Sovereign fund governance - the good, the bad and the ugly

Asia Pacific institutions are among the top-rated funds in the latest survey of governance and sustainability practices. Other regional players are yet to come up to the mark.
Sovereign fund governance - the good, the bad and the ugly

Australia's Future Fund continues to lead the field in an annual ranking of the governance and sustainability efforts of the world’s leading sovereign investors, pension funds and official institutions, according to data platform Global SWF.

In its second year, Global SWF's survey shows the Future Fund was the only sovereign wealth fund (SWF) to score positively on all 25 elements of the poll. Norway’s NBIM, the New Zealand Super Fund and Canada’s CDPQ were close behind .

Three additional funds scored a very respectable 92%, including Singapore’s Temasek, which continues to be "Asia’s best ranked investment company, especially around sustainability and resilience", according to Diego Lopez, managing director of Global SWF.

South Korea’s National Pension Service, which is actively pursuing impact investments and partnerships, ranked alongside Temasek.


The laggards continue to be the Middle Eastern funds, which are the worst performers when it comes to governance. Only three state-owned investors managed to exceed the 50% mark: UAE’s Mubadala and DP World, and Bahrain’s Mumtalakat.

Diego Lopez, Global SWF

“A total of 39 funds fail the Global SWF test,” said Lopez. “CEOs sacked overnight, managers prosecuted for misuse of public funds and governance crises are some of the red flags that are, unfortunately, still too common in the industry.

The Covid-19 crisis has demonstrated that resilience (2.45/10) is still an issue for sovereign investors around the world.

“Funds have shown less resilience than they should have been during Covid-19 – lots of them are swimming naked out there,” said Lopez. This particularly applies to the Middle East sovereign funds, which were hit by dramatically falling oil prices in 2020.


There is mounting pressure for asset owners to be not only transparent but also responsible. Some of these sovereign investors are now signatory members of the Principles for Responsible Investing, the One Planet SWF Group and the Net Zero Asset Owner Alliance.

Good governance practices are an important component of the work done by the International Forum of Sovereign Wealth Funds (IFSWF), a global forum with offices in London. Its members are encouraged to publish their own assessment of how they apply the standards known as the Santiago Principles. These aim to promote a stable global financial system by promoting well-managed investments, transparency and sound governance.

The membership includes Asia’s newest sovereign fund, the Indonesia Investment Authority (INA), established in 2020, but already the subject of speculation about government interference and a lack of transparency in its governance processes. This is perhaps unsurprising, as Indonesia ranks near the bottom of the Asian Corporate Governance Association’s (ACGA) biannual survey of corporate governance quality in Asian countries.

The majority of funds that improved scores in the Global SWF survey did so through sustainability and ESG. As reported, asset owners are increasingly integrating sustainability into their investment portfolios, whether by setting their own sustainable investment policy; limiting or stopping investments in certain activities like coal mining; or setting out expectations for their external managers.

According to Global SWF, in the last 12 months, the Korea Investment Corporation published its first sustainability report, Panama’s Fundo de Ahorro de Panama became a signatory member of the UN Principles for Responsible Investing and Saudi Arabia’s Public Investment Fund started building an ESG team.


Some of the IFSWF’s 35 members make public their governance activities. While Asia-Pacific SWFs such as the Future Fund, New Zealand Super and Singapore’s GIC are the most open in disclosing investment and governance data, others are less forthcoming. The Qatar Investment Authority (QIA), for example, has no legal obligation to make disclosures. Any public statements are entirely at the discretion of the fund’s board of directors.

Most funds exercise voting rights directly as shareholders for economic and financial reasons. Future Fund, China Investment Corporation and NZ Super each share publicly how they exercise shareholder rights.

Others are less engaged: Abu Dhabi Investment Authority (Adia) reports that it does not exercise voting rights unless it believes it must protect its financial interests or those of shareholders as a body. The State Oil Fund of Azerbaijan and Chile’s Pension Reserve Fund and Economic and Social Stabilisation Fund indicate that they do not exercise shareholder rights.

Of the 91 funds rated in both years of the Global SWF survey, 34 saw worsening performance in 2020. Lopez said the big three Middle Eastern funds seem to be getting worse at inspiring trust.

“Adia lost two points over its increasingly opaque annual report, which no longer includes details on its relationship with the government or an organisational chart. KIA (the Kuwait Investment Authority) provides less and less clarity around its two funds and how liquidity is affecting them. And QIA has removed several important indicators from its website.”


Other funds with transparency issues include Malaysia’s Kwap. The ACGA’s secretary general Jamie Allen noted that Malaysia and Thailand have suffered badly from political upheaval, cronyism and corruption during 2020.

"Malaysia is the saddest case, since its direction of travel two years ago was widely seen as one of the region’s bright spots."

This is in spite of the fact that Malaysia recently updated its corporate governance code, which states quite clearly that a key role of the board is to “ensure that the strategic plan of the company supports long-term value creation and includes strategies on economic, environmental and social considerations underpinning sustainability”.

In its review of SWF investment activity, published in May, the IFSWF noted that 2020 was a bumper year for deploying capital, with publicly disclosed direct investments almost doubling year-on-year to $65.9 billion, up from $35.9 billion in 2019 in sectors such as renewable energy, food production, e-commerce and logistics. 

This article has been edited to remove a quote about the Brunei Investment Agency to reflect an update to the Global SWF report. 

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