm. IMF Working Paper 11(19) https://www.imf.org/external/pubs/ft/wp/2011/wp1119.pdf. Accessed 21 Jan 2016
Monk A (2009) Recasting the sovereign wealth fund debate: trust, legitimacy, and governance. New Pol Econ 14(4):451–468. doi:10.1080/13563460903287280
Munari F (2015) SWFs and environmental protection. In: Bassan F (ed) Research handbook on sovereign wealth funds and international investment law. Edgar Elgar, Northampton, pp 333–370
Nystuen G, Follesdal A, Mestad O (eds) (2011) Human rights, corporate complicity and disinvestment. Cambridge University Press, Cambridge
O’Brien J (2008) Barriers to entry: foreign direct investment and the regulation of sovereign wealth funds. Int Lawyer 42(4):1231–1257
Organization for Economic Cooperation and Development (2007) Economic Outlook, December 82/2007
Organization for Economic Cooperation and Development (2008) Benchmark Definition of Foreign Direct Investment, 4th ed. http://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf. Accessed 2 Mar 2015
Raeschke-Kessler H, Gottwald D (2008) Corruption. In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press, Oxford, pp 587–616
Richardson B (2013) Fiduciary law and responsible investing. Routledge, London
Richardson B, Lee A (2015) Social investing without legal imprimatur: the latent possibilities for SWFs. In: Bassan F (ed) Research handbook on sovereign wealth funds and international investment law. Edgar Elgar, Northampton, pp 389–414
Rohde L (2011) Lessons from the last financial crisis and the future role of institutional investors. OECD J Financ Mark Trends 1:1–6
Rose P (2008) Sovereigns as Shareholders. NCL Rev 87:101–166
Rose P (2013) Sovereign investing and corporate governance: evidence and policy. Fordham J Corp & Fin 18:914–954
Sarkar R (2010) Sovereign wealth funds as a development tool for ASEAN nations: from social wealth to social responsibility. Geo J Int’l L 41:621–645
Senn M (2009) Sovereign Wealth Funds as Public – Private Challenge for Institutional Governance. Asian Society of International Law Working Paper 15 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1475910. Accessed 21 Feb 2015
Senn M (2010) The regulation of hedge funds, private equity and sovereign wealth funds. In: Heckendorn Urscheler L, Peters A (eds) Swiss report presented at the XVIIIth international congress of comparative law. Schulthess, Geneva, pp 135–158
Shemirani M (2011) Sovereign wealth funds and international political economy. Ashgate, Farnham
Sullivan R, Hachez N (2012) Human rights norms for business: the missing piece of the Ruggie Jigsaw – the case of institutional investors. In: Mares R (ed) The UN guiding principles on business and human rights. Martinus Nijhoff, Leiden, pp 217–244
Truman E (2010) Sovereign wealth funds: threat or salvation? Peterson Institute for International Economics, Washington
UNCTAD (2013) World Investment Report 2013: global value chains: investment and trade for development. United Nations, New York
Van der Zee E (2012) Sovereign wealth funds and socially responsible investments: dos and don’ts. ECL 9(2):141–150
Wen S (2013) Shareholder primacy and corporate governance – legal aspects, practices and future directions. Routledge, London
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Springer International Publishing Switzerland and G. Giappichelli Editore
About this chapter
Cite this chapter
Karametaxas, X. (2017). Sovereign Wealth Funds as Socially Responsible Investors. In: Adinolfi, G., Baetens, F., Caiado, J., Lupone, A., Micara, A. (eds) International Economic Law. Springer, Cham. https://doi.org/10.1007/978-3-319-44645-5_15
Download citation
DOI: https://doi.org/10.1007/978-3-319-44645-5_15
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-44644-8
Online ISBN: 978-3-319-44645-5
eBook Packages: Law and CriminologyLaw and Criminology (R0)