Norfund’s investment agreements specify the amount Norfund commits to invest, the sequence of its disbursement, representations and warranties, and the applicable terms and conditions of the financial instrument.
Agreement and disbursement
The size of the investment, the investment period, and how the funds will be disbursed are specified by agreement. Disbursements are structured in different ways. Investment tranches, for example, may be linked to specific milestones in a company’s business plan. Norfund may also request that the fulfilment of plans for the implementation of higher standards be a requirement for disbursements.
Compliance with standards
All project requirements that Norfund regards as important are made legally binding, including compliance with environmental standards and labour standards. We do not expect enterprises to be ‘perfect’ when we invest initially, but we expect companies to show a willingness to improve. Plans for the implementation of higher standards are therefore included as part of our investment agreements when applicable.
In addition to being an active shareholder, Norfund would typically require the right to nominate at least one seat on the Board of Directors of the investee.
Use of offshore financial centres (OFCs)
In countries with weak legal systems and/or where there is a risk of corruption in the legal system, the administration and enforcement of laws and rules can be ineffective and unpredictable. In such countries, it may be difficult for Norfund and its partners to ensure that legal steps are taken in the event of financial irregularities or disputes.
This represents a risk that is too high for many investors and lenders. The jurisdiction of a third-party country is therefore sometimes employed for investments in certain countries. Using offshore financial centres (OFCs) places a special responsibility on Norfund to ensure that we have full oversight of the transactions taking place and that we do not in any way contribute to tax evasion or unlawful flows of capital.
Norfund is subject to the same guidelines as other state-owned companies and funds with international activities. Norfund exercises caution in its use of OFCs and follows OECD guidelines on tax-related matters. This includes avoiding both the use of tax havens that do not comply with Global Forum standards on transparency and effective information exchange, and avoiding countries that have not entered into tax information agreements with Norway.
Read about the ODI report (2017) Why do DFIs use offshore financial centers?