1. About Norges Bank

Historically high inflation

After three decades of low and stable inflation, the Norwegian and global economy was marked by high inflation in 2022.

The year 2022 reminded us once again that unexpected events can abruptly change the economic outlook. In the aftermath of Russia’s invasion of Ukraine, inflation rose to the highest levels seen since the 1980s, in both Norway and surrounding countries. Price stability is crucial for maintaining a well-functioning economy. When high inflation erodes purchasing power, those with low incomes and the smallest margins are normally impacted hardest. With the aim of curbing inflation, we have raised the policy rate faster than we had envisaged at the beginning of the year. At the same time, we have sought to avoid dampening the economy beyond that required to tackle inflation.

Geopolitical tensions have given rise to new challenges and have changed the threat landscape. Norges Bank has been concerned with, among other things, being equipped to respond effectively to cyber incidents that could threaten financial stability. Uncertainty and high inflation have also had an impact on global financial markets and on the management of the Government Pension Fund Global (the fund). The decline in both equity and bond markets resulted in a sharply negative return on the fund. At the same time, high oil and gas prices have resulted in historically large capital transfers to the fund, which helped sustain its market value.

A changing world poses challenges for both central banking and investment management at Norges Bank. In 2022, we presented Norges Bank’s strategy for the coming years, Strategy 25. The strategy is designed to ensure that we are best able to accomplish our mission and shows our key priorities for the next three years.

In 2022, I took over as Governor and Pål Longva was appointed Deputy Governor. This Annual Report is testimony to what has been a demanding year, but also a very eventful one. I am deeply impressed by the work carried out by my colleagues at Norges Bank in 2022, and how they have dealt with an array of new challenges. In a turbulent world, it is important that we continue to challenge our thought processes and develop the skills of our employees. This is the best way we can accomplish our mission.

Oslo, 8 February 2023

Ida Wolden Bache
Governor

Introduction to Norges Bank

Norges Bank is Norway’s central bank and is responsible for monetary policy and for promoting financial stability and an efficient and secure payment system. Norges Bank also manages the Government Pension Fund Global and Norway’s foreign exchange reserves.

About Norges Bank

The foundation of Norges Bank in 1816 was an important part of the nation-building process following the dissolution of the union with Denmark. The Storting (Norwegian parliament) gave the central bank two main tasks: to issue a Norwegian currency, the speciedaler, and to extend credit to firms and private individuals.

Today, Norges Bank no longer extends credit directly to the public. On the other hand, the Bank has been assigned a number of other tasks that it performs on behalf of the Norwegian people. The Bank has executive and advisory responsibilities in the area of monetary policy, manages Norway’s foreign exchange reserves and the Government Pension Fund Global and is responsible for promoting robust payment systems and financial markets. In addition, the Bank has the sole right to issue Norwegian banknotes and coins.

Governance

Norges Bank’s activities are regulated by the Act of 21 June 2019 No 31 relating to Norges Bank and the Monetary System etc (the Central Bank Act). Norges Bank’s responsibility for the management of the Government Pension Fund Global is regulated by the Central Bank Act, the Government Pension Fund Act and the management mandate for the fund issued by the Ministry of Finance.

Under the Central Bank Act, the Governor is the general manager of Norges Bank. However, the Executive Board appoints a separate CEO responsible for the management of the Government Pension Fund Global. The Executive Board, which consists of the Governor (Chair), Deputy Governors, and six external members, and two employee representatives who attend Board meetings when administrative matters are on the agenda, is further responsible for ensuring the sound and efficient organisation of the Bank’s operations. The Executive Board is also responsible for the management of the Government Pension Fund Global. The Governor, the two Deputy Governors and the external members are appointed by the King in Council.

The Monetary Policy and Financial Stability Committee comprises the Governor (chair), the two Deputy Governors and two external members. The external members are appointed by the King in the Council of State. The Committee is Norges Bank’s executive and advisory authority for monetary policy and is responsible for the use of instruments to achieve monetary policy objectives. Its aim is to contribute to promoting financial stability by providing advice and using the instruments at its disposal.

Norges Bank’s Supervisory Council is appointed by the Storting and comprises 15 members. The Supervisory Council is Norges Bank’s supervisory body. The Council’s area of responsibility includes approving the budget proposed by the Executive Board, adopting the annual accounts and selecting the Bank’s auditor, and approving the auditor’s plans and expenses.

Organisation

Norges Bank’s governing bodies are the Executive Board, the Monetary Policy and Financial Stability Committee and the Supervisory Council. Norges Bank consists of Central Banking Operations and Norges Bank Investment Management, as well as Norges Bank Administration, a unit that provides shared support functions.

Norges Bank Central Banking Operations is headed by the Governor of Norges Bank and comprises four departments: Monetary Policy, Financial Stability, Markets and IT. The head of Norges Bank Administration also reports to the Governor.

Norges Bank Investment Management is responsible for managing the Government Pension Fund Global. The separate CEO is appointed by the Executive Board. Norges Bank Investment Management comprises the following units: Technology and Operations, Governance and Compliance, Asset Strategies, Equity Strategies, Real Assets, Investment Risk and Staff.

Norges Bank Investment Management is an international organisation with offices in Oslo, London, New York, Shanghai and Singapore, and subsidiaries in Tokyo, Paris and Luxembourg.

Risk management and control

Pursuant to the regulation on risk management and internal control at Norges Bank, regular reviews are conducted of significant risks for all areas of activity.

The Executive Board has the primary responsibility for risk management and for the sound organisation of Norges Bank. Internal Audit supports the Executive Board in its exercise of this responsibility and submits an annual independent assessment of risk management and internal control to the Executive Board.

The division of roles and responsibilities within Norges Bank’s risk management system is organised along “three lines of defence”:

First line of defence: Operational risk management and control activities. Risk assessment and compliance are required to be an integral part of the Bank’s business processes and include the management of outsourced services.

Second line of defence: The key risk management and compliance functions advise and support the departments. Their responsibility is to challenge the assessments made by the first line of defence and monitor the first line of defence to ensure that appropriate controls are carried out. The second lines of defence in the Norges Bank Central Banking Operations and Norges Bank Investment Management report to the Governor of Norges Bank and the CEO of Norges Bank Investment Management, respectively.

Third line of defence: Internal Audit reports to the Executive Board and is required to assess, independently of the administration, whether risk management and compliance function as intended.

The Supervisory Council has primary responsibility for supervising the Bank’s operation and compliance with formal frameworks. The Supervisory Council selects the Bank’s external auditor and submits an annual report to the Storting.

2. Annual reports

Norges Bank’s Executive Board

The Executive Board comprises the Governor, the two Deputy Governors and six external board members, all appointed by the King in the Council of State. In addition, two board members are selected by and among employees to participate when administrative matters are on the agenda.

The Governor is chair, and the two Deputy Governors are first deputy chair and second deputy chair of the Executive Board. The Executive Board has four preparatory and advisory committees, whose work is to strengthen and streamline the Executive Board’s discussions.

Audit Committee

The Committee’s tasks, in accordance with instructions relating to risk management and internal control at Norges Bank, focus on the monitoring, supervision and control of Norges Bank’s financial reporting, operational risk, compliance, and risk management and internal control systems.

The Audit Committee has three members elected by and from among the external members of Norges Bank’s Executive Board. Internal Audit is to provide the Committee with necessary assistance.

Remuneration Committee

The Remuneration Committee contributes to thorough and independent discussions of matters pertaining to Norges Bank’s salary and remuneration schemes. The Executive Board has decided that the statutory Remuneration Committee for Asset Management is to also prepare matters relating to Norges Bank Central Banking Operations.

The Committee comprises three members elected from among the external members of Norges Bank’s Executive Board and one member elected from among the employee-elected board members.

Ownership Committee

The Ownership Committee is a preparatory body for the Executive Board on matters related to Norges Bank’s responsible investment activities. The Committee prepares matters related, for example, to the observation or exclusion of companies from the investment universe of the Government Pension Fund Global, within the framework laid down in the Ministry of Finance’s management mandate and the ethical guidelines for the management of the Government Pension Fund Global.

The Ownership Committee comprises three members and is chaired by the Deputy Governor of Norges Bank with particular responsibility for following up management of the Government Pension Fund Global. The other two members are elected among the Executive Board’s external members.

Risk and Investment Committee

The Risk and Investment Committee strengthens and streamlines the Executive Board’s work related to investment strategy, current exposure, performance assessment, determination and use of risk limits, and major investment decisions.

The Risk and Investment Committee comprises three members and is chaired by the Deputy Governor of Norges Bank with particular responsibility for following up the management of the Government Pension Fund Global. The other two members are elected among the Executive Board’s external members.

Work of the Executive Board in 2022

The Executive Board held 14 meetings and discussed 212 items of business in 2022. Meetings also take place in the form of seminars for more in-depth presentations and discussions with the administration on the premises for important items on the Board’s agenda.

In addition, time is spent by the Executive Board’s four subcommittees on preparing selected matters to be considered by the Executive Board.

The Executive Board’s time for the period 2018-2019 was relatively evenly distributed between central banking operations and investment management. In the period 2020 and 2022, approximately two thirds of the Board’s time was spent on investment management. This is a consequence of the new Central Bank Act where the newly established Monetary Policy and Financial Stability Committee had been assigned responsibility for areas that were previously the responsibility of the Executive Board.

Table 1 Work of the Executive Board 2018–2022.

Members of the Executive Board

Ida Wolden Bache

Appointed Governor of Norges Bank from 8 April 2022 to 2028. Bache is Chair of the Executive Board and the Monetary Policy and Financial Stability Committee.

Her work experience includes posts as Deputy Governor, Executive Director of Norges Bank Monetary Policy and Norges Bank Financial Stability. She has also been a macroeconomist at Handelsbanken Capital Markets. Bache was a member of the Systemic Risk Council in Denmark in the period between 2017 and 2022. She holds a doctorate in economics from the University of Oslo and an MSc in economics from the London School of Economics.

Pål Longva

Appointed Deputy Governor for the period 29 August 2022 through 2028. Longva has particular responsibility for central banking operations and is First Deputy Chair of the Executive Board and the Monetary Policy and Financial Stability Committee.

His work experience includes the post of Director General of the Ministry of Finance Budget Department. Longva has worked at McKinsey and as Deputy Director General and Director General at the Ministry of Labour and Social Inclusion. He holds a doctorate in economics from the University of Oslo.

Øystein Børsum

Appointed Deputy Governor for the period 2 August 2021-2027. Børsum has particular responsibility for the Government Pension Fund Global. Børsum is Second Deputy Chair of the Executive Board and the Monetary Policy and Financial Stability Committee.

His work experience includes the post of chief economist at Swedbank and positions in the Budget and Asset Management Departments of the Ministry of Finance. Børsum holds a degree in economics from the NHH Norwegian School of Economics, masters’ degrees from Sciences Po and London School of Economics and a doctorate in economics from the University of Oslo.

Karen Helene Ulltveit-Moe

Appointed board member for the period to 15 May 2024. Chair of the Audit Committee and member of the Remuneration Committee of the Executive Board.

Ulltveit-Moe holds a professorship in the Department of Economics of the University of Oslo. She is chair of the NHH Norwegian School of Economics board and has held a number of directorships. She also chaired and was a member of several government-appointed commissions. Her main research interests are in international economics, tax policy and industrial policy. She is Research Fellow at the Centre for Economic Policy Research (CEPR) and CESifo and is an elected member of the Norwegian Academy of Science and Letters. Ulltveit-Moe holds an MSc in economics from the University of Mannheim and a PhD in economics from the NHH Norwegian School of Economics.

Kristine Ryssdal

Appointed board member for the period to 15 May 2026. Member of the Ownership Committee and the Remuneration Committee of the Executive Board.

Ryssdal is General Counsel at Yara. Other previous professional experience includes the positions of VP Legal at Statoil, (now Equinor), Chief Legal Officer at REC and Legal Counsel at Norsk Hydro. She served for several years as an attorney at the Office of the Attorney General. She has previously been a member of the board at Borregaard ASA, previously held various board positions in the REC group and was a member of Kommunalbanken Norway’s Supervisory Board. Ryssdal holds a degree in law (Cand. jur.) from the University of Oslo and a Master of Laws from the London School of Economics. She is also qualified to appear before the Supreme Court.

Arne Hyttnes

Appointed board member for the period to 15 May 2026. Chair of the Remuneration Committee and member of the Audit Committee of the Executive Board.

Hyttnes has extensive experience from the financial industry, including positions at DnC/DnB, the Norwegian Savings Banks Association, Finance Norway and the Norwegian Banks’ Guarantee Fund. He was managing director of the Norwegian Industrial and Regional Development Fund for four years and also has board experience from the NHH Norwegian School of Economics and “Ungt Entreprenørskap”, a non-profit organisation to promote cooperation between schools and the business sector. Hyttnes holds a degree in economics and business administration from the NHH Norwegian School of Economics.

Hans Aasnæs

Appointed board member for the period to 15 May 2024. Member of the Risk and Investment Committee of the Executive Board.

Aasnes is CEO of the shipping company Western Bulk ASA. He is chair of the board at Strand Havfiske, Nordic Trustee and Investinor. He has extensive experience in investment management, real estate management and direct investment at Storebrand and the UMOE Group, among others. He also has extensive board experience from a number of companies, including the Government Pension Fund Norway, Statskog, Gjensidige pensjonsforsikring, Bergvik Skog, Foran Realestate and Fornebu Lumber Company. Aasnes is an agricultural economist from the Norwegian College of Agriculture (now the Norwegian University of Life Sciences), holds a higher degree from the NHH Norwegian School of Economics and is a certified financial analyst.

Nina Udnes Tronstad

Appointed board member for the period to 15 May 2026. Member of the Audit Committee and the Ownership Committee of the Executive Board.

Udnes Tronstad is a professional board member. She is chair of the board at Source Energy and a member of the board at Bladt Industries and Prosafe. She was executive vice president at Kværner and Statoil (now Equinor). She has been a board member at Peab AB, Trelleborg AB, Rambøll, Giek (now Eksfin) and the Norwegian University of Science and Technology (NTNU) among others. Udnes Tronstad holds an MSc in chemical engineering from the Norwegian University of Science and Technology.

Egil Herman Sjursen

Appointed board member for the period to 15 May 2024. Member of the Risk and Investment Committee of the Executive Board.

Sjursen stepped down as Chief Executive Officer of Holberg Fondsforvaltning in 2018 after having served in this position for 12 years. He has held executive positions in asset management in DNB (including London), Vesta Forsikring and Nordea Investment Management since the end of the 1980s. Egil Herman Sjursen is currently chair of the board at the Bergen Philharmonic Orchestra, Stiftelsen Universitetsforskning i Bergen (Unifob), Nysnø Klimainvesteringer AS and the Nibor Oversight Committee. Sjursen has held a number of board positions. Sjursen holds a postgaduate degree in social sciences (cand. polit.), with a major in economics, from the University of Bergen.

Employee-elected board members

Mona Sørensen

Employee representative from 1 January 2016.

Member of the Remuneration Committee of the Executive Board.

Chair and chief union representative of the Finance Sector Union of Norway at Norges Bank. Mona Sørensen holds a degree in economics and administration and an Executive Master of Management with a specialisation in applied organisational psychology from the BI Norwegian Business School.

Marianne Depraetere is alternate for Mona Sørensen.

Truls Oppedal

Employee representative from 1 January 2021.

Deputy chair of the Federation of Norwegian Professional Associations. Truls Oppedal holds a master’s degree in Business and Finance from Heriot-Watt University in Edinburgh, Scotland.

Kjersti Gro Lindquist is alternate for Truls Oppedal.

Annual Report of the Executive Board for 2022

2022 was another challenging year for Norges Bank. The pandemic and the war affected all of Norges Bank’s activities and the work of the employees.

The beginning of 2022 was affected by the Covid-19 pandemic. Norges Bank’s premises at Bankplassen were closed down and most employees worked remotely. When the government announced that Norway could reopen on 12 February, the Bank allowed employees to return to the office.

On 24 February, only a few days after society reopened, Russia invaded Ukraine. The impact of the war and the after-effects of the pandemic influenced Norges Bank’s work throughout 2022. The employees put in considerable effort in a demanding period. The Executive Board is satisfied that high performance and professional standards have been maintained and wish to express their thanks to Norges Bank’s employees. 2022 saw substantial movements in global financial markets. Russia’s invasion of Ukraine contributed to a sharp rise in energy prices in Europe. Together with strong demand and supply-side constraints, this led to a marked rise in global inflation. The Monetary Policy and Financial Stability Committee has therefore raised the policy rate more and faster than projected at the beginning of 2022. See the Committee’s Report for more information.

The return on the Government Pension Fund Global closely follows developments in global equity and bond markets. In 2022, interest rates rose, and both equity and bond market returns were negative. Weak markets during the year resulted in an overall return on the fund of -14.1%. The market value of the fund at year-end 2022 was NOK 12 429bn.

In 2022, Norges Bank worked to develop the payment system in a number of areas. The Bank has entered into formal discussions with the European Central Bank (ECB) on possible participation in the Eurosystem’s TARGET Instant Payment Settlement (TIPS) service. The research into central bank digital currencies (CBDCs) has continued, and Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway) are working together to test cyber resilience in accordance with the TIBER (threat intelligence-based ethical red teaming) framework in Norway.

2022 was the last year of the strategy period 2020-2022. In the assessment of the Executive Board, Norges Bank largely achieved the ambitions in the strategy, despite the dramatic changes caused by the pandemic and the war in Ukraine. The strategy for the next three years, Strategy 25, was approved by the Executive Board in November 2022. This comprises an overarching strategy for Norges Bank as a single institution and one strategy for each of the operational areas: the central bank and Norges Bank Investment Management. See Section 4 for more details on the strategy.

In 2022, a number of changes were made to Norges Bank’s executive management. In 2021, Governor Øystein Olsen announced his intention to step down on 1 March 2022. Deputy Governor Ida Wolden Bache temporarily occupied the post of Governor from 1 March 2022 and was appointed Governor from 8 April 2022. On 29 August, Pål Longva assumed the post of Deputy Governor, succeeding Ida Wolden Bache.

Management of the Government Pension Fund Global

Norges Bank manages the Government Pension Fund Global on behalf of the Ministry of Finance. Norges Bank’s mandate is to achieve the highest possible long-term return with an acceptable level of risk and within the constraints laid down in the mandate from the Ministry of Finance.

The management of the fund in 2022

The market value of the Government Pension Fund Global at year-end 2022 was NOK 12 429bn. The fund’s market value is affected by the return on investments, capital inflows and withdrawals by the government and exchange rate movements.

The return in 2022 was equivalent to NOK -1 637bn. Movements in the krone exchange rate increased the market value by NOK 642bn, but this has no bearing on the fund’s international purchasing power. Inflow of capital from the Norwegian government came to NOK 1 085bn net after the payment of management fees. This is the largest annual inflow since the fund was formed. The new capital was phased into the fund in an effective way.

At year-end 2022, asset allocation was 69.8% equities, 27.5% fixed income, 2.7% unlisted real estate and 0.1% unlisted renewable energy infrastructure.

In 2022, the return on the Government Pension Fund Global before management costs was -14.1% in terms of the fund’s currency basket. Equities returned -15.4%, bonds -12.1%, unlisted real estate 0.1% and unlisted renewable energy infrastructure 5.1%. Management costs amounted to 0.04% of assets under management.

Norges Bank manages the fund close to the benchmark index, but all investment processes have active components. This puts Norges Bank in a better position to generate the highest possible return and be a responsible investor. Norges Bank uses a range of investment strategies in its management of the fund. They are grouped into three main categories: market exposure, security selection and fund allocation. Norges Bank has reported contributions to the relative return from the same three strategies throughout the period since 2013. Management within each category has, however, been subject to change.

The bulk of the Government Pension Fund Global is managed under the strategy for market exposure. The main aim of this strategy is to achieve market exposure mirroring the benchmark index as cost-efficiently as possible. Transaction costs are minimised by avoiding mechanical replication of index changes. An excess return is also generated by pursuing various indexing strategies.

Security selection is based on fundamental analysis, and Norges Bank uses both internal and external mandates. Specialist expertise and delegated mandates allow investment decisions to be made independently of the market consensus.

Fund allocation is the strategy that made the largest positive contribution to the excess return in 2022. This strategy exploits how a long investment horizon and a limited need for liquidity make it possible to accept substantial fluctuations in the fund’s value and to invest even where it may take a long time to realise the underlying value. Investments in unlisted real estate and unlisted renewable energy infrastructure are part of the allocation strategy. Norges Bank can also act differently to other funds in challenging market situations. At the beginning of the year, the fund had a slightly smaller allocation to equities than the benchmark index, and its bond investments had a lower duration. This helped the fund to outperform the benchmark in 2022.

Norges Bank applies these different strategies across the fund’s various asset classes. The contributions to the relative return from equity, fixed income and real asset management show that management of fixed income contributed the most to excess return in 2022.

In 2022, Norges Bank achieved an overall return before management costs that was 0.87 percentage point higher than the return on the fund’s benchmark index. The Executive Board notes that all three main strategies contributed positively to this excess return.

Performance measured over time

The Executive Board emphasises the importance of assessing performance over time, and is satisfied that the return, both in 2022 and over time, has been higher than the return on the benchmark index the fund is measured against.

In the period between 1998 and 2022, the annual return on the fund was 5.7%. The annual net real return, after deductions for inflation and management costs, was 3.5%.

Over the same period, the annual return before management costs was 0.30 percentage point higher than the return on the benchmark index from the Ministry of Finance. In the period since 2013, during which the strategies have been grouped into market exposure, security selection and fund allocation, the annual excess return before management costs has been 0.33 percentage point. The contributions from the three main strategies show that fund allocation has made a slightly negative contribution to the relative return, while market exposure and security selection have both made a positive contribution.

The objective of the highest possible return is to be achieved with acceptable risk. Risk is measured, analysed and followed up using a broad set of measures and analyses. The management mandate requires Norges Bank to manage the fund with a view to ensuring that expected relative volatility (tracking error) does not exceed 1.25 percentage points. Expected relative volatility was 0.39 percentage point at the end of 2022, compared with 0.50 percentage point a year earlier.

Measured over the full period since 1998, realised relative volatility has been 0.65 percentage point.

The management of the fund is to be cost-effective. Cost-effective management supports the objective of the highest possible return after costs. In the period between 2013 and 2022, annual management costs averaged 0.05% of assets under management. In 2022, management costs amounted to NOK 5.2bn, or 0.04% of assets under management. The Executive Board is satisfied that management costs are low compared to other managers.

Further development of the investment management

Norges Bank’s Executive Board adopted a new strategy plan for the management of the Government Pension Fund Global at the end of 2022. The plan builds on previous strategy plans but makes minor adjustments to the three main strategies. These strategies are complementary and seek to exploit the fund’s size and long investment horizon.

The mandate from the Ministry of Finance requires responsible investment to be an integral part of the management of the fund. A good long-term return is considered to depend on sustainable economic, environmental and social development. The management of climate risk is a priority for Norges Bank’s work on responsible investment. The Ministry added a specific climate target for this work to the mandate for Norges Bank in 2022, along with new requirements for measuring, managing and reporting on climate risk. The Executive Board is pleased that Norges Bank has published a clear climate action plan for the period 2022–2025.

The work to integrate responsible investment into the management of the fund is described in the section Sustainability work in Norges Bank.

See the Annual report 2022, Government Pension Fund Global for more information on the management of the fund.

Management of the foreign exchange reserves

The foreign exchange reserves are held for the purpose of crisis management and are to be used as part of the conduct of monetary policy, to promote financial stability and to meet Norges Bank’s international commitments. Considerable weight is given to the importance of investing the reserves in liquid assets. The aim of the management of the foreign exchange reserves is to attain the highest possible return within the set management limits.

Management of the reserves in 2022

The market value of the foreign exchange reserves was NOK 610.0bn at year-end 2022, which is NOK 32.6bn less than in 2021. The foreign exchange reserves are divided into an equity portfolio, a fixed income portfolio and the petroleum buffer portfolio. The value of the equity portfolio was NOK 110.4bn, the value of the fixed income portfolio was NOK 472.0bn and the value of the petroleum buffer portfolio was NOK 27.6bn.

Return in international currency terms reduced the value of the reserves by NOK 53.1bn in 2022. Contributions from the equity and fixed income portfolios were NOK -15.9bn and NOK -38.7bn, respectively. A weaker krone increased the value of the reserves by NOK 44.3bn. Net outflows were NOK 25.6bn, primarily from the petroleum buffer portfolio.

In 2022, the return on the equity portfolio and the fixed income portfolio was -9.4% in international currency terms. Equity investments returned -16.8%, while fixed income investments returned -7.5%. In NOK terms, the total return was NOK -2.5%. The results reflect lower share prices and higher global higher interest rates. A weaker krone dampened the impact in NOK terms.

The foreign exchange reserves are managed close to benchmark indexes set by the Executive Board, and the return closely tracks global equity and bond market developments. In 2022, the return on the equity and fixed income portfolios was 0.1 percentage point and 0.07 percentage point higher than the return on the portfolios’ benchmark indexes, respectively. The Executive Board is satisfied with the return, which was higher than in the benchmark indexes in a year of negative returns.

Extraordinarily high oil and gas prices through 2022 entailed extra capital flows and large swings in the petroleum buffer portfolio through the year. The purpose of the portfolio is to provide for appropriate management of the government’s need for converting foreign currency and NOK, and for any transfers to and from the Government Pension Fund Global. The portfolio normally fluctuates in value owing to the purchase or sale of currency in the market, the purchase of foreign exchange from the State’s Direct Financial Interest in petroleum activities (SDFI), and monthly transfers to and from the Government Pension Fund Global. In total, agreements were entered into for more than NOK 26 000bn in the foreign exchange reserves.

The integration of responsible investment into the management of the foreign exchange reserves is discussed in the section . See the report Management of Norges Bank’s foreign exchange reserves for more information on the management of the Bank’s foreign exchange reserves.

Government debt management

Norges Bank provides services in connection with government borrowing on behalf of the Ministry of Finance.

The government’s borrowing requirement is primarily met through long-term borrowing in the market (government bonds) at a fixed interest rate. The government also borrows short-term by selling Treasury bills, which are debt instruments with a maturity of one year or less. The government borrows exclusively in NOK.

The management in 2022

At year-end 2022, government debt totalled NOK 596bn, with NOK 532bn in government bonds and NOK 64bn in Treasury bills. Of this amount, the government’s own stock amounted to NOK 66bn in bonds and NOK 24bn in Treasury bills.

NOK 20bn was borrowed through a new 10-year bond issued in February by syndication. In September, a new 20-year bond worth NOK 10bn was issued by syndication. This was the first time a Norwegian government bond was issued with maturity longer than 11 years. Existing bonds were reopened in the amount of NOK 34bn at 17 auctions. NOK 12bn was issued to the government’s own stock in the course of 2022.

Treasury bills worth NOK 57.65bn were issued to the market at 18 auctions. NOK 24bn was also issued to the government’s own stock in the course of 2022.

In 2022, the average auction premium, measured as the difference against the mid-yield in the market, at bond issuance was -0.002 percentage point compared with 0.022 percentage point in 2021. At the end of June, owing to high volatility and uncertainty in foreign and domestic government securities markets, Norges Bank allowed primary dealers to quote higher yield spreads than normal in the interdealer market for bonds and bills. This exception was retained a number of times and remained in effect at the end of 2022.

The average yield for bonds issued in 2022 was 2.76%, compared with 1.24% in 2021. The increase reflected a general rise in interest rates.

The Executive Board is satisfied with the management of government debt in 2022.

Payment system

Norges Bank is tasked with promoting an efficient, secure and attractive payment system. Norges Bank is the ultimate settlement system for interbank payments in Norway and also issues banknotes and coins. Norges Bank oversees the payment system and other financial infrastructure, contributes to contingency arrangements and is the supervisory authority for interbank systems. The operation of the financial infrastructure in Norway was stable in 2022.

Norges Bank’s settlement system

Payment settlement between banks and other financial sector undertakings with an account at Norges Bank takes place in Norges Bank’s settlement system (NBO). Thus, most payments in NOK are ultimately settled in NBO. The operation of NBO was stable through 2022. In 2022, NBO handled a daily average of approximately NOK 339bn in payment transactions. At year-end 2022, banks’ sight deposits and reserves on deposit with Norges Bank totalled NOK 26.3bn.

A well-functioning solution for real-time payments is an important part of an efficient payment system. Norges Bank has entered into formal discussions with the European Central Bank on possible participation in the Eurosystem’s TARGET Instant Payment Settlement (TIPS) service. The primary objective is to facilitate the development of real-time payment services by banks and other market participants in the Norwegian payment system. Norges Bank is in the process of reviewing and assessing the TIPS service at a detailed level, including the technical setup, security, contingency arrangements and costs. This work will lead to a basis for deciding on possible participation in TIPS, which safeguards Norges Bank’s requirements and the needs of other relevant stakeholders. In connection with Strategy 25, the Executive Board has decided to begin the process of overhauling the settlement system.

Cash

The public’s access to central bank money in the form of cash is a key feature of the payment system. Cash usage in Norway has declined over many years, and the decline accelerated during the pandemic. Twice a year, Norges Bank conducts surveys on households’ use of cash. The autumn 2022 survey showed that 4% of payments in shops and 4% of payments between private individuals (person-to-person) were made in cash, ie unchanged since spring 2022.

Many of the attributes of cash are of such a nature that they will continue to be important even in the event of falling cash usage. In addition to being central bank money, the fact that cash can be used independent of third parties or electronic systems is crucial for financial inclusion and contingency arrangements. In Norges Bank’s opinion, it is important to ensure that cash remains available and easy to use so that it can fulfil its functions in the payment system.

Central bank digital currency

The structural changes in the payment system raise questions about whether there is a need for Norges Bank to implement measures to ensure that payments can continue to be made efficiently and securely in NOK in the future. One key question is whether Norges Bank should provide central bank money to the public in digital as well as physical form, termed central bank digital currency (CBDC). Norges Bank is in the process of exploring this issue, motivated by both declining cash usage and a desire to be prepared to introduce a CBDC if necessary for the Norwegian payment system to develop in a desirable manner.

Norges Bank’s research into CBDC is now in its fourth phase. Up until summer 2023, the Bank will carry out experimental testing of different technical CBDC solutions and continue its work on analysing the purpose and consequences of a potential introduction of a CBDC. As part of Strategy 25, the Executive Board has approved that Norges Bank, during the strategy period, will prepare the ground for the issue, if appropriate, of a CBDC.

Cyber resilience of the financial system

Cyber incidents are a potential threat to the financial system and financial stability. Globally, there is broad agreement that resilience against cyber attacks in the financial sector must be strengthened. This requires extensive public-private cooperation. Norges Bank and Finanstilsynet are working together to introduce cyber resilience testing in accordance with the TIBER framework in Norway (TIBER-NO) to bolster the cyber resilience of the financial system. Entities with responsibility for critical functions in the banking and payment system have agreed to be part of the TIBER-NO Forum. The first tests started in autumn 2022.

See Financial Infrastructure Report 2022 for more information on the payment system.

Staff

At year-end 2022, Norges Bank had 1007 permanent employees. Of these, 572 were in Norges Bank Investment Management, 272 in Norges Bank Central Banking Operations and 156 in Norges Bank Administration. In addition, seven employees worked at the Office of the Supervisory Council. Norges Bank has employees from 39 countries and offices in Oslo, London, New York, Shanghai and Singapore. Norges Bank also has subsidiaries in London, Paris, Luxembourg and Tokyo.

Competent staff are important to the fulfilment of Norges Bank’s mission, and they are required to have relevant expertise, insight and a high level of integrity.

Norges Bank works systematically to attract and recruit top candidates from leading national and international academic institutions. Norges Bank works continuously with career development, for example by offering targeted courses and study programmes.

Norges Bank aims to achieve gender balance and diversity in the workforce. The objective is a gender balance of at least 40% as a whole and the ambition is to increase the number of women in management positions and in specialist functions. Norges Bank is also one of the founding partners of Norway’s Women in Finance Charter.

The share of women on the permanent staff of Norges Bank at year-end 2022 was 35%, compared with 34% in 2021. The share of women in the different areas was 29% in Norges Bank Investment Management, 35% in Norges Bank Central Banking Operations and 57% in Norges Bank Administration.

The Executive Board is not satisfied with the overall gender balance and will closely follow up the initiatives for achieving the target.

The relationship between Norges Bank’s management, staff and the Bank’s trade union representatives must be based on dialogue, confidence and mutual respect. The management has close contact with the representatives at Norges Bank, for example in the Co-determination and Personnel Committee, the Working Environment Committee and regular contact meetings with representatives at several levels in Norges Bank.

Norges Bank’s priority is to protect the health and safety of all staff. Nine workplace accidents or injuries directly relating to work conducted at Norges Bank’s premises were reported in 2022, none of which were severe or reported as occupational injuries to the Norwegian Labour Inspection Authority. Sickness absence in 2022 remained stable at a low level of 2.3%.

See the section on Governance, ethics and culture for more information on Norges Bank’s staff.

Corporate governance

Norges Bank’s governance framework aims to be in line with best practice. The Executive Board follows up the operations through periodic reporting on performance and goals, action plans, budgets, financial and operational risk and compliance.

Norges Bank’s use of resources is required to be cost-efficient and prudent, with a cost level that is reasonable compared with that of similar organisations. Benchmarking, ie external comparisons of Norges Bank’s use of resources with that of other similar organisations, is used as a corporate governance tool. During 2022, comparisons were conducted of management costs for the Government Pension Fund Global against 270 other funds. Size and asset composition are considered to achieve the best possible basis for comparison. The Government Pension Fund Global is the fund in the comparison group with the lowest costs measured as a share of assets under management.

Norges Bank complies with the Instructions relating to risk management and internal control at Norges Bank issued by the Ministry of Finance. The Executive Board has issued principles for risk management. In addition, the Ministry of Finance defines limits for the management of the Government Pension Fund Global, including allocation of asset classes and the benchmark index. The Executive Board sets similar limits for the management of the foreign exchange reserves. There were no breaches of the limits for the management of the Government Pension Fund Global or the foreign exchange reserves in 2022. Valuations, performance measurement, management and control of risk in investment management comply with internationally recognised standards and methods. See the notes to the financial statements for more detailed information.

Reporting and following up risks and incidents constitute an important part of the measures to improve operations and internal control. Significant risks are followed up through regular reporting and follow-up of Executive Board measures. The Executive Board has set a 12-month risk tolerance limit for Norges Bank Investment Management specifying that the probability that operational risk factors will result in a gross loss of NOK 750m or more must be less than 20%. In 2022, operational risk exposure was within the Board’s risk tolerance limit.

The Executive Board continuously monitors operational and financial risk through its assessment of operational risk and internal control. The Executive Board submits an annual risk assessment to the Supervisory Council based on reporting by the administration and Internal Audit.

No material deficiencies in the risk management and control regime were identified in 2022, and the Executive Board assesses the control environment and control system at Norges Bank as satisfactory.

No directors’ and officers’ liability insurance has been provided for the members of the Executive Board or the chair of the Board, ie the Governor, in her role as general manager of Norges Bank. In practice, the Board members have limited liability risk, and the Bank therefore self-insures any liability for damages on behalf of Board members or equivalent executive management positions. This is in line with practice in other Nordic central banks.

Security and IT systems

Norges Bank faces a complex threat landscape in constant flux, influenced by geopolitical developments.

The continuous assessment of Norges Bank’s assets, threats and vulnerabilities are important for the ongoing identification and implementation of risk mitigation measures. A range of training activities are also conducted, such as phishing drills and e-learning modules, to strengthen awareness among staff of current security threats. Relevant controls are performed based on frameworks and standards for best practice. Norges Bank uses the US National Institute of Standards and Technology Cyber Security Framework (NIST CSF) for its management of information and IT security risks.

Stable IT systems are essential for Norges Bank to fulfil its mission. The Bank works systematically to ensure a high level of operational stability and has sound disruption management and change management processes in place.

Norges Bank gives weight to automation, innovation, the replacement of outdated IT solutions and robust information security measures. This work is also highlighted in the strategic plan adopted for the following period. An operationally robust organisation helps to secure Norges Bank’s values. Since the completion of the multi-year project to modernise Norges Bank Central Banking Operation’s IT operating platforms, collaboration with new suppliers has been operationalised. The new IT operating platforms have had a high level of accessibility through the year, and no faults have occurred that have affected Norges Bank’s capacity to perform its mission. In the course of 2022, some IT functions, such as the IT helpdesk in Norges Bank Investment Management, were insourced to increase quality and improve flexibility.

Digital threats and organised cyber criminals represent a growing risk as agents are becoming more specialised, sophisticated and well-funded. IT security was strengthened in 2022. The number of employees working in security, particularly cyber resilience, has increased, at the same time as the use of external consultants in this area has been reduced. The employee IT security training programme has been expanded. There were no security incidents with serious consequences in 2022.

Balance sheet and financial statements

Norges Bank’s balance sheet

Norges Bank’s balance sheet contains a number of items directly related to the Bank’s mission. The balance sheet total at year-end 2022 was NOK 13 200bn, compared with NOK 13 172bn at year-end 2021.

In line with the management mandate for the Government Pension Fund Global, the Ministry of Finance has placed a portion of the government’s assets in a separate account in Norges Bank (the GPFG’s krone account), presented as a liability to the Ministry of Finance. Norges Bank reinvests these funds, in its own name, and presents this as net value GPFG. The value of the GPFG’s krone account will always equal the value of the investment portfolio less accrued management fee. Norges Bank, in its role as asset manager, bears no financial risk associated with the management of the Government Pension Fund Global. At year-end 2022, the market value of the fund’s investments was NOK 12 429bn, compared with NOK 12 340bn at year-end 2021. See the separate section Management of the Government Pension Fund Global in the Report for more details on the management of the fund in 2022.

Detailed financial reporting for the investment portfolio of the Government Pension Fund Global is presented in Note 20 to the financial statements. In addition, a separate annual report on the management of the fund has been published.

Excluding the Government Pension Fund Global, the foreign exchange reserves are Norges Bank’s largest balance sheet asset. The foreign exchange reserves are primarily invested in equities, fixed income instruments and cash. Net foreign exchange reserves amounted to NOK 610bn at year-end 2022, compared with NOK 643bn at year-end 2021. See the separate section on Management of the foreign exchange reserves in the Report for more details on the management of the foreign exchange reserves.

Under the government’s consolidated account system, all government liquidity is collected in government accounts at Norges Bank. At year-end 2022, deposits amounted to NOK 305bn, compared with NOK 344bn at year-end 2021. Except for the GPFG krone account, this is the largest liability item on the balance sheet. However, this item fluctuates considerably through the year owing to substantial incoming and outgoing payments over the government’s accounts and transfers to and withdrawals from the Government Pension Fund Global.

Banknotes and coins in circulation are a liability item for Norges Bank. Norges Bank guarantees the value of this money. The amount of cash in circulation is driven by public demand. In recent years, lower demand for cash has reduced the amount in circulation. At year-end 2022, banknotes and coins in circulation amounted to NOK 40bn, unchanged compared with year-end 2021.

Deposits from banks, comprising sight deposits, reserve deposits and F-deposits, are managed by Norges Bank in accordance with its liquidity management policy. At 31 December 2022, these deposits amounted to NOK 27bn, compared with NOK 23bn at year-end 2021.

Norges Bank administers Norway’s financial obligations and rights ensuing from participation in the International Monetary Fund (IMF). Norges Bank has therefore both claims on and liabilities to the IMF. At year-end 2022, Norway’s net position with the IMF amounted to a claim of NOK 23bn, compared with NOK 19bn at year-end 2021. See Note 17 in the notes to the financial statements for more details on the relationship between Norges Bank and the IMF.

Norges Bank’s equity at 31 December 2022 was NOK 270bn, compared with NOK 289bn at 31 December 2021. The Bank’s equity consists of the Adjustment Fund and the Transfer Fund. At year-end 2022, the Adjustment Fund stood at NOK 253.3bn and the Transfer Fund at NOK 16.2bn, compared with NOK 266.5bn and NOK 22.2bn, respectively, at year-end 2021. Norges Bank’s equity, excluding the GPFG’s krone account, was 35% of the balance sheet total, compared with 34.7% in 2021. The Executive Board deems that the Bank’s equity is sufficient to fulfil the Bank’s purpose (cf Section 3-11, Sub-section 1, of the Central Bank Act).

This balance sheet composition is normally expected to generate a positive return over time, excluding foreign currency effects, as returns on the Bank’s investments in equities and fixed income instruments are expected to exceed the cost of the Bank’s liabilities. Norges Bank’s assets are primarily invested in foreign currency, whereas its liabilities are primarily in NOK.

Given the Bank’s balance sheet composition, income will largely be affected by developments in global fixed income, equity and foreign exchange markets. Considerable volatility in income should be expected from year to year. Future increases in the value of the Government Pension Fund Global will be affected by, among other things, transfers to/from the fund.

Income statement

Net income/-expense from financial instruments

Net expense from financial instruments was NOK 55.1bn in 2022, compared with net income of NOK 24.2bn in 2021. Equity investments posted a loss of NOK 15.9bn, while fixed income investments posted a loss of NOK 38.3bn, compared with a gain of NOK 31bn and a loss of NOK 6.5bn, respectively, in 2021. Net income from financial instruments also includes a gain of NOK 45.5bn as a result of foreign currency effects. Foreign currency effects in 2021 resulted in a loss of NOK 0.3bn.

Government Pension Fund Global

The Government Pension Fund Global’s total comprehensive income showed a loss of NOK -1 001bn, comprising a loss on the portfolio of NOK -995.3bn and costs related to the management fee of NOK 5.2bn. Norges Bank’s total comprehensive income for 2021 amounted to NOK 1 551bn, comprising a gain on the portfolio of NOK 1 555bn net of management costs of NOK 4.6bn.

Total comprehensive income for 2022 was recognised against the GPFG’s krone account at 31 December 2022. The return on the portfolio, after management costs reimbursed to Norges Bank have been deducted, is transferred in its entirety to the krone account and thus does not affect Norges Bank’s total comprehensive income or equity.

Other operating income

In accordance with the management mandate for the Government Pension Fund Global, Norges Bank is reimbursed by the Ministry of Finance for its expenses related to the management of the fund up to a limit. Norges Bank was reimbursed in the amount of NOK 5.2bn in 2022, compared with NOK 4.6bn in 2021. Norges Bank also earns income from other services provided to banks and rent from external tenants. Income from these activities totalled NOK 149m in 2022, compared with NOK 118m in 2021.

Operating expenses

Operating expenses amounted to NOK 6.4bn in 2022, compared with NOK 5.9bn in 2021.

NOK 5.2bn of the operating expenses in 2022 is related to the management of the Government Pension Fund Global, compared with NOK 4.6bn in 2021. See Note 13 in the notes to the financial statements for more details on the management fee received by Norges Bank under the management mandate.

The increase in expenses compared with 2021 is mainly related to personnel expenses. Other than currency effects and ordinary wage growth, developments in personnel expenses primarily reflect a non-recurring effect in 2021 resulting from a change in the accrual accounting method for performance pay, the strengthening of the organisation in the form of more employees and increased travel. These developments are offset somewhat by, for example, lower fees to external managers of the Government Pension Fund Global.

Total comprehensive income

Change in actuarial gains and losses showed a loss of NOK 0.5bn in 2022, compared with a loss of NOK 0.1bn in 2021.

Norges Bank’s total comprehensive income for 2022 showed a loss of NOK 11.1bn, compared with a profit of NOK 23bn in 2021.

Distribution of total comprehensive income

The distribution of total comprehensive income follows guidelines on the reserves and on the allocation of Norges Bank’s profit, laid down by Royal Decree of 13 December 2019 pursuant to Section 3-11, Sub-section 2, of the Central Bank Act. Total comprehensive income shall be allocated to the Adjustment Fund until the Fund has reached 40% of the Bank’s net foreign exchange reserves. Any surplus is allocated to the Transfer Fund. A third of the Transfer Fund is transferred annually to the Treasury.

Norges Bank’s net loss of NOK -11.1bn will be covered by a transfer from the Adjustment Fund of NOK -13.2bn and a transfer to the Transfer Fund of NOK 2.1bn. NOK 8.1bn will be transferred from the Transfer Fund to the Treasury. The annual transfers and allocations for 2022 were made in accordance with the guidelines.

Norges Bank’s Executive Board
Oslo, 8 February 2023

Ida Wolden Bache (sign.)
Governor / Chair of the Executive Board

Pål Longva (sign.)
First Deputy Chair

Øystein Børsum (sign.)
Second Deputy Chair

Karen Helene Ulltveit-Moe (sign.)

Kristine Ryssdal (sign.)

Arne Hyttnes (sign.)

Hans Aasnæs (sign.)

Nina Udnes Tronstad (sign.)

Egil Herman Sjursen (sign.)

Mona Helen Sørensen (sign.)
Employee representative

Truls Oppedal (sign.)
Employee representative

An account of sustainability has been prepared pursuant to Section 3-3c of the Accounting Act. The report is presented in a separate document in the Annual Report. The report on sustainability is an integral part of the Executive Board’s report.

Norges Bank’s Monetary Policy and Financial Stability Committee

The Monetary Policy and Financial Stability Committee comprises the Governor, the two Deputy Governors and two external members.

The external members are appointed by the King in the Council of State for terms of four years. The Governor chairs the Committee, and the two Deputy Governors are first and second deputy chairs.

The Committee had 21 meetings and discussed 92 items of business within its area of responsibility in 2022.

The Committee’s work structure

The Monetary Policy and Financial Stability Committee is Norges Bank’s executive and advisory authority for monetary policy and also aims to contribute to promoting financial stability. The Monetary Policy and Financial Stability Committee normally holds eight scheduled meetings a year, where policy rate decisions are made. Four of the meetings coincide with the publication of the Monetary Policy Report (MPR). The level of the countercyclical capital buffer is also set by the Committee four times a year.1

The Committee’s meeting schedule is primarily determined by the dates of the eight monetary policy meetings. Prior to the meetings that coincide with the publication of the Monetary Policy Report, the Committee normally meets three times. Prior to the meetings without a report, the Committee normally meets twice.

In 2022, the Committee held 21 meetings and two one-day seminars. The Committee discussed the monetary policy strategy, the strategy for the countercyclical capital buffer, the Financial Stability Report and liquidity management, among other things.

The administration prepares and presents relevant analyses and projections that provide the basis for the Committee’s discussions and advises the Committee on policy decisions. To ensure that the discussion basis is as far as possible the same for all the Committee members, all are provided with as much access as possible to the same information and analyses.

The Committee is committed to transparent and clear external communication. The “Monetary policy assessment”, published in connection with policy rate decisions, and the “Assessment of the countercyclical capital buffer requirement”, published in connection with the buffer decisions, reflect the view of the majority. Topics of particular concern to the members in the discussions are highlighted in the assessment. Members that disagree with the assessment of the majority may dissent, and dissenting views are published together with a brief written explanation in the minutes and in the assessment published at the same time as the rate decision. All of the Committee’s decisions were unanimous in 2022. The Committee chair, the Governor, normally speaks on behalf of the Committee. Other Committee members may issue statements by agreement with the Committee chair.

Members of the Monetary Policy and Financial Stability Committee

Ida Wolden Bache

Appointed Governor of Norges Bank from 8 April 2022 to 2028. Bache is Chair of the Executive Board and the Monetary Policy and Financial Stability Committee.

Pål Longva

Appointed Deputy Governor for the period 29 August 2022 to 2028. Pål Longva has particular responsibility for central banking operations and is First Deputy Chair of the Executive Board and the Monetary Policy and Financial Stability Committee.

Øystein Børsum

Appointed Deputy Governor for the period 2 August 2021 to 2027. Øystein Børsum has particular responsibility for the management of the Government Pension Fund Global and is Second Deputy Chair of the Executive Board and the Monetary Policy and Financial Stability Committee.

Jeanette Fjære-Lindkjenn

Appointed Committee member for the period to 31 December 2023.

Jeanette Fjære-Lindkjenn is a fellow at Housing LAB, the national centre for housing research at Oslo Metropolitan University (OsloMet). She has previously worked for DNB Markets as a macroeconomist and for Norges Bank as an analyst. Jeanette Fjære-Lindkjenn holds a degree in economics from the University of Oslo.

Ingvild Almås

Appointed committee member for the period to 31 December 2025.

Ingvild Almås holds a professorship at the Institute for International Economic Studies (IIES), Stockholm University, is Principal Investigator at the Norwegian School of Economics’ FAIR centre and International Research Fellow at the Institute for Fiscal Studies (London), Centre for Economic Policy Research (CEPR), and CESifo. She previously held a professorship at NHH. She sits on the Scientific Advisory Board for the Max Planck Institute for Research on Collective Goods in Bonn, Germany and chairs the Portfolio Board for Welfare, Culture and Society at the Research Council of Norway. In autumn 2023, Ingvild Almås will be a Cowles Foundation visiting fellow at Yale university. Ingvild Almås holds a BA in economics from the University of Oslo and a PhD in economics from the NHH Norwegian School of Economics.

Annual Report of the Monetary Policy and Financial Stability Committee for 2022

The year 2022 was marked by major shifts in the economic outlook. Owing to the post-pandemic recovery and Russia’s invasion of Ukraine, the world economy was beset by high inflation and uncertain growth prospects. When inflation in Norway accelerated in spring 2022, it became clear that the policy rate was no longer adapted to the prevailing economic situation. The policy rate was therefore raised more quickly and more markedly than the Committee envisaged at the beginning of the year.

In spring 2020, the policy rate was reduced to 0% to dampen the economic downturn caused by the Covid-19 pandemic. Economic activity rebounded in 2021, and Norges Bank started to raise the policy rate in September 2021. At year-end 2021, the policy rate was 0.5%. After the last pandemic-related restrictions were removed in 2022, activity picked up further and the labour market tightened. Inflation rose rapidly and eventually markedly overshot the 2% target. To ease the pressures in the economy and to bring inflation down towards the target, the policy rate was raised several times, to 2.75% at year-end 2022.

In autumn 2022, the Committee assessed that the outlook for financial stability was weaker than in 2021, reflecting the higher risk of an economic downturn in view of the ongoing war in Ukraine and the after-effects of the pandemic. The countercyclical capital buffer (CCyB) rate, which in March 2020 was reduced from 2.5% to 1.0%, was gradually raised again to 2.5% in the course of 2021 and 2022, with the rate fully effective from 31 March 2023. In November 2022, the Committee advised the Ministry of Finance to keep the systemic risk buffer (SyRB) for banks unchanged at 4.5%, and the Ministry followed the Committee’s advice.

Monetary policy

The global economy

The pandemic and related restrictions have caused large fluctuations in economic activity in recent years, both globally and in Norway. As most countries eased and later removed the restrictions, activity rebounded in the first half of 2021 and eventually exceeded pre-pandemic levels. The labour market improved, and wage growth began to rise.

At the same time, consumer price inflation rose markedly. In many countries, inflation reached levels not seen in decades. The rise in prices may partly reflect pandemic-related conditions. Lockdowns during the pandemic led to a shift in household consumption from services to goods. Strong demand for goods combined with production and transport bottlenecks led to rapidly rising prices for globally traded goods. Demand for commodities also picked up as the global economy recovered, and prices for energy, metals and agricultural products rose sharply.

Russia’s invasion of Ukraine in winter 2022 led to substantial uncertainty about the global economic outlook and to a further increase in energy and other commodity prices. The decline in Russian gas supply to Europe pushed up gas and electricity prices to very high levels through summer. Gas and electricity prices edged down in autumn but remained high. In the latter half of 2022, prices for a number of other commodities fell. Oil prices, which had risen to around USD 110 per barrel in summer 2022, returned to close to USD 80 per barrel at year-end, broadly the same level as one year earlier. Global supply chain disruptions appeared to ease, and global freight rates fell substantially. Towards the end of 2022, consumer price inflation appeared to have passed its peak in some countries.

High inflation and prospects that inflation would also remain high ahead pushed up policy rate expectations among Norway’s trading partners through 2022. Central banks in many countries have raised policy rates to their highest levels in more than ten years. Several central banks have raised rates by larger increments than usual.

Economic activity among Norway’s trading partners rose further in 2022, and unemployment fell to low levels. At the same time, growth prospects weakened through the year, particularly in Europe. A number of firms scaled back production in response to high energy prices, and consumption growth was expected to slow on the back of high inflation and higher interest rates.

Uncertainty about energy market developments and the global growth and inflation outlook drove substantial movements in financial markets through 2022. Long-term interest rates rose substantially in 2022, while global equity indexes edged down.

Financial conditions in Norway

The krone exchange rate showed considerable volatility through 2022. Measured by the import-weighted exchange rate index (I-44), the krone depreciated somewhat through the year. Developments reflect a more pronounced rise in interest rates among trading partners than in Norway, as well as elevated financial market uncertainty.

Households’ interest payments have risen in pace with policy rate hikes. About 85% of the increase in the policy rate since autumn 2021 has passed through to mortgage rates. The pass-through from the policy rate to deposit rates has been weaker.

Corporate bank and bond financing has also become gradually more expensive. This is because both short-term and long-term interest rates have risen at the same time as bond market risk premiums have increased. There were large movements in the Norwegian equity market through 2022, but at year-end, the Oslo Børs Benchmark Index was broadly at the same level as one year earlier.

The Norwegian economy

Activity in the Norwegian economy picked up quickly in 2021, and in autumn that same year, capacity utilisation and employment returned to pre-pandemic levels. At the beginning of 2022, activity levels once again fell slightly owing to increased infection rates and pandemic-related restrictions. However, activity picked up quickly through spring. Growth was particularly strong in the sectors affected by the restrictions. Household consumption rose more than expected. Services consumption moved up quickly and eventually returned to pre-pandemic levels.

In pace with increasing activity levels, employment rose further, and unemployment fell faster than expected. Before summer, the enterprises in Norges Bank’s Regional Network reported growing shortages of intermediate goods and difficulties covering their labour needs. The Committee’s assessment was that activity in the Norwegian economy had reached a high level and that spare capacity was limited.

Through autumn, signs appeared that the economy was cooling down. High inflation curbed household purchasing power, and consumption growth slowed. Household confidence indicators were at very low levels. Nonetheless, economic activity held up better than expected, partly owing to higher private consumption but also owing to a substantial upward adjustment of business investment through the year. At the same time, Regional Network enterprises revised down their expectations for activity ahead, and in November, enterprises on the whole expected a significant decline in output over the next six months. The labour market remained tight, but labour shortages appeared to ease. Unemployment remained low, but the number of job vacancies declined.

Chart 3 GDP for mainland Norway. Projections at different times. Index. 2019 Q4 = 100.

Sources: Statistics Norway and Norges Bank

Chart 4 Unemployment. Registered unemployment as a percentage of the labour force. 2016 Q1–2025 Q4.

Sources: Norwegian Labour and Welfare Administration (NAV) and Norges Bank

The housing market also reversed course during 2022. Strong demand and a small stock of unsold homes contributed to sustaining house price inflation through the first half of 2022, but the rise in prices slowed during summer. Through autumn, house prices fell. A large number of homes were listed for sale, and lower than normal turnover contributed to a marked upswing in the number of unsold existing homes in the market. In December, existing home prices were 1.5% higher than in the same month one year earlier.

Consumer price inflation picked up faster than expected through spring and was markedly above the target. Owing to higher imported goods inflation and rising wage growth, inflation was expected to remain above target for some time. The rise in inflation continued through summer and autumn 2022. Energy and food prices showed a particularly steep increase through 2022, but prices for a range of other goods and services also increased more than normal.

Rising inflation likely helped to lift inflation expectations. Norges Bank’s Expectations Survey shows that inflation expectations for the coming years have risen since mid-2021. At year-end 2022, long-term inflation expectations were above the 2% inflation target.

The rise in the consumer price index (CPI) was restrained by government support for household electricity bills, a scheme introduced in December 2021. Even so, annual CPI inflation for 2022 was 5.8%, which is the highest annual CPI inflation rate since 1988. The consumer price index adjusted for tax changes and excluding energy products (CPI-ATE) rose by 3.9% in 2022, which is the highest annual rise since Statistics Norway began publishing the indicator in 2001. Prices for both imported goods and domestic goods and services rose at a rapid pace.

According to Statistics Norway, annual wage growth was 4.4% in 2022. Wage growth was higher than in 2021, reflecting a very tight labour market. There were prospects that wage growth would rise further in 2023.

Monetary policy trade-offs

The operational target of monetary policy is annual consumer price inflation of close to 2% over time. Inflation targeting shall be forward-looking and flexible so that it can contribute to high and stable output and employment and to counteracting the build-up of financial imbalances.

In its discussions of the monetary policy trade-offs through 2022, the Committee gave weight to the rapid rise in consumer prices and that inflation was turning out to be markedly above the target. The inflation forecasts were revised up, and there were prospects that inflation would remain high for some time. At the same time, economic activity had risen to a high level and unemployment was low. Through spring, it became clear that the policy rate no longer reflected prevailing economic conditions. The Committee gave weight to the need for higher interest rates to ease pressures in the economy and bring inflation down towards the target. The Committee also emphasised that a faster policy rate rise would reduce the risk of inflation becoming entrenched at a high level. The pace of policy rate hikes was faster, and the hikes steeper, than projected earlier.

Consumer price inflation remained high through autumn. At the same time, there were signs of a slowdown in the Norwegian economy, and the projections for capacity utilisation ahead were revised down. The Committee gave weight to the marked rise in the policy rate over a short period of time and that monetary policy was beginning to have a tightening effect on the economy. The policy rate was raised more gradually towards the end of the year.

Chart 5 Consumer prices. Twelve-month change. Percent.

Source: Statistics Norway

Chart 6 Estimated output gap. Percent. 2016 Q1–2025 Q4.

Source: Norges Bank

In its discussion of the balance of risks, the Committee’s concerns included the considerable uncertainty surrounding the outlook and that projections were more uncertain than normal. The Committee was concerned with balancing the risk of tightening too much against the risk of tightening too little. If the policy rate was raised too little, inflation could remain high for a longer period. If households and firms begin to become used to high inflation and adjust their price and wage setting behaviour accordingly, it may then become difficult to bring down inflation again. On the other hand, if the policy rate was raised too much, economic activity could contract more than what is necessary to bring down inflation.

The projections in Monetary Policy Report 4/22 implied a policy rate of about 3% in 2023. Inflation was projected to drift down and approach the target somewhat further out. Capacity utilisation was expected to decline and remain slightly below a normal level in the coming years. Unemployment was projected to rise somewhat, albeit from a low level.

Chart 7 Consumer price index (CPI). Projections at different times. Four-quarter change. Percent.

Sources: Statistics Norway and Norges Bank

Financial stability

The Committee is tasked with promoting financial stability through providing advice and using the policy instruments at its disposal. Since 10 September 2021, Norges Bank has had decision-making authority for the countercyclical capital buffer (CCyB) and formal advisory responsibility for the systemic risk buffer (SyRB) for banks. The CCyB is designed to strengthen banks’ solvency and mitigate the risk that banks’ lending standards amplify an economic downturn. The CCyB should reflect cyclical vulnerabilities in the financial system and should be lowered if a downturn will or could cause a marked reduction in credit supply. The SyRB rate should reflect the assessment of structural vulnerabilities. Structural vulnerabilities are persistent features of the financial system that change rarely or little from year to year. These two buffer requirements constitute a substantial portion of banks’ total capital requirements. The Committee sets the CCyB rate each quarter and provides advice on the SyRB at least every other year, for the first time in 2022.

Residential and commercial property prices rose sharply during the pandemic, and household credit growth accelerated. Property price inflation was more moderate in the second half of 2021, but house price inflation picked up again and was high at the beginning of 2022. On the whole, the assessment of cyclical vulnerabilities was approximately the same as before the pandemic. In March 2022, the Committee decided to raise the CCyB from 2% to 2.5%, effective from 31 March 2023, a decision that the Committee maintained in June and September 2022.

In Financial Stability Report 2022, which was published in November 2022, the assessment was that the ongoing war in Ukraine and the after-effects of the pandemic had increased the risk of an economic downturn, and the financial stability outlook had therefore weakened since the previous report in November 2021. The Committee judged that the Norwegian financial system had so far weathered the substantial volatility in financial markets well. Solid profitability, capital adequacy and liquidity ensured that banks had ample capacity to absorb losses and deal with market stress. The economic outlook was surrounded by substantial uncertainty. The Committee expected that banks’ profitability would remain solid but judged that the risk of losses had risen.

High indebtedness in many households, banks’ large commercial real estate exposures and the fact that one bank’s funding is another bank’s liquidity reserves are key structural vulnerabilities in the Norwegian financial system. In addition, major cyber attacks can threaten financial stability. The Committee’s assessment in November 2022 was that structural vulnerabilities were at approximately the same level as when the SyRB requirement was increased to 4.5% in 2020. In the Committee’s assessment, the SyRB requirement should be maintained at the same level. In the aggregate, the buffer requirements help to ensure that Norwegian banks hold sufficient capital. In December, the Ministry of Finance decided to keep the SyRB unchanged at 4.5%, in line with the Committee’s advice.

Chart 9 Household debt ratio and interest burden. Debt as a share of disposable income and interest expenses as a percentage of after-tax income. Percent. 1980 Q1 – 2025 Q4.

Sources: Statistics Norway and Norges Bank

In autumn 2022, property prices fell. Household credit growth slowed, while corporate credit growth remained elevated. Creditworthy households and firms appeared to have ample access to credit, even though there were some signs of tighter bank lending standards. Against this background, the Committee decided to keep the CCyB rate at 2.5% in December 2022.

In 2022, the Committee discussed a number of responses to consultations on banking regulation. In October, Norges Bank provided input to Finanstilsynet (Financial Supervisory Authority of Norway) with a recommendation to retain the floors for IRB banks’ average risk weights for residential mortgage and commercial real estate loans. This was partly because financial system vulnerabilities were at broadly the same level as when the risk-weight floors were introduced. In December, the Ministry of Finance decided to retain the risk-weight floors.

In November, Norges Bank responded to the Ministry of Finance’s consultation on retaining the regulation of banks’ lending standards. Norges Bank expressed the view that requirements for prudent lending should be regarded as a permanent structural measure and should not be changed frequently. In the response, Norges Bank expressed the view that the regulation could be retained without amendments, but that a broad review of the Lending Regulation should be conducted before it expires in 2024 to partly reflect experience with higher interest rates in the period ahead. In December, the Ministry of Finance decided to retain the regulation but changed, among other things, the requirement relating to the maximum rise in interest rates borrowers must be able to tolerate.

In Financial Stability Report 2022, the Committee also noted a need for financial institutions to ensure that they are well equipped to assess and mitigate climate risk. Banks’ exposures to the sectors with the highest greenhouse gas (GHG) emissions are modest, but other firms will also be affected by the climate transition. Well-functioning financial markets are vital for financing investment that can mitigate climate change. Adequate information about climate risk is also important.

Norges Bank’s Monetary Policy and Financial Stability Committee
Oslo, 8 February 2023

Ida Wolden Bache (sign.)
Governor / Chair of the Executive Board

Pål Longva (sign.)
First Deputy Chair

Øystein Børsum (sign.)
Second Deputy Chair

Ingvild Almås (sign.)

Jeanette Fjære-Lindkjenn (sign.)

3. Sustainability

Work on sustainability at Norges Bank

Our work on sustainability is an important part of our mission.

We must understand how climate change and the energy transition affect different parts of the economy in order to make sound assessments of the economic outlook and balance of risks.

In its management of the Government Pension Fund Global, Norges Bank’s objective is to achieve the highest possible return within the limits of acceptable risk. The fund’s long-term return depends on a sustainable economy, well-functioning markets and good corporate governance. Through responsible investment, Norges Bank seeks to add long-term value to its investment portfolio and reduce the financial risk from environmental and social issues associated with the companies in which we invest.

Sustainability strategy

Norges Bank’s sustainability strategy is divided into three main areas with specified objectives for each area. The full strategy is published on Norges Bank’s website.

Climate and the environment

• Norges Bank is committed to working to reduce emissions from its own operations in line with the ambitions of the Paris Agreement.
• Norges Bank will be an active owner and a driving force for investee companies to achieve net zero emissions by 2050.
• Norges Bank will increase its understanding of the impact of climate change and energy transition.

Society and social conditions

• Norges Bank will promote a culture of diversity, inclusion and equal opportunities.
• Norges Bank will promote professional development so that staff enjoy their work, are challenged and gain the skills necessary to meet new challenges.
• Norges Bank will promote human and workers’ rights through responsible investment and in its procurement processes.

Corporate governance, ethics and culture

• Norges Bank will enable its employees and partners to make sustainable choices.
• Norges Bank will report on its sustainability work in line with best practice.
• Norges Bank will support the development of standards for well-functioning markets, good corporate governance and responsible business practices.

Climate and the environment

The impact of climate change and the need to reduce emissions are increasingly influencing the global economy and therefore also how Norges Bank has worked on its core tasks over the past year.

By increasing its understanding of the effects of climate change and the energy transition, Norges Bank will be better poised to achieve the objectives of price stability, high and stable employment, and financial stability.

The climate-related risks for the Government Pension Fund Global arise from uncertainty surrounding the effects of climate change on the fund’s investments, and how companies and the authorities will adapt to, and take into account these effects. In 2022, Norges Bank presented the 2025 Climate action plan for work on climate risk in the Government Pension Fund Global. The plan followed up changes in the investment management mandate issued by the Ministry of Finance, which set a responsible management target inciting companies in the investment portfolio to align their operations with global net zero emissions in line with the Paris Agreement.

The Task Force on Climate-related Financial Disclosures (TCFD) has developed a framework for climate risk reporting. Norges Bank supports the intention behind the recommendations of the TCFD and believes that the TCFD framework can contribute to more universal and consistent reporting across jurisdictions. Appendix 1 provides an overview of Norges Bank’s status for 2022 in accordance with the recommendations in the TCFD framework.

Work on climate and climate risk in central banking operations

The shift to a low-carbon economy and the required energy transition entails major changes for the Norwegian economy. Efforts to strengthen our understanding of these effects are a priority area in Strategy 25.1

In 2018, Norges Bank became a member of the Network for Greening the Financial System (NGFS), a network for central banks and supervisory authorities. The network facilitates sharing experiences and best practice, performing analyses and designing methods for managing environment and climate risk relevant to financial authorities and the financial sector. Norges Bank will maintain its close cooperation with international organisations such as the NGFS, the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and other central banks to strengthen a common understanding of the macroeconomic effects of climate change.

Climate and monetary policy

The policy rate is not a suitable instrument for influencing the climate, but monetary policy assessments can be influenced by the effects of climate-related conditions on the Norwegian economy. For example, multiple droughts have contributed to the rise in global food prices over the past year, while the energy crisis in Europe, mainly caused by the war in Ukraine, has been exacerbated by factors related to both the weather and the climate transition. In Norway, new green industrial projects are boosting investment. At the same time, the transition to a low-carbon economy may increase uncertainty regarding future revenues and investments in the petroleum industry. In the longer term, the structure of the Norwegian economy will also change.

In order to increase knowledge about how climate-related changes affect the Norwegian economy, Norges Bank has, over the past three years, asked companies in its Regional Network how they are affected by climate-related factors. The climate transition is essentially an energy transition. Norges Bank therefore analyses the energy market in particular, see, eg Monetary Policy Report 3/22.

Climate risk and financial stability

An important component of Norges Bank’s mission is to promote a robust financial system. A rapid and abrupt transition may entail a risk to financial stability. The transition to a low-carbon economy and new regulations involves a transition risk for the Norwegian economy in the years ahead.

Financial institutions must ensure that they are well equipped to assess and manage climate risk. High-emission sectors will face the greatest need for restructuring and are therefore most exposed to transition risk. Analyses published by Norges Bank in 2021 indicate that Norwegian banks’ direct exposure to firms vulnerable to higher carbon prices is moderate.

Well-functioning financial markets are crucial for financing investments that can meet climate-related changes. Reliable information on climate risk is also decisive. In 2022, high energy costs were in focus. Norges Bank’s analyses show that increased energy labelling of buildings is necessary for banks to make sound risk assessments.

Going forward, Norges Bank will continue to conduct quantitative assessments of climate risk for Norwegian banks and participate in international work concerning new reporting requirements.

See further discussion in Financial Stability Report 2022.

Climate risk in the foreign exchange reserves

The Executive Board’s decisions on responsible investment principles and Norges Bank’s sustainability strategy are part of the framework for the management of the foreign exchange reserves, including the management of climate-related issues and climate risk.

The foreign exchange reserves consist of a fixed income portfolio and an equity portfolio. The fixed income portfolio is intended to ensure that the foreign exchange reserves are sufficiently liquid for contingency purposes and for Norges Bank to fulfil its international obligations. The fixed income portfolio therefore consists of cash and liquid government bonds. Climate-related issues have therefore had little impact on the composition of the fixed income portfolio. Green bonds are included in the investment universe if they otherwise meet established criteria.

The equity portfolio of the foreign exchange reserves is managed according to the same principles and responsible investment strategies as the equity investments in the Government Pension Fund Global. This means that the 2025 Climate action plan for the Government Pension Fund Global, including the target for companies to adjust their operations for compliance with global net zero emissions by 2050, also applies to the equity portfolio in the foreign exchange reserves.

Based on the percentage holdings in each company, total emissions for the foreign exchange reserves’ equity portfolio amounted to 864.323 tonnes of CO₂ equivalent in 2022. Carbon intensity, ie emissions in tonnes of CO₂ equivalent per million USD in revenue, was 128 tonnes of CO₂ equivalent per million USD in 2022.

Work on climate risk in the Government Pension Fund Global

Managing climate risk is one aspect of responsible management of the Government Pension Fund Global. This is further described in the report Responsible investment – Government Pension Fund Global.

The 2025 Climate action plan describes measures to manage climate risk to be implemented in the period 2022-2025. These are targeted at improving market standards, including the framework for climate reporting, strengthening portfolio climate risk resilience and effectively engaging with portfolio companies. At the heart of this effort lies the aim of driving the Government Pension Fund Global’s portfolio companies towards net zero emissions by 2050, and for them to set credible targets and plans for reducing their direct and indirect GHG emissions (Scope 1, 2 and 3). At the end of 2022, 17% of the portfolio companies had set net zero 2050 targets based on recognised standards such as the Science Based Targets initiative (SBTi) or similar standards. If emissions are weighted, about 56% of the emissions (Scope 1 and 2) of the portfolio companies are covered by such targets. Given rapid developments with regard to both the companies’ objectives and recognised methods, these figures are fraught with uncertainty.

In accordance with the management mandate, the 2025 Climate action plan also calls for increased climate risk reporting in the portfolio. The reporting is to be developed in line with leading international standards and incorporated into the fund’s responsible investment reporting, for example with a separate appendix with TCFD information. The fund’s responsible investment report presents analyses and stress tests against various climate scenarios, including a scenario consistent with global warming of 1.5 degrees.

Norges Bank has measured and published the carbon footprint of companies in the equity portfolio and the benchmark index since 2014, based on reported and modelled data for Scope 1 and 2 emissions. Carbon footprint analyses provide insight into the level of GHG emissions generated by portfolio companies. Moreover, the analysis can bring to light risks and opportunities across industries. GHG emission reporting still varies in frequency and quality. Consequently, because many companies still do not report emission figures, large parts of the fund’s carbon footprint are calculated using models.

Norges Bank has begun aligning its reporting of the Government Pension Fund Global’s carbon footprint with guidance from the Partnership for Carbon Accounting Financials (PCAF). Norges Bank has measured so-called financed emissions, the companies’ emissions weighted by the fund’s share of their enterprise value, in 2022 for the equity and corporate bond portfolio and the benchmark index. The financed emissions in 2022 were 51.7m tonnes of CO₂ equivalent, which is 15% lower than the corresponding figure for the benchmark index. Based on percentage ownership interests in the individual companies, total emissions in the fund’s equity portfolio amounted to 87.4m tonnes of CO₂ equivalent in 2022. As previously, the carbon footprint figures publicly disclosed by Norges Bank will consist of reported and estimated emission data from a single source, – S&P Global Trucost – to ensure internal consistency in the data set, as recommended by PCAF.

The companies in the fund’s equity portfolio emitted 135 tonnes of CO₂ equivalent per million USD in revenue. This is referred to as the carbon intensity of the equity portfolio. In 2022, it was 12% lower than for the benchmark index. The corporate bond portfolio’s carbon intensity was 13% lower than the carbon intensity benchmark index.

Norges Bank’s understanding of the effects climate change has on the global economy and financial markets will continue to improve in the future. At the same time, governments will introduce new regulations, new technological advances will be seen, consumer preferences will change, and companies will adapt their strategies accordingly. These developments will influence the fund’s climate risk. Ultimately, the fund’s climate risk depends on government measures that provide an orderly and predictable climate transition, and on companies’ ability to achieve their net zero emission targets.

Work on climate risk in real estate management in the Government Pension Fund Global

Real estate investments have a long time horizon. Norges Bank enters into long-term leases and makes decisions on renovation and improving the buildings Norges Bank owns. Climate change considerations are therefore key. Norges Bank’s real estate portfolio is exposed to both physical climate risk such as extreme weather, gradually rising sea levels and flooding that may lead to direct damage or building closures and transition risk, such as a statutory reduction of energy consumption or lower demand for buildings with high emissions. A growing number of tenants are setting net zero emission targets for their own business operations, which lead them to favour energy-efficient buildings powered by renewable energy sources.

The 2025 Climate action plan sets a target of net zero emissions by 2050 for the real estate portfolio, and a 40% reduction for Scope 1 and Scope 2 emissions by 2030. To achieve these goals, Norges Bank will seek to reduce emissions in the real estate portfolio and integrate climate risk assessments into investment processes.

Norges Bank measures progress towards the goal of net zero emissions in the real estate portfolio using research-based emission pathways consistent with global warming of 1.5 degrees for various real estate markets, developed by the Carbon Risk Real Estate Monitor (CRREM). Based on 2021 data, 26% of the real estate portfolio was aligned with these emission pathways. In addition, Norges Bank applies the global norm for sustainable real estate management Global Real Estate Sustainability Benchmark (GRESB). In 2022, the fund’s real estate portfolio achieved a total point score of 81 out of 100. In addition, 82% of the fund’s portfolio of office and retail buildings had green certifications at the end of 2022.

Climate impact on Norges Bank’s operations

Norges Bank’s ambition is to reduce emissions from its own operations in line with the Paris Agreement and work systematically to implement measures to reduce these emissions. Norges Bank will work systematically on measures to reduce its own emissions.

Norges Bank prepares an annual calculation of its carbon footprint for its own operations in accordance with the standard set by the Greenhouse Gas Protocol Initiative (GHG protocol) and the Eco-Lighthouse. The climate accounts include direct and indirect carbon emissions (Scope 1, 2 and 3).

Table 2 Annual carbon footprint for Norges Bank’s operations.

1 Includes the gases: CO₂, CH₄, N₂0, HFC_S, PFCS, SF₆ and NF₃. Norges Bank primarily uses emission factors from DEFRA (UK Department for Environment, Food and Rural Affairs) and CEMAsys.

2 Norges Bank has selected 2019 as a reference year. This is the last year with normal activity with reliable underlying data.

3 Norges Bank’s carbon footprint include Norges Bank offices where the Bank has operational control in Oslo, London, New York, Singapore and Shanghai.

Air travel was the largest source of emissions, accounting for 85% of total emissions. The decrease in emissions from 2019 to 2021 is largely due to the Covid-19 pandemic. In 2022, travel activity increased. In the period ahead, targets and measures will be assessed on how to reduce the carbon footprint of Norges Bank’s official travel.

Norges Bank is working to reduce emissions from energy consumption at Norges Bank’s offices. At Norges Bank’s head office at Bankplassen 2, ventilation units and other technical installations have been replaced by more energy-efficient alternatives in recent years. In the same vein, measures to reduce energy consumption related to lighting, ventilation and heating systems have been implemented. Climate-related work is key to the ongoing upgrade programme deployed at the head office, and equipment will be replaced with more energy-efficient alternatives. At Norges Bank’s offices abroad, where Norges Bank is a tenant, action has been taken to reduce energy consumption from lighting and indoor temperatures have been adjusted.

The carbon accounts evolve over time by including an increasing number of sources, such as emissions from the operation of data centres. Norges Bank requires data centres to be constructed and operated in an eco-friendly manner to ensure efficient resource utilisation and use of renewable sources.

Norges Bank’s head office at Bankplassen 2 is Eco-Lighthouse certified, which provides access to tools that support the Bank in measuring and improving environmental performance. In 2022, the Bank included new industry-specific criteria for banking and finance. These criteria mainly apply to responsible investment topics.

Society and social conditions

Norges Bank is committed to being a transparent central bank. Broad knowledge of Norges Bank’s work, tasks and responsibilities is important for building public trust. Norges Bank will attract, develop and retain highly skilled and motivated employees. The Bank promotes job satisfaction, stimulating work and the expertise necessary to meet new challenges.

At the end of 2022, Norges Bank had 1 007 permanent employees. Of these, 572 were employed in Norges Bank Investment Management, 272 in Norges Bank Central Banking Operations, 156 in Norges Bank Administration and seven employed in the Office of the Supervisory Council. Norges Bank is a global organisation in which 45% of our employees work at offices in London, New York, Singapore and Shanghai, as well as at subsidiaries represented in London, Paris, Luxembourg and Tokyo.

A transparent central bank

In 2022, as society reopened following lockdown, prominence was given to talks and lectures. The executive management and subject matter experts from Norges Bank Investment Management and the central bank have held a number of lectures for various target groups. Special efforts were made to reach students and meet the public in new arenas. In addition to this, Norges Bank seeks to visit all regions of Norway every year. In 2022, the Bank also participated in KÅKÅnomics, an annual Nordic economics event held in Stavanger, as well as Arendalsuka, an annual week of events for leaders in politics and business, the media and the public held in the city of Arendal. Following the policy rate decision in August, the Bank organised a press conference in Arendal that was open to the public. In November, the Bank also held a press conference following the policy rate decision taken at an interim monetary policy meeting.

Through the Norges Bank and Norges Bank Investment Management websites, Norges Bank seeks to communicate clearly with both the Norwegian people and international target groups. Norges Bank continually seeks to share information of potential interest to the general public and publishes a number of reports and publications on topics within the fields of economics and finance.

Social media and the blog “Bankplassen” are an important part of Norges Bank’s transparency strategy. In 2022, Norges Bank Investment Management launched the podcast “In Good Company”, where Nicolai Tangen interviews senior executives of some of the largest companies in the fund’s portfolio. The purpose is to offer the Norwegian people, who are the owners of the fund, deeper insight into companies the fund is invested in. By the same token, the intent is to provide an opportunity for the Norwegian people to become acquainted with the managers of these companies.

Norges Bank’s research community is the link between the Bank and academia. Thus, in 2022, researchers at Norges Bank maintained extensive contact with researchers from universities and other central banks through joint research projects and presentations of ongoing work at national and international conferences, as well as at seminars. In 2022, eight articles written by researchers at Norges Bank were approved for publication in peer-reviewed journals.

Collaborations and initiatives

Norges Bank engages in extensive international cooperation. In addition to formalised international cooperation, Norges Bank maintains regular contact with the Nordic central banks, the European Central Bank (ECB) and other central banks to favour information- and knowledge-sharing.

International Monetary Fund (IMF)

Norges Bank manages Norway’s rights and obligations related to Norway’s participation in the IMF. The Governor of Norges Bank is the Norwegian government’s representative in the IMF’s highest decision-making body, the Board of Governors. The main source of financing for IMF loans is member countries’ quotas, which all member countries are obligated to pay to the IMF. Norges Bank has a standing obligation to make foreign exchange available in an amount equivalent to Norway’s quota to finance IMF lending. Furthermore, Norges Bank makes foreign exchange reserves available to the IMF in the form of agreed drawing rights. By agreement, Norges Bank advises the Ministry of Finance on Norway’s position in matters submitted to the IMF’s Executive Board.

Technical assistance to the Bank of Mozambique

Norges Bank has since 2017 provided technical assistance to the Bank of Mozambique with the aim of contributing to the modernisation of the central bank’s functions. The assistance covers all aspects of central banking and is provided in cooperation with the IMF and financed by the Ministry of Foreign Affairs.

Bank for International Settlements (BIS)

Norges Bank is a co-owner of the BIS, whose main task is to foster cooperation among central banks. The BIS provides banking services for central banks, prepares analyses and statistics. Moreover, the BIS organises meetings and discussions between member central banks. The Governor of Norges Bank regularly takes part in BIS meetings. In 2021, the BIS Innovation Hub Nordic Centre was established in Stockholm, a collaboration between the BIS and the central banks of Sweden, Norway, Denmark and Iceland. The centre will place specific importance on analysing financial innovations of significance to central banks.

Network for greening the financial system (NGFS)

Norges Bank has been a member of the NGFS since December 2018. The NGFS is a network for central banks and supervisory authorities that aims to increase knowledge about methods financial authorities and the financial sector may employ to take account of climate risk and the environment.

Participation in EU supervisory work

Norges Bank is a member of the European Systemic Risk Board (ESRB), but without the right to vote. The ESRB identifies and analyses threats to financial stability in the EU and seeks to limit systemic risk by providing recommendations on good policy and issuing warnings about adverse developments. The Governor of Norges Bank is a member of the ESRB’s highest decision-making body, the General Board. Finanstilsynet (Financial Supervisory Authority of Norway) is a non-voting member of the European Banking Authority (EBA), the European regulatory authority for banking supervision. Norges Bank accompanies Finanstilsynet to meetings of the Board of Supervisors, which is the main decision-making body of the EBA.

Financial Stability Board (FSB)

Norges Bank, the Ministry of Finance and Finanstilsynet are members of the FSB’s Regional Consultative Group for Europe (RCGE). The Governor is Norges Bank’s representative. The FSB is a G20 body that prepares analyses and assessments of financial matters included in the body’s various processes. The RCGE is a group for the exchange of information and views between European countries within and outside the G20.

Organisation for Economic Co-operation and Development’s (OECD) Committee on Financial Markets (CFM)

Norges Bank and the Ministry of Finance are members of the OECD’s CFM. The Committee works to promote efficient, open, stable and sound financial systems through analyses and political dialogue.

Nordic-Baltic cooperation on financial market issues

Norges Bank participates in the Nordic-Baltic Macroprudential Forum (NBMF) and in the Nordic-Baltic Stability Group (NBSG). In the NBMF, central banks and supervisory authorities discuss issues related to systemic risk and cross-border banking in the region. More precisely, the NBSG’s main task is to strengthen preparedness for handling cross-border threats to financial stability in the region. The Nordic finance ministries also participate in this group.

Norges Bank Academic Programme

The objective of the Academic Programme is to promote macroeconomic and financial economic research and education in Norway. The programme is coordinated jointly by Norges Bank Central Banking Operations and Norges Bank Investment Management. It consists of three programmes: PhD Scholarship programme, co-financing for hiring and co-financing of PhD-courses.

Government Pension Fund Global

In its management of the Government Pension Fund Global, Norges Bank supports initiatives whereby companies or investors join forces to find common standards for sustainable business conduct. Such initiatives work best when many companies in a particular industry or value chain face the same challenges. Our initiatives look at challenges such as supply chain management and reporting.

Norges Bank supports and initiates research projects to understand and contribute to better market standards. Norges Bank works with academic institutions to learn from the latest research and obtain analyses that may be relevant to its investment strategy, risk analyses and ownership. In 2022, Norges Bank supported two research projects about climate risk and three projects on corporate governance and ownership structure.

Diversity, equity and inclusion

Norges Bank aims to be recognised as a leading institution in its field of expertise and believes that increased diversity and inclusion make us better. More precisely, the Bank considers that diversity adds perspectives, stimulates creativity and improves decision-making. Norges Bank has committed to the Women in Finance Charter and works systematically to achieve gender balance.

Norges Bank aims for a gender balance reaching at least 40% for the Bank as a whole, and likewise has a long-term goal of gender balance at management level and specialist functions of 40%.

Norges Bank works systematically to identify the risk of discrimination or other barriers to equality through HR data development, staff surveys, performance appraisals and HSE work. In the strategy period ahead, The Bank will pursue and strengthen the work on specifying goals and measures pertaining to diversity, equity and inclusion.

Employees and gender balance

Norges Bank staff is composed of a total of 39 different nationalities, 11 in Norges Bank Central Banking Operations, nine in Norges Bank Administration and 35 in Norges Bank Investment Management. The share of women in Norges Bank at the end of 2022 was 35%. This represents an increase from 34% in 2021 and 33% in 2020. The share of women in Norges Bank Investment Management was 29% in 2022, which is an increase from 27% in 2021 and 25% in 2020. In Norges Bank Central Banking Operations, the share of women was 35% in 2022, which represents an increase from 34% in 2021 and 33% in 2020. In Norges Bank Andministration, the share of women has remained stable in recent years, at 57% in 2022, 58% in 2021 and 57% in 2020.

Table 3 Share of women and men per job category at Norges Bank’s head office in Oslo.1

1 In 2022, the job categories analyst and chief analyst were established in the framework for job categories across Norges Bank Central Banking Operations, Norges bank Administrasjon and Norges Bank Investment Management. Previously, these were included in the categories adviser and special adviser, which will therefore entail a change to the job category sample for 2022.

Over the past year, the balance between women and men has improved for a number of job categories and Norges Bank will continue its efforts to increase the share of women in middle management positions by both internal promotion and external recruitment. Norges Bank will work systematically towards a better gender balance at all levels of the Bank. This will be achieved for example by succession planning, setting specific development plans for individual employees, strengthening recruitment processes and improving the reputation management in the candidate market.

The candidate market is still under pressure and particularly challenging for IT positions. Nevertheless, the market appears to show a tendency towards seeking greater security through employment in the public sector. In 2022, Norges Bank climbed more than ten ranking places among the employed in Universum’s ranking of Norway’s most attractive IT positions. This is the second year in a row that Norges Bank has climbed more than ten places and demonstrates that the reputation management work is showing results. In Norges Bank Central Banking Operations and Norges Bank Administration, the gender distribution among applicants in 2022 was 62% men and 38% women, of which 56% men and 44% women were hired. The corresponding figures for Norges Bank Investment Management were 70% men and 24% women among applicants (6% did not wish to disclose), of which 65% men and 35% women were hired.

Diversity has also been important in Norges Bank Investment Management’s 2022 graduate programme. In addition to seeking diversified skills backgrounds, candidates were also sought from diverse socioeconomic and minority backgrounds. In 2022, 16 graduates were recruited, of which 63% were men and 37% were women with varied backgrounds, experience and with education from different educational institutions nationally and internationally. Of these, 56% were Norwegian nationals, 38% had dual nationality and 13% had other nationalities. Furthermore, 30 interns were recruited to Norges Bank Investment Management’s summer internship programme in 2022, of which 60% were men and 40% were women. This was an increase from 25 interns in 2021, of which 64% were men and 36% were women. In Norges Bank Central Banking Operations and Norges Bank Administration, student internships are used actively in various areas. At the end of 2022, there were 33 student internships, of which 52% were women and 48% were men.

A network initiative for female employees has been established in Norges Bank Investment Management with the aim of building and strengthening relationships, as well as creating an arena for personal development, knowledge and experience-sharing globally and within each location.

Gender balance

Salary and compensation schemes

The Executive Board sets the limits for Norges Bank’s salary and compensation schemes and monitors how they are put into practice. The wage level is expected to be competitive, but not market-leading.

Salaries are set on an individual basis and reflect the position holder’s level of responsibility, qualifications, experience and performance. The table below shows the breakdown of the gender balance, fixed salaries and total pay in different job categories at the end of 2022 at the head office in Oslo. Total pay includes fixed salary, performance pay and overtime pay. All employees working on investment decisions are eligible for performance pay. For privacy reasons, there must be at least five of each gender per job category to be able to publish pay data. Privacy considerations do not allow survey results to be shown for certain job categories or for the Bank’s offices abroad.

Differences in salary between men and women can be observed, reflecting a preponderance of men in positions involving investment decisions. Positions with investment responsibility generally offer higher salaries in the market compared with positions at the same level in other areas. In both operational areas, overtime pay also has an effect on the figures for total pay. In 2022, men were generally seen to have worked relatively more overtime than women.

Table 4 Salaries for fixed salary employees in different job categories at Norges Bank Oslo.

Table 5 Salaries for employees’ total pay in different job categories at Norges Bank Oslo.

Table 6 Salaries for employees’ fixed salaries in different job categories within Norges Bank Central Banking Operations (NBCBO) and Norges Bank Administration (NBA).

Table 7 Salaries for employees’ total pay in different job categories within Norges Bank Central Banking Operations (NBCBO) and Norges Bank Administration (NBA).

Table 8 Salaries for employees’ fixed salaries in different job categories within Norges Bank Investment Management.

Table 9 Salaries for employees’ total pay in different job categories within Norges Bank Investment Management.1

1 Analyst and chief analyst job categories were new in 2022, which entails changes in the job category sample of employees and the analysis of adviser and special adviser job categories.

Recruitment

Norges Bank works systematically to attract and recruit the most talented candidates from the foremost academic communities nationally and internationally. Recruitment across nationality, gender, age, background, knowledge and expertise gives rise to a variety of experiences and contrasting perspectives, reflecting the goal of greater diversity in the Bank.

The recruitment process is an important part of promoting diversity. Job advertisements are designed to attract diverse candidates, and external recruitment agencies are required to comply with diversity requirements. Checkpoints have been established in the interview process to ensure that candidates are treated on an objective and fair basis, and guidelines for wage determination and wage reporting ensure equal treatment irrespective of gender and background. When selecting candidates, managers are made aware of the danger of “unconscious selection”. All recruitments must be processed and approved by the Co-determination and Personnel Committee, where management and trade union representatives sit.

In its efforts to achieve a gender balance target of at least 40%, Norges Bank is working to make female employees more visible so that they may act as role models in various arenas. Moreover, female employees across the organisation are encouraged to apply for senior positions internally.

By means of the Knowledge Centre, corporate presentations and lectures at schools, universities, and in relevant networks, Norges Bank seeks to increase awareness about the Bank among students and school pupils. Through the Norges Bank Teaching Initiative and NBIM Teach, Bank employees give lectures at universities on economics, finance and technology. Furthermore, Norges Bank holds an annual nationwide case competition for students. The purpose of the competitions is to stimulate students and school pupils by offering insight into economic issues within central banking operations’ core tasks. A new initiative was launched in 2022, Case NM Junior, a separate national championship in economics for upper-secondary school pupils in Norway who are given the choice between competing on the subjects of monetary policy or investment management.

Career development and succession planning

Norges Bank shall facilitate a development process emphasising the employee’s potential, creating engagement and a sense of belonging.

Norges Bank believes in the value of lifelong learning. In 2022, particular focus was placed on learning through digital platforms and leadership development. Employees can apply for residency and further education at educational institutions. Moreover, the Bank has a scheme whereby employees gain experience by working temporarily in other Norges Bank departments and locations. Some employees are offered the opportunity for secondment to other central banks and relevant institutions.

Norges Bank works strategically with development and succession planning to safeguard diversity and gender balance in senior and management roles. Succession planning is carried out in meetings with the management teams and provides a good opportunity to take account of employee expertise and experience across all departments.

Flexibility

Surveys conducted by Norges Bank reveal that flexibility has proven to be an important factor when recruiting and retaining staff. Norges Bank facilitates flexible working arrangements and adjusts to varying needs throughout staffs’ career paths. In 2021, the Bank introduced a trial scheme offering staff the possibility to work from home up to two days a week. In 2022, the Bank decided to continue this scheme.

Most Norges Bank employees have signed full-time contracts, with the exception of a few employees at the Bank’s training and conference centre and various forms of hourly paid work. The majority of temporary employees at Norges Bank have signed contracts in connection with research and a degree of hourly paid work. If employees aspire to work part-time during periods of employment, they must apply for one year at a time. Thus, Norges Bank does not consider that involuntary part-time work is not seen as an issue at the Bank.

Norges Bank offers gender-neutral parental leave of 16 weeks, which is in addition to 10 weeks of maternity leave for employees at all the Bank’s offices abroad. The Bank also facilitates a gradual transition to retirement when requested. Through its retiree consultant scheme, Norges Bank can retain experienced workforce and support employees in their desire to take part in working life, even after the transition to retirement.

Table 10 Share of temporary employees, employees on parental leave and part-time employees in Oslo.

1 Number of weeks taken out in the financial year and not the number of weeks the employee has taken out in total.

Health, Safety and the Environment

Through the annual staff survey, the Bank measures employee engagement, well-being and health, and maps incidents related to discrimination and undesirable behaviour. Results and measures are presented and monitored annually in management groups as well as in the Working Environment Committee, which consists of both management and employee representatives. The results of the survey and measures are followed up by managers in dialogue with their employees. HR provides support to managers and employees when needed.

In 2022, Norges Bank worked actively to maintain a good psychosocial working environment. Throughout the year, several initiatives were specifically aimed at methods for managers and employees to ensure a positive working environment, the implications of psychological safety for the working environment, as well as techniques to identify bullying and harassment risks. All employees have been trained to show mutual respect, to be inclusive, to actively listen to different perspectives and to exchange constructive feedback. Various initiatives relating to the themes of mental health and stress management have also been made available to employees.

Norges Bank cooperates closely with the occupational health service and in 2022 has worked on the further development of systematic HSE work. To reduce the risk of musculoskeletal disorders, the occupational health service has been engaged in the ergonomic adaptation of the workplace in both the office and home office. The Bank also offers a wide range of fitness activities and has provided facilities to enable employees to cycle to work. In the ongoing upgrade of the head office, the focus is on improving the indoor climate and increasing flexible working arrangements.

Norges Bank’s safety representative service, with safety representatives and chief safety representatives, carry out the important work of safeguarding employees’ interests relating to working environment matters. They are consulted during the planning and follow-up of measures that are important for the working environment.

Sickness absence at Norges Bank is stable at a low level, and was 2.3% in 2022, an increase from 1.7% in 2021. The Inclusive Working Life Agreement now covers all workplaces in Norway, and the Bank supports efforts to prevent sick leave. Norges Bank has continued the policy of additional self-certified sick leave for employees in line with the guidelines in the Inclusive Working Life Agreement.

In 2022, 12 HSE-related incidents related directly to work in Norges Bank’s office premises, courses or conference centres were reported. No injuries or accidents have been sufficiently severe to require reporting to the Norwegian Labour Inspection Authority in 2022.

Cooperation with the trade unions

The relationship between Norges Bank’s management, the employees and their elected representatives is to be built on dialogue, trust and mutual respect. The Bank’s management maintains close contact with trade unions, including the Co-determination and Personnel Committee, the Working Environment Committee and regular contact meetings with trade union representatives at several levels of the Bank. Two employee representatives attend Executive Board meetings when administrative matters are on the agenda.

Corporate governance, ethics and culture

The ethical principles state that Norges Bank shall maintain high ethical standards, respect human rights, act socially responsible and comply with applicable laws and regulations. The rules include, among other elements, employees’ own-account trading, activities outside the Bank, gifts, and loyalty to the Bank in general. In autumn 2022, the Executive Board reviewed and updated the ethical principles for employees.

The Ministry of Finance has laid down its own rules on impartiality for members of Norges Bank’s Executive Board and members of the Monetary Policy and Financial Stability Committee. The Executive Board has adopted its own additional rules on, among other things, impartiality and restrictions concerning own-account trading for the external members of these two bodies.

Norges Bank has zero tolerance for all forms of corruption. An anti-corruption framework and programme has been established that includes executive-level support, risk management, ethical rules, processing of whistleblowing reports, procurement procedures, background checks of staff and suppliers, financial reporting and systematic training and control. In 2022, 580 employees in Norges Bank Investment Management took part in training focusing on addressing conflicts of interest and anti-corruption. In 2022, there were no confirmed incidents related to corruption.

Norges Bank attaches considerable importance to training and raising awareness of the most significant ethical risk areas. Measures include introductory courses, one-to-one training, an annual test and confirmation from all employees that they have reviewed the ethical principles.

The Executive Board has laid down principles for internal whistleblowing on misconduct at Norges Bank. Whistleblowing procedures have been established so that Norges Bank staff and employees of the Bank’s suppliers can report unethical or illegal behaviour anonymously. All reports must be dealt with in an appropriate manner, in accordance with the case processing rules for whistleblowing, external and internal whistleblowing requirements, and without the risk of retaliation against the whistleblower. In 2022, four whistleblowing cases were reported.

Responsible management of the Government Pension Fund Global

The Government Pension Fund Global shall be managed responsibly. The Executive Board has laid down Principles for Responsible Investment in Norges Bank. The principles are based on international precepts and guidelines for good corporate governance and responsible business conduct established by the United Nations (UN) and the Organisation for Economic Co-operation and Development (OECD). The objective for the management of the fund is to achieve the highest possible return with acceptable risk. Responsible management supports the fund’s objective in two ways. First, by promoting long-term value creation in investments. Second, by reducing the financial risk associated with environmental and social practices of the portfolio companies. Due diligence assessments are carried out to identify and manage investments presenting a risk of negative impact on individuals and the environment.

The investment management mandate requires responsible investment activities to be integrated into the management of the fund. The fund’s task is to safeguard and develop financial assets for future generations. The fund’s long-term return depends on sustainable growth, well-functioning and legitimate markets and good corporate governance. Norges Bank’s work on responsible investment can be divided into three main areas: the market, the portfolio and the companies.

Market

The fund is global. It owns a small portion of over 9 000 listed companies in 70 countries and relies on global solutions to solve common challenges such as climate change. Norges Bank contributes to the development of relevant international standards, and is, for example, represented by the Vice-Chair of the International Sustainability Standards Board (ISSB)’s Investor Advisory Group (IIAG). In 2022, the Bank participated in 12 public consultations related to responsible investment. All consultation responses are published on the fund’s website. The consultations concern, among other elements, significant issues such as corporate governance, climate-related reporting and responsible business conduct.

Norges Bank supports initiatives in which several companies or investors join forces to set common standards for sustainable business conduct. Such initiatives are more efficient when several companies in one industry or value chain face the same challenge. Norges Bank currently participates in a number of initiatives in cooperation with investors, companies and civil society. Within the investment mandate, Norges Bank participates in initiatives that do not impose constraints on voting or investment decisions or are primarily aimed directly at political authorities. Norges Bank makes a thorough assessment of cost, complexity and benefit before launching or entering into an initiative.

Since 2008, Norges Bank has formulated clear expectations of portfolio companies on how they address relevant global challenges linked to their operations. Accordingly, the Bank has defined explicit expectations of how boards should establish appropriate strategies, control functions and reporting procedures. Expectations form the basis for dialogue with companies, and the companies’ work is measured against these expectations on an annual basis. In 2022, Norges Bank presented new expectations concerning companies’ Human Capital Management (HCM). Furthermore, expectations regarding climate change, human rights and children’s rights were updated during the year.

Portfolio

Norges Bank assesses corporate governance and sustainability to gain greater insight into risks and opportunities associated with the fund’s investments. Norges Bank monitors the portfolio’s exposure to risks and identifies industries and companies for further follow-up.

Norges Bank encourages companies to move from words to numbers in their reporting to provide a better understanding of financial opportunities and risks. Performing analyses requires relevant, comparable and reliable data on environmental, social and governance conditions. Norges Bank analyses carbon emissions from companies in the portfolio and various climate scenarios for the Government Pension Fund Global.

Norges Bank uses three main approaches to identify and manage risks associated with environmental, social and governance conditions in the portfolio. The first is pre-screening companies due to enter the funds’s benchmark index for equities. The second is continuous monitoring of companies in the portfolio through daily analyses of news reports, as well as more in-depth thematic analyses of specific markets and sectors. The third approach involves conducting quarterly due diligence assessments on the companies, assessing them against the expectations Norges Bank sets for sustainability. In its annual report on responsible investment, the Bank provides more information pertaining to the due diligence process.

When Norges Bank identifies high risk companies, further analyses are conducted to assess whether dialogue should be initiated with the company, Norges Bank’s voting should be changed, or whether the company should be considered for a risk-based divestment.

In emerging markets, the Government Pension Fund Global can also benefit from the external managers’ in-depth knowledge of the markets, industries and companies in which the fund is invested. This is particularly important as it can often be more difficult to obtain relevant company data in emerging markets.

Norges Bank identifies investment opportunities by analysing, among other things, the companies’ governance, operations and environmental and social risks and opportunities. Norges Bank also invests in renewable energy infrastructure. However, in 2022 there were not any new investments in this sector. Moreover, the Ministry of Finance decided to terminate the fund’s special environmental mandates, against the backdrop of a more ambitious climate risk management and reporting programme for the entire fund, cf amendments to the management mandate on 12 September 2022.

Norges Bank can divest from companies in order to limit the fund’s exposure to unacceptable risk. This applies principally to activities that burden other companies and society as a whole with substantial costs, which are therefore unsustainable in the long term. Risk-based divestments may be appropriate if it’s considered that the company poses particularly high long-term financial risk, if investments are not substantial, and if active ownership is not considered to be a suitable instrument. Unlike ethical exclusion, risk-based divestment does not require independent advice from the Council on Ethics.

In 2022, Norges Bank divested from 74 companies following risk assessments related to environmental, social and corporate governance issues. The fund has divested from a total of 440 companies since 2012. Since 2012, risk-based divestments have contributed positively to the cumulative return on equity management by about 0.26 percentage point, or 0.01 percentage point annually.

Companies

As a long-term investor, Norges Bank engages in regular dialogue with the largest companies to promote good corporate governance and responsible business conduct. The fund held a total of 2 911 meetings with 1 307 companies and maintained written contact with 405 companies in the portfolio in 2022. The size of the fund’s investments provides access to board members, senior executives and specialists in the companies. The fund is interested in understanding how companies are governed and how they address essential sustainability issues. In addition to meetings, the fund also communicates with portfolio companies in writing.

Norges Bank annually assesses companies’ reporting on governance structure, strategy, risk management and objectives on the basis of their public expectations of companies. In 2022, Norges Bank changed the methodology of these assessments in order to benefit from artificial intelligence and machine reading of companies’ sustainability reporting. This means that the basis for comparison with previous years is limited, but that future measurements will offer the possibility of covering a larger number of companies and indicators.

Companies with unsubstantial or limited reporting are contacted and encouraged to improve their reporting by, among other things, participating in established reporting initiatives. In 2022, letters regarding their reporting across the expectation areas were sent to 102 companies.

Voting is one of the most important instruments Norges Bank has as a shareholder to safeguard the fund’s assets. At the end of 2022, the fund held a stake in 9 228 companies worldwide. Norges Bank voted on 117 392 matters at 11 616 shareholder meetings in 2022. Norges Bank voted in line with the Board’s recommendation in 94% of matters and at 70% of shareholder meetings. The voting guidelines are publicly available.

Since 2021, Norges Bank has published its vote five days before shareholder meetings. The voting intentions are available on the fund’s website www.nbim.no. Users can search for individual companies or download the full dataset of the fund’s votes since 2013 and obtain access to daily updates on voting intentions five days before the company’s general meeting.

The Ministry of Finance has stipulated guidelines for the observation and exclusion of companies from the Government Pension Fund Global, based on the companies’ products or conduct. The Council on Ethics and Norges Bank are responsible for following up these guidelines. The Council on Ethics is an independent body established by the Ministry of Finance. Decisions concerning the observation and exclusion of companies from the Government Pension Fund Global are made by Norges Bank’s Executive Board, based on recommendations from the Council on Ethics. By not investing in such companies, the fund reduces its exposure to unacceptable risks. In 2022, Norges Bank announced the exclusion of 13 companies and placed four new companies under observation. In addition, Norges Bank revoked the exclusion of two companies and ended the observation of four companies and special active ownership in one case. Since 2006, the equity benchmark index has returned 2.4 percentage points less than it would have done without any ethical exclusions. On an annualised basis, the return has been 0.06 percentage points lower.

Further details on responsible investment can be found in a separate report.

Responsible management of the foreign exchange reserves

The equity portfolio of the foreign exchange reserves is managed by Norges Bank Investment Management according to the same principles and strategies for responsible investment that apply to equity investments in the Government Pension Fund Global. Securities issued by companies excluded according to the guidelines for the observation and exclusion from the fund are excluded from the foreign exchange reserves’ investment universe.

Norges Bank exercises active ownership in its management of the foreign exchange reserves by setting clear expectations of companies, voting at all shareholder meetings where Norges Bank is a shareholder and conducting a dialogue with selected companies. Decisions on risk-based divestment from individual companies that Norges Bank finds appropriate for the fund’s equity portfolio are also applied to the equity portfolio of the foreign exchange reserves.

Norges Bank has divested from a total of eight companies in the foreign exchange reserves’ equity portfolio based on environmental, social and governance risk assessments. An additional 40 companies were excluded from the foreign exchange reserves’ benchmark index and nine companies were put under observation based on ethical guidelines. One company was removed from observation in 2022.

Responsible procurements

Norges Bank procured goods and services totalling approximately NOK 4.8bn in 2022. The largest procurement categories are external management services, IT system development and operation, as well as goods and services related to the operation of the Bank’s offices. This places a responsibility on Norges Bank as a responsible procurer.

Norges Bank is subject to public procurement regulations and is enjoined to set requirements for wage and working conditions pursuant to regulations on wage and working conditions in public contracts. Suppliers and any subcontractors shall upon request be able to document compliance with wage and working conditions. In 2022, 16 controls of conditions were carried out among the Bank’s suppliers. Two violations were detected, where the wages paid were lower than the statutory minimum wage based on position and seniority. At Norges Bank’s request, the suppliers corrected the wage and any outstanding wage claims were met. The Public Procurement Act includes a requirement that limits the number of tiers in the supply chain for procurements in sectors with a high incidence of work-related crime, such as construction and cleaning services. Norges Bank accepts no more than two tiers of sub-contractors. All suppliers with access to the Bank’s premises or systems are responsible for ensuring that personnel performing services or work for Norges Bank are conscious of the ethical rules.

Furthermore, Norges Bank expects a responsible and sustainable supply chain and sets environmental requirements for procurements where relevant.

The management of the Government Pension Fund Global requires specific insight into markets around the world. In emerging markets, Norges Bank mostly uses external managers. Sustainability risk is inherently higher in some of these markets. External managerss are required to take good corporate governance and environmental and social issues into account in their investment activities. In addition, managers’ approach to corporate social responsibility is assessed as an element of the selection process. This is followed up as part of the annual assessment of external managers.

4. Strategy

Strategy 25

Our mission is our guide in all we do, and Strategy 25 is designed to ensure that we are best able to accomplish our mission. On 23 November 2022, the Executive Board approved the strategy for Norges Bank and its business areas. The following is a summary of our ambitions and plans for the coming years.

Norges Bank’s strategy

The Covid-19 pandemic and Russia’s invasion of Ukraine have shown how unforeseen events can quickly change the economic outlook and balance of risks. Geopolitical uncertainty is contributing to a complex and challenging threat landscape. Climate change and the need to reduce global emissions will continue to impact the global economy.

In the current situation, both Norges Bank Central Banking Operations and Norges Bank Investment Management are confronting difficult issues. To succeed in our missions, we need to understand economic developments and the risk landscape and be prepared to act quickly. Norges Bank will be a well-run and transparent institution, an attractive and future-fit workplace, and will strengthen its work on climate and the environment.

The central bank’s strategy

In the strategy, we emphasise four preconditions for success. They are not unique to this strategy period, but are of such importance that we will pursue ambitious goals for continual improvement within each:

Competent and engaged employees: To attract, develop and retain highly skilled employees every employee will be given the opportunity to enhance and update their skills through professional challenges and targeted development plans. At the same time, we will foster an inclusive culture where we encourage different opinions and views, inspire one another to do our best and where work is enjoyable.

Stable, secure and efficient operations: Corporate governance and risk management at the Bank will be in line with best practice and we will work to simplify and streamline our processes. An uncertain geopolitical situation requires further development of our work on security, contingency preparedness and crisis management, with particular focus on cyber resilience.

High-quality and relevant analysis: We aim to be Norway’s leading macroeconomics institution and base our assessments, advice and decisions on high-quality and relevant research-based analyses. During the strategy period, we will also seek to improve and increase the flexibility of our work processes so that we are better able to update analyses and use instruments when the world around us changes.

Transparent, clear and accessible: We will adapt our communication to our target audience, invite dialogue, listen to input and participate in the public debate in areas important to us. To reach out, our aim is for more of our employees to represent Norges Bank externally and contribute to disseminating knowledge in their areas of speciality.

In addition, there are three focus areas that require special effort in the coming years:

Researching and designing the payment system of the future: We will face important choices when designing the payment system of the future. Over the strategy period, Norges Bank will decide on the design of the next generation NOK settlement system and be ready, if appropriate, to issue a central bank digital currency (CBDC).

Understanding the impacts of climate change and energy transition: To make sound assessments of the economic outlook and balance of risks, we must better understand how climate change and energy transition affect different parts of the economy. We will therefore increase staff expertise in this area and further integrate factors related to climate change and energy transition into analytical work.

Using data more effectively with the aid of new technology: The volume of data is growing, while technological advances make possible new kinds of analyses. We will enable more effective data use by establishing a new data platform and providing ample access to more data. We will also pursue more effective management and control of the data we use.

Strategy for Norges Bank Investment Management

We manage the Government Pension Fund Global on behalf of the Norwegian people. Responsible and long-term management ensures that the fund will benefit both current and future generations. We take advantage of the fund’s size, long horizon and limited short-term liquidity needs when we invest. In this strategy period we will strengthen our long-term mindset, be patient, and vary active risk as market conditions change. We can withstand large fluctuations in the fund’s value and make investments whose underlying value may take a long time to realise.

We use a range of investment strategies in our management of the fund. They are grouped into three main categories: market exposure, security selection, and fund allocation. Our investment strategies are complementary and tailored to our characteristics – a large fund with a long horizon. We manage the Government Pension Fund Global close to this index. However, we believe some investment opportunities diversify the fund beyond the reference index, particularly unlisted assets. We will target a real estate portfolio of between 3% and 7% of the fund. We will also continue to build a portfolio of renewable energy infrastructure assets and investigate new investment opportunities related to the energy transition.

We place great emphasis on being a responsible investor. Responsible investment and active ownership support long-term value creation and our goal of highest possible return. Managing climate-related risks and opportunities is a key priority. We work with responsible investment and active ownership at three levels. We work at the market level to elevate global standards for all companies. We work at the portfolio level to strengthen the monitoring of Environment, Social and Governance (ESG) information and integrate this into the management of the fund. We work at the company level to promote good governance and sustainable business practices.

Operational robustness is essential to achieving our goal of highest possible return in a secure and cost-efficient way. We will strengthen business continuity and crisis management, enabling us to better respond to crises and incidents. Technology is key to fulfilling our management assignment in a secure and robust way. We focus on innovation and building our own solutions with our own people. To succeed, we need to attract, develop, and retain the best people. People are the driving force behind our success and our most important resource. We will grow the organisation in prioritised areas to ensure capacity, quality, and robustness. However, we will remain lean, flexible, and cost-efficient.

We aim to be a diverse and inclusive organisation where we all work to safeguard and develop the Government Pension Fund Global. To succeed in a challenging, fast-paced working environment, we believe it is important to have fun at work. The strength of our teams determines our success. Managing the fund on behalf of the Norwegian people requires transparency. Transparency builds trust and knowledge about the fund, both in Norway and internationally.

Strategy 2020–2022

In autumn 2019, the Executive Board of Norges Bank approved a strategic plan for the period 2020-2022. In 2020, the Board appointed a new CEO of Norges Bank Investment Management. The part of the strategic plan about the management of the Government Pension fund Global was therefore revised in spring 2021.

The past three years were marked by major changes that have influenced Norges Bank’s operations. A new Central Bank Act on 1 January 2020 resulted in a new governance structure for the Bank, with the establishment of a committee with specific responsibility for monetary policy and financial stability. At the same time, changes were made to Norges Bank’s administrative organisation. External conditions, such as the Covid-19 pandemic and Russia’s invasion of Ukraine, also made an impact during the strategy period.

A summary of Norges Bank’s efforts to achieve the objectives in the strategy period 2020-2022 appears below.

Succeeding together

With the Government Pension Fund Global under the aegis of Norges Bank, we are a global organisation with a third of our employees located outside Norway and with employees representing almost 40 nationalities. The aim has been to work in a way characterised by team spirit and a willingness to change, and our ambition has been to be transparent and communicate reliably and clearly. In the strategy period, we have:

• Communicated more frequently and proactively than before and reached a wider audience. We have platforms such as the Bank’s Bankplassen blog and launched the podcast “In Good Company”. The purpose of the podcast is to provide a better insight into the companies the fund is invested in. We have increased our presence on social media.
• Worked to increase knowledge of Norges Bank by meeting students and school pupils through the Knowledge Centre, corporate presentations and lectures at schools, universities and in relevant networks.
• Strengthened internal communication on digital platforms and developed new digital arenas for professional and social interaction.
• Become one of the founding partners of Norway’s Women in Finance Charter, whose purpose is to increase the proportion of women in leading positions in Norway’s financial industry.
• Arranged annual activities and initiatives that focus on diversity and inclusion.
• Relaunched the Norges Bank Investment Management trainee programme to foster workplace diversity.

A well-run bank

Our goal was to take advantage of synergies and economies of scale across the organisation. At the same time, it was essential that the different parts of the Bank retained their distinctive professional characteristics and responsibility for their performance. Our ambition was to further develop a well-run and secure central bank. In the strategy period, we have:

• Renewed and updated the Bank’s governance structure in the light of the Central Bank Act.
• Modernised Norges Bank Central Banking Operations’ IT operating platforms, which has made the Bank’s systemically critical systems more secure and other systems more flexible.
• Completed a substantial investment in IT security in both operational areas.
• Insourced some IT functions to improve quality and resilience.
• Strengthened sustainability initiatives and further developed external sustainability reporting.
• Combined HR, communications and procurement services in the two operational areas, leading to more standardised processes and strengthened operational resilience.
• Digitalised large parts of our historical archives.

Long-term and responsible investment management

Our aim is to achieve the highest possible return over time, within the framework of the mandate issued by the Ministry of Finance. The Bank seeks to achieve this goal in the most secure, cost-efficient, responsible and transparent manner possible. The market value of the Government Pension Fund Global grew from NOK 10 088bn at the end of 2019 to NOK 12 429bn at the end of 2022. In the strategy period, we have:

• Continued to cooperate with investee companies with regard to their financial performance as well as corporate governance and sustainability. We aim to vote at all shareholder meetings, promote long-term value creation at companies and protect the fund’s assets.
• Launched our 2025 Climate action plan. The plan outlines our approach to managing climate risk and opportunities and describes the measures we aim to implement in the period 2022-2025.
• Developed an investment simulator to analyse our investment decisions. The simulator is designed to provide portfolio managers with analyses and feedback so that they can make better investment decisions.
• Scaled back back allocation to systematic risk factors and certain segments outside the benchmark index.
• Invested 5% of the fund in real estate, 62% of which is in unlisted assets and 38% in listed assets. We have made our first investment in unlisted renewable energy infrastructure. This investment is in an offshore wind farm and accounts for 0.1% of the value of the fund.
• Communicated more frequently and proactively. We reached a wider audience than previously, partly by raising our profile and engagement in social media.
• Increased the number of employees from 540 at the end of 2019 to 572 by December 2022. Despite having grown during the strategy period in prioritised areas such as investment and technology, we will continue to be a small, flexible and cost-efficient organisation.

At the forefront of central banking

The objective of central banking operations is to promote a well-functioning and stable economy. Our aim has been to perform our tasks in line with international best practice. In the strategy period, we have:

• Further developed monetary policy communication by communicating more directly with a broader segment of the population and being accessible in more arenas than previously.
• Performed analyses of long-term economic developments, with a particular focus on developments in productivity, labour share and neutral real rates.
• Utilised new sources of information to better understand developments in the light of abrupt shifts in the economy.
• Established a robust and effective solution to manage microdata for use in research and political analysis.
• Adopted a reformed version of the overnight rate Nowa as the alternative Norwegian krone reference rate.
• Established a new and more automated trading system for liquidity management.
• Continued work to strengthen the protection of Norges Bank’s settlement system (NBO) against adverse events, particularly cyber attacks.
• Continued work to facilitate real-time payments.
• Introduced and implemented TIBER-NO, a framework developed by Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway) for testing the cyber resilience of Norway’s financial sector.
• Developed and revised the framework for key macroprudential tools.
• Met society’s need for cash in a manner that ensures preparedness and promotes efficiency. Contributed to appropriate rules to ensure that cash is available, easy to use and can fulfil its functions in the payment system.
• Continued research into a central bank digital currency, including experimental testing of different technological solutions.
• Participated actively in the Network for Greening the Financial System, which provides a forum for sharing experiences and best practices, performs analyses and designs methods for managing environmental and climate risk.

5. Financial statements

Main points

Costs for Norges Bank´s primary tasks

Norges Bank allocates costs to its primary tasks. The purpose of this allocation is to identify the costs associated with these tasks and help to make operations cost-effective.

Costs are allocated to these primary tasks:

1. Management of the Government Pension Fund Global (GPFG)
2. Monetary policy
3. Financial stability
4. Management of the foreign exchange reserves
5. Banknotes and coins
6. Settlement services for banks
7. Government debt management
8. The Treasury single account system

The costs for the Bank’s primary tasks include direct and indirect costs. Common costs are allocated based on an assessment of cost drivers. The size of the allocation key represents the best estimate of actual resource use.

The Bank’s total operating expenses in 2022 were NOK 6 399m. Management of the GPFG was by far the most resource-intensive task and accounted for NOK 5 226m or 82% of the Bank’s total costs. Costs for Norges Bank’s other primary tasks amounted to NOK 1 173m.

Costs by primary task

Costs by primary task in Central Banking Operations (CBO)

Financial statements

Income statement

Balance sheet

Oslo, 8 February 2023

Ida Wolden Bache (sign.)
(Governor / Chair of the Executive Board)

Pål Longva (sign.)
(First Deputy Chair)

Øystein Børsum (sign.)
(Second Deputy Chair)

Karen Helene Ulltveit-Moe (sign.)

Kristine Ryssdal Arne Hyttnes (sign.)

Hans Aasnæs (sign.)

Nina Udnes Tronstad (sign.)

Egil Herman Sjursen (sign.)

Mona Helen Sørensen (sign.)
(Employee representative)

Truls Oppedal (sign.)
(Employee representative)

Statement of cash flows

Statement of changes in equity

Notes

Note 1 General information

1. Introduction

Norges Bank is Norway’s central bank. The Bank is a separate legal entity and is owned by the State. The Bank’s main office is at Bankplassen 2, Oslo, Norway.

Norges Bank shall promote economic stability and manage substantial assets on behalf of the nation. The aim of central banking operations is to promote stability in the economy. The Bank conducts monetary policy, monitors financial stability, promotes robust and efficient payment systems and financial markets and manages Norway’s foreign exchange reserves.

Norges Bank manages the Government Pension Fund Global (GPFG) on behalf of the Ministry of Finance in accordance with Section 3, second paragraph, of the Government Pension Fund Act and the management mandate for the GPFG issued by the Ministry of Finance.

The GPFG shall support government saving to finance future expenditure and underpin long-term considerations relating to the use of Norway’s petroleum revenues. The Norwegian Parliament has established the legal framework in the Government Pension Fund Act, and the Ministry of Finance has formal responsibility for the fund’s management. The Executive Board of Norges Bank has delegated day-to-day management of the GPFG to Norges Bank Investment Management (NBIM).

The Ministry of Finance has placed funds for investment in the GPFG in the form of a Norwegian krone deposit with Norges Bank (the krone account). Norges Bank manages the krone account in its own name by investing the funds in an investment portfolio consisting of equities, bonds, real estate and infrastructure for renewable energy. The GPFG is invested in its entirety outside of Norway.

Transfers are made to and from the krone account in accordance with the management mandate. When the Norwegian State’s petroleum revenue exceeds the use of petroleum revenue in the fiscal budget, deposits will be made into the krone account. In the opposite situation, withdrawals will be made. Transfers to and from the krone account lead to a corresponding change in Owner’s capital.

For further information about the management mandate for the GPFG, Norges Bank’s governance structure and risk management see Note 20.9 Investment risk. For further information about transactions between Norges Bank and the GPFG, see Note 19 Related parties.

Norges Bank is not exposed to financial risk from its management of the GPFG. The return on the portfolio, less the management fee to Norges Bank, is transferred in its entirety to the krone account and does not affect total comprehensive income or equity in Norges Bank. The investment portfolio under management is equal to the amount on deposit in the krone account at the time in question, less the accrued management fee. This is presented on a separate line as an asset in Norges Bank’s balance sheet, and the krone account is presented as a liability in the same amount to the Ministry of Finance.

2. Approval of the financial statements

The annual financial statements of Norges Bank for 2022 were approved by the Executive Board on 8 February 2023 and approved by the Supervisory Council on 23 February 2023. The annual financial reporting for the GPFG is an excerpt of Norges Bank’s financial reporting and is included in Norges Bank’s annual financial statements as Note 20.

Note 2 Accounting policies

This note describes accounting policies, significant estimates and accounting judgements that are relevant to the financial statements as a whole. Additional accounting policies, significant estimates and accounting judgements are included in the respective statements and notes.

1. Basis of preparation

Pursuant to Section 4-3 of the Central Bank Act, the annual financial statements of Norges Bank have been prepared in accordance with the Accounting Act and Regulation on the financial reporting for Norges Bank (the Regulation), laid down by the Ministry of Finance.

The Regulation entails that the financial reporting of the GPFG is prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, subject to the additions and exemptions specified in the Accounting Act and the Regulation. It sets forth that the return on the investment portfolio and the return assigned to the krone account of the GPFG shall be presented on separate lines in the income statement, the net value of the GPFG and the deposits in the krone account of the GPFG shall be presented on separate lines in the balance sheet, inflows to and withdrawals from the krone account of the GPFG shall be presented on separate lines in the statement of cash flows and the annual financial reporting of the GPFG shall be presented in a separate note in Norges Bank´s annual financial statements, see Note 20. See also Section 4.2 Subsidiaries below for the consolidation of certain subsidiaries.

The financial statements are presented in a manner that is most relevant to an understanding of the Bank’s financial performance.

The annual financial statements are prepared with a closing date of 31 December, and are presented in Norwegian kroner (NOK), and unless otherwise stated, rounded to the nearest million. Rounding differences may occur.

2. Changes in accounting policies, including new and amended standards and interpretations, in the period

Accounting policies applied are consistent with the policies applied in the previous accounting year. There are no new or amended IFRS standards and interpretations that have become effective for the accounting year beginning on 1 January 2022 that have had any material effect on the Bank’s financial statements.

3. New and amended standards and interpretations effective from 2023 or later

Issued IFRS standards, changes in existing standards and interpretations issued with effective dates from 2023 or later are expected to be immaterial or not applicable for the Bank’s financial reporting at the time of implementation.

4. Accounting policies for the financial statements as a whole

4.1 Financial assets and liabilities

Recognition and derecognition

Financial assets and liabilities are recognised in the balance sheet upon becoming a party to the instrument’s contractual provisions.

Financial assets are derecognised when the contractual rights to the cash flows expire, or when the financial assets and substantially all the risks and rewards of ownership are transferred. See Note 9 Secured lending and borrowing and Note 20.13 Secured lending and borrowing for details on transferred assets that are not derecognised.

Financial liabilities are derecognised when the obligation is extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires.

Purchase or sale of a financial asset where the contractual terms require settlement in accordance with normal market conditions, is recognised on the trade date.

Classification and measurement

Financial assets are classified based on the business model used for managing the assets and their contractual cash flow characteristics.

The investment portfolio of the GPFG is managed in accordance with the management mandate issued by the Ministry of Finance, the investment mandate issued by the Executive Board of Norges Bank and investment strategies issued by the management of Norges Bank Investment Management. These mandates and strategies, including the risk management strategies, entail that financial assets are managed and evaluated on a fair value basis. The financial assets in the GPFG are therefore measured at fair value through profit or loss.

The foreign exchange reserves are managed in accordance with the principles issued by the Executive Board and are managed and their performance evaluated on a fair value basis. Other financial assets are measured at amortised cost.

Financial liabilities are measured at amortised cost, except for financial liabilities designated as at fair value through profit or loss. This applies to financial liabilities integrated into the foreign exchange reserves that are managed and their performance evaluated on a fair value basis. For the GPFG, financial liabilities, except for Management fee payable, are integrated into the investment portfolio that is managed and evaluated on a fair value basis, and are therefore designated at fair value through profit or loss. Management fee payable is measured at amortised cost.

Financial derivatives are measured at fair value through profit or loss.

For further specification of the classification of financial instruments, see Note 6 Measurement and Table 6.2 Classification of financial instruments.

Impairment

For financial assets classified as measured at amortised cost, an allowance for expected credit losses is recognised. Expected credit losses are estimated per loan and are based on the loan’s exposure at default, probability of default and loss given default. The recognised amount comprises expected credit losses within the 12 months after the reporting date. In the event of a substantial increase in credit risk since initial recognition, an expected loss allowance is recognised over the expected life of the asset.

4.2 Subsidiaries

Investments in real estate and infrastructure for renewable energy are made through subsidiaries of Norges Bank, which are exclusively established as part of the management of the fund. The subsidiaries are controlled by the GPFG. Control over an entity exists when the GPFG is exposed to or has rights to variable returns from its involvement in the entity and is able to influence those returns through its power over the entity. For further information, see Note 20.16 Interests in other entities.

The GPFG is an investment entity in accordance with IFRS 10 Consolidated financial statements. IFRS 10 defines an investment entity and introduces a mandatory exemption from consolidation for investment entities.

Subsidiaries measured at fair value through profit or loss

Subsidiaries that invest in real estate or infrastructure for renewable energy through ownership interests in other entities, are investment entities. These subsidiaries are measured at fair value through profit and loss in accordance with the principles for financial assets, as described in Section 4.1 Financial assets and liabilities above. Subsidiaries that invest in real estate are presented in the balance sheet as Unlisted real estate. Subsidiaries that invest in infrastructure for renewable energy are presented in the balance sheet as Unlisted infrastructure. See Note 20.6 Unlisted real estate and Note 20.7 Unlisted infrastructure for renewable energy for supplementing policies.

Consolidated subsidiaries

Subsidiaries that perform investment-related services, and which are not investment entities themselves, are consolidated. Consolidated subsidiaries do not own, neither directly nor indirectly, investments in real estate or infrastructure for renewable energy.

Note 3 Income/expense from equities and bonds

Table 3.1 Income/-expense from equities

Table 3.2 Income/-expense from bonds

Tax expense

Norges Bank is exempt from income tax on its operations in Norway but is liable to taxes in some other jurisdictions. Tax expense comprises income tax that will not be refunded under local tax rules or tax treaties to Norges Bank. This pertains primarily to withholding tax on dividends related to the foreign exchange reserves’ equity investments.

Due to a revised assessment of the foreign exchange reserves’ tax position in Spain, there was a reversal of previously paid tax expense of NOK 23.8m in 2022. Partly because of this, the tax expense was NOK 1.9m in 2022, compared with NOK 24.9m in 2021. Japan and Germany are the markets with the highest tax expense in 2022, amounting to NOK 8.1m and NOK 7.6m, respectively. Norway’s tax treaties with these countries entail a tax rate of 15%. Tax expense in other respects refers to smaller amounts divided among several other jurisdictions.

Accounting policies for taxation are further detailed in Note 20.10 Tax.

Note 4 Holdings of equities and bonds

Table 4.1 Equities

Table 4.2 Bonds

1 Nominal values have been translated into NOK at the closing rate at the balance sheet date. The nominal value comprises the face value of the instrument or principal.

Bonds in Norges Bank’s balance sheet are in their entirety associated with management of the foreign exchange reserves. Norges Bank issues government debt and enters into financial contracts in the area of government debt management in the name of the Ministry of Finance. Transactions related to government debt management are recognised in the government accounts and not in Norges Bank’s income statement or balance sheet.

Bank for International Settlements (BIS)

The Bank for International Settlements (BIS) acts as a bank for central banks, and its mission is to serve central banks in their pursuit of monetary and financial stability by fostering international cooperation in those areas.

The BIS is a limited liability company owned by central banks. Norges Bank has 8 000 voting shares (with a face value of SDR 5 000) in the BIS. In addition, a further 564 non-voting shares (with a face value of SDR 5 000) were purchased in 2005, for a total of 8 564 shares. Norges Bank´s share of the total shares in the BIS was equal to 1.5% at year-end 2022, the same as at year-end 2021.

When the shares were issued, the BIS required payment of only 25% of the share capital, with the remaining 75% committed capital not recognised in the balance sheet.

Shares in the BIS and dividend received from the BIS, as shown in Table 4.3 Shares in the BIS, are also included as part of equities in Table 4.1 Equities and dividends in Table 3.1 Income/-expense from equities, respectively.

Table 4.3 Shares in the BIS

Note 5 Foreign exchange reserves

The foreign exchange reserves are to be available for use in foreign exchange market transactions or as part of the conduct of monetary policy, with a view to promoting financial stability and to meet Norges Bank’s international commitments. The foreign exchange reserves are divided into a fixed income portfolio, an equity portfolio and a petroleum buffer portfolio. See further discussion in Note 7 Investment risk.

The petroleum buffer portfolio is intended to receive the government’s cash flow from petroleum activities in foreign currency and any transfers to and from the GPFG. The purpose of the portfolio is to provide for an appropriate management of the government’s need for converting foreign currency and NOK.

See Note 8 Currency for a specification of the foreign exchange reserves’ currency breakdown.

Tables 5.1 and 5.2 show income statements and balance sheets, respectively, for the foreign exchange reserves by portfolio. Since the foreign exchange reserves are presented as they are operationally managed by Norges Bank, there may be minor differences between this presentation and presentation under the IMF definition of foreign exchange reserves.

Table 5.1 Foreign exchange reserves by portfolio, income statement

Table 5.2 Foreign exchange reserves by portfolio, balance sheet

Note 6 Measurement

1. Introduction

Fair value for the vast majority of assets and liabilities is based on quoted market prices or observable market data. If the market is not active, fair value is established by using standard valuation techniques. Estimating fair value may be complex and require the use of judgement, in particular when observable inputs are not available. The valuation risk addressed by the control environment at Norges Bank, which is responsible for fair value measurement.

2. The fair value hierarchy

All securities in the foreign exchange reserves are measured at fair value. The securities have been classified in the fair value hierarchy presented in Table 6.1 Foreign exchange reserves investments by level of valuation uncertainty. The classification is determined by:

• Level 1 comprises assets that are valued on based on unadjusted quoted prices in active markets and are considered to have very limited valuation uncertainty. An active market is a market in which transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Assets and liabilities classified as Level 2 are valued using models with inputs that are either directly or indirectly observable. Inputs are considered observable when they are based on market data reflecting actual events or transactions.
• Assets classified as Level 3 are valued using models with significant use of unobservable inputs. Unobservable inputs are inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset.

An overview of models and valuation techniques with their respective observable and unobservable inputs, categorised by type of instrument, is provided in Section 4 of this note.

Table 6.1 Foreign exchange reserves investments by level of valuation uncertainty

1 Other comprises other assets and liabilities limited to money market instruments, including reverse repurchase agreements, deposits in banks, short-term borrowing, unsettled trades and other assets and liabilities.

At year-end 2022, the valuation uncertainty for the foreign exchange reserves was generally unchanged compared with year-end 2021. The majority of foreign exchange reserves are associated with low valuation risk and are classified as Level 1. At year-end 2022, 99.6% of equity holdings and 97.5% of bond holdings are classified as Level 1, and valuation is thus based on quoted market prices.

3. Movements between levels in the hierarchy

There have been no substantial movements between levels in the fair value hierarchy.

4. Valuation techniques

Norges Bank has defined hierarchies for which price sources are to be used for valuation. Holdings that are included in the benchmark indices are normally valued in accordance with the index providers’ prices, while the remaining holdings of equities and bonds are valued almost exclusively using prices from other reputable external price providers. For equities and derivatives traded in active markets (Level 1), the close price is used. For bonds traded in active markets, the bid price is generally used.

The next section sets out the valuation techniques used for equities and bonds classified as Level 2 in the fair value hierarchy.

Equities (Level 2)

Equities that are valued based on models with observable inputs provided by vendors are classified as Level 2 in the fair value hierarchy. These holdings are not traded in active markets and include listed shares in companies where trading has been suspended. The valuation models take into account various observable market inputs, such as the price of comparable equity quotes, last traded price and volume.

Bonds (Level 2)

Bonds classified as Level 2 are valued based on observable market inputs from comparable issues, in addition to direct indicative or binding quotes. These holdings usually consist of less liquid bonds than those classified as Level 1, i.e. where there is not an activity volume for binding trades and a low activity volume for indicative price quotes at the measurement date.

5. Control environment

The control environment for fair value measurement is organised around a formalised and documented valuation policy and guidelines, which are supported by work and control procedures. The portfolios managed by Norges Bank Markets contain only liquid government securities, where valuation risk is very low. Any questions are discussed by a separate management committee.

The valuation environment has been adapted in accordance with market standards and established practices for valuation. This is implemented in practice in the form of daily valuation of all holdings. These processes are scalable to market changes and are based on internal and external data solutions.

All holdings and investments are generally valued by external, independent price providers. They have been chosen on the basis of analyses performed by the Norges Bank units responsible for valuation.

Price providers are monitored on an ongoing basis through regular discussions, controls and price challenges for individual securities. For a large portion of holdings, prices from independent price providers are based on quoted market prices. For holdings that are not sufficiently liquid for valuation to be based on quoted prices, widely accepted models are used. Observable inputs are used where possible, but in some cases, owing to illiquid markets, unobservable inputs are used.

The valuation process is subject on a daily basis to numerous controls by the valuation departments. Controls are based on defined thresholds and sensitivities, which are monitored and adjusted in accordance with prevailing market conditions. At each month-end, more extensive controls are performed to ensure valuation in accordance with fair value.

In NBIM, valuation memos and reports are prepared at each quarter-end, documenting the results of the controls performed and the most important sources of uncertainties in the valuations.

The NBIM investment meeting, which includes NBIM’s leader group, meets every quarter prior to the publication of the financial reporting. The committee reviews the documentation, discusses major pricing issues and approves the valuation.

6. Other investments

Norges Bank holds equity investments other than the foreign exchange reserves. These are investments undertaken by Norges Bank in its role as Norway’s central bank of Norway to preserve Norway’s international obligations in this area. The obligations involve long-term commitments that do not have economic gain as an objective and are not, by their nature, financial investments. The shares in the Bank for International Settlements (BIS) are valued at NOK 217m and would have been allocated to Level 3 in the fair value hierarchy. Valuation is uncertain owing to a lack of activity in the market. These shares are valued using models that use a substantial degree of non- observable inputs.

7. Classification of financial instruments

Financial assets are classified in three measurement categories: fair value through profit or loss (designated or mandatory), fair value through other comprehensive income (OCI) and amortised cost. The measurement category is determined at initial recognition of the asset.

Financial liabilities shall generally be measured at amortised cost, except for financial derivatives measured at fair value through profit or loss.

The carrying amount of financial assets and liabilities measured at amortised cost is considered a reasonable estimate of fair value, thus comparable fair value amounts have not been calculated.

Table 6.2 Classification of financial instruments

Note 7 Investment risk

The foreign exchange reserves are held for the purpose of crisis management and shall be used as part of the conduct of monetary policy with a view to promoting financial stability and to meeting Norges Bank’s international commitments. The aim of the management of the foreign exchange reserves is to attain the highest possible return within established limits. The foreign exchange reserves are divided into an equity portfolio, a fixed income portfolio and the petroleum buffer portfolio.

1. Organisation

The Executive Board has the overarching responsibility for risk management at Norges Bank and has established principles for risk management in Central Banking Operations, including financial risk. The Executive Board also lays down the overarching principles for the management of Norges Bank’s foreign exchange reserves, including strategic asset allocation, benchmark indexes, investment universe and overarching risk measures.

The Risk and Investment Committee is a preparatory and advisory body to strengthen and improve the Executive Board’s work related to investment strategy and risk limits for the foreign exchange reserves.

The Governor is responsible for the management of the foreign exchange reserves. The Governor has operationalised the Executive Board’s principles in guidelines issued for the management for the equity portfolio, fixed income portfolio and petroleum buffer portfolio. Operational responsibility for management has been delegated to NBIM and Norges Bank Markets, respectively, with supplemental guidelines.

The division of roles and responsibilities in the risk management system is organised along three lines of defence. The first line of defence comprises the operational risk management and control activities that are performed by the operating units. The second line of defence comprises the central risk management and compliance functions, which are tasked with advising and supporting the operating units. Their task is to challenge the assessments of the first line of defence and ensure that the first line of defence performs adequate controls. The third line of defence is the internal audit function. Internal audit is placed under the Executive Board, independently of the administration, and shall assess whether risk management and compliance function as required.

2. Framework

The composition of the foreign exchange reserves and associated risk depends primarily on the strategic equity allocation and the portfolios’ benchmark indexes, which are both defined by the Executive Board. The strategic equity allocation of the total equity and fixed income portfolio is 20%.

The benchmark index for the equity portfolio is a tax-adjusted version of the FTSE ALL World Developed Market Index, limited to euro area countries, the US, UK, Japan, Canada, Australia, Switzerland, Sweden and Denmark. The equity portfolio may be invested in cash deposits and equities listed on a regulated and recognised exchange.

The benchmark index for the fixed income portfolio is a market-weighted index of all nominal government bonds with a residual maturity of between one month and 10 years issued by France, Germany, Japan, China, the UK and the US. The fixed income portfolio may be invested in cash deposits and in Treasury bills and government bonds issued by the countries in the benchmark index.

No benchmark index has been set for the petroleum buffer portfolio. The purpose of the portfolio is to provide for an appropriate management of the government’s need for converting foreign currency and NOK and for and any transfers to and from the GPFG. The petroleum buffer portfolio is invested in short-term fixed income instruments.

Through management of the foreign exchange reserves, Norges Bank is exposed to various types of financial risk, including market risk, credit risk and counterparty risk. For the management of the foreign exchange reserves, risk management is defined as the management of these risks. The units with operational responsibility for management have the responsibility for managing risk in accordance with current principles and guidelines.

3. Risk management process

Norges Bank employs several measurement methodologies, processes and systems to control investment risk. Robust and widely accepted risk management systems and processes are complemented by internally developed measurement methods and processes.

4. Market risk

Market risk is defined as the risk of loss or a change in the market value of the portfolio, or parts of the portfolio, as a result of changes in the equity, fixed income or foreign exchange market, including changes in credit premiums.

Continuous monitoring, measurement and assessment of market risk are performed along multiple dimensions. Combining different and complementary risk measures provides a better insight into the portfolios’ risk profile. Norges Bank measures both absolute and relative risk for the investments in the portfolios.

Allocation by geography and industry

The foreign exchange reserves primarily contain investments in sovereign bonds and listed companies. In accordance with the investment management framework, the investments are allocated to several countries and currencies. The following tables show investments broken down by geography and industry.

Table 7.1 Foreign exchange reserves´ allocation by asset class and region/sovereign issuer

Table 7.2 Equity portfolio by industry

1 Includes other asset and liability items in the equity portfolio.

Table 7.3 Foreign exchange reserves’ 10 largest holdings of equities

1 Percentage of the total equity portfolio.

Foreign exchange rate risk

Foreign exchange rate risk is the risk that the value of financial instruments will change owing to movements in foreign exchange rates. Norges Bank has, primarily through the foreign exchange reserves, invested in securities issued and traded in currencies other than NOK. Consequently, the value of these investments is exposed to foreign exchange rate risk. See Note 8 Currency for further information on the exchange rates used and the currency distribution in the foreign exchange reserves.

Interest rate risk

A substantial portion of the foreign exchange reserves is invested in sovereign bonds issued by the US, Germany, France, the UK, Japan and China. The value of fixed income instruments is affected by changes in interest rates in these countries. The investments’ interest rate sensitivity is measured by modified duration. At year-end 2022, modified duration was 3.59 for the fixed income portfolio. In isolation, this means that a 1% fall in yields corresponds to a 3.59% rise in bond prices. By comparison, modified duration at year-end 2021 was 3.83.

Volatility and correlation risk

Norges Bank uses models to quantify the risk of value changes associated with the foreign exchange reserves. This is measured by the standard deviation of the return and is usually referred to as volatility. Absolute volatility provides an estimate of how much the portfolio value can be expected to change in the course of a year, given the current portfolio composition. Relative volatility (tracking error) provides an indication of how much the portfolio is expected to fluctuate compared with its benchmark index. In accordance with the Executive Board’s principles for management of the foreign exchange reserves, the maximum expected relative volatility is set at 50 basis points for the equity and fixed income portfolios, respectively. This implies that that the relative return on the portfolios is expected to lie within the range of ±50 basis points in two out of three years.

The risk models make it possible to estimate the risk in a portfolio across asset classes, markets, currencies, securities and instruments. Risk is then expressed as a single numerical value, which takes into account the correlation between risk factors. The models use historical relationships, which provide reliable forecast in markets that are not experiencing substantial changes in volatility and correlation. Estimates will be less reliable in periods marked by significant market movements. Regular testing of the models is performed to validate the model’s ability to estimate risk. Reported risk measures are annualised.

Table 7.4 Portfolio risk

At year-end 2022, expected absolute volatility was measured at 15.2% for the equity portfolio and 14.6% for the fixed income portfolio. This means that yearly value fluctuations on the order of NOK 17bn and NOK 69bn, respectively, can be expected. At year-end 2021, the corresponding expected value fluctuations were NOK 18bn and NOK 49bn, respectively. At year-end 2022, expected relative volatility for the equity and fixed income portfolios was 6 and 3 basis points, respectively, compared with 8 and 2 basis points, respectively, at year-end 2021.

5. Credit risk

Credit risk is defined as the risk of loss due to an issuer being unable to meet its payment obligations.

The fixed income portfolio comprises only sovereign bonds issued by the US, Germany, France, the UK, Japan and China, all rated investment grade by external credit rating agencies. The credit risk of bond investments in the foreign exchange reserve is therefore regarded as low.

Table 7.5 Bonds specified by sovereign issuer and credit rating

6. Counterparty risk

Counterparty risk is defined as the risk of loss due to a counterparty default on its obligations. Counterparty risk includes the risk associated with counterparty insolvency, settlement risk and custodial risk. Counterparty risk is primarily related to securities lending, reverse repurchase agreement, unsecured bank deposits, foreign exchange contracts and futures.

In the management of the foreign exchange reserves a large number of counterparties are used to limit concentration.

To reduce counterparty exposure, requirements have been set for the credit quality of counterparties. Norges Bank’s counterparties usually have credit rating from several independent credit rating agencies. An internal credit evaluation can only be used as the basis for counterparty approval in instances when the counterparty risk is considered very low. Credit ratings of the Bank’s counterparties are monitored and complemented by alternative credit risk indicators.

Counterparty risk is also reduced by setting exposure limits for individual counterparties. Netting agreements are in place for trades in currency contracts and reverse repurchase agreements, and there are collateral requirements for counterparty net positions with a positive market value. Minimum requirements have also been set relating to the credit quality, time to maturity and concentration of the collateral. Netting and collateral agreements are entered into for all counterparties approved for these types of trades. For securities lending transactions, a premium is added to the market value to reflect the position’s volatility, and these positions are also adjusted for netting and actual collateral received and posted when determining net exposure. See Note 10 Collateral and offsetting for further information.

At year-end 2022, counterparty risk is regarded as low. Collateral has been posted in excess of the exposure in the open reverse repurchase agreements, and unsecured bank deposits almost exclusively comprise deposits with the Federal Reserve (US dollar) or with other central banks.

Table 7.6 Counterparties1 by credit rating

1 Counterparties in the category “Brokers” are defined as equity and bond brokers and futures brokers. Counterparties in other transactions are classified as “Non brokers”. In cases where a counterparty is used for trading securities and for other transactions, the same counterparty will be included in both categories. As counterparties are counted per legal entity, several counterparties may be included per corporate group. Counterparties that are central banks are not included in the table.

Leverage

Leverage may be used to ensure effective management of the investments in the equity portfolio, but not with the aim of increasing the economic exposure to risky assets. Leverage is the difference between total net exposure and the market value of the portfolio. Leverage in the portfolio was 0.11% at year-end 2022, compared with 0.02% at year-end 2021.

Sale of securities that Norges Bank does not own (“short sale”)

The sale of securities that Norges Bank does not own is not permitted in the management of the foreign exchange reserves.

7. Liquidity risk

Liquidity risk is the risk of being unable to meet financial obligations at the agreed time. As a central bank, Norges Bank is not exposed to this type of liquidity risk in local currency. There is little or no liquidity risk associated with the Bank’s liabilities, which are primarily in NOK. The majority of assets are held in foreign currency and are highly liquid financial instruments. They may be realised at short notice without a substantial change in value, and the liquidity risk associated with them is therefore regarded as low. Assets in foreign currency are regarded as sufficient for meeting foreign currency obligations.

8. Climate risk

Climate risk is defined as the risk related to future physical climate changes and changes related to the transition to a low-carbon society.

The Executive Board has decided that the equity portfolio in the foreign exchange reserves shall be managed according to the same principles and strategies for responsible management as the equity investments in the GPFG, which includes mitigating climate risk in investment mangement. The fixed income portfolio in the foreign exchange reserves consists exclusively of government bonds, and climate related issues will have little effect on the composition of the bond portfolio.

9. Other risk

Credit risk associated with lending to banks

Credit and counterparty risk associated with F-loans and intraday/overnight loans (D-loans) is managed by requiring collateral for such loans, in the form of securities pledged to Norges Bank. The total lending facility for banks is determined by collateral pledged to Norges Bank, F-deposits and deposits with the Scandinavian Cash Pool.

Norges Bank stipulates more detailed terms for pledging securities and fund units as collateral for loans in Norges Bank pursuant to Section 6 of the Regulation on the Access of Banks to Borrowing and Deposit Facilities in Norges Bank etc. The current guidelines have been issued in Norges Bank’s Circular No. 5/2022 from November 2022. See Note 18 Loans and deposits for more information.

The rules for pledging collateral are intended to limit Norges Bank’s risk associated with lending to banks and facilitate appropriate levels of bank borrowing. Risk is limited, since only high quality securities are eligible and since the loan value is lower than the market value of the collateral (haircut).

Loans to the IMF

The State of Norway is a member of the IMF. Norges Bank shall, in accordance with the Central Bank Act, manage the country´s rights and obligations as a member of the IMF. This includes making currency available for IMF lending. Norges Bank considers the risk related to IMF loans to be low.

Expected credit losses

Assets measured at amortised cost are allocated on the reporting date to Stages 1, 2 or 3.

On initial recognition, assets are allocated to Stage 1. Stage 1 requires an estimation of a 12-month expected credit loss. The expected loss in Stage 1 reflects the entire loss on an asset weighted by the probability that the loss will occur in the next 12 months. On each reporting date, an assessment shall be made of whether the credit risk of a financial asset has increased significantly since initial recognition. If this is the case, the exposure must be moved to Stages 2 or 3. Stages 2 and 3 require estimation of an expected credit loss over the entire life of the exposure.

No loss provisions had been made for expected credit losses at year-end 2022 and 2021

Table 7.7 Expected credit loss

Note 8 Currency

Table 8.1 Foreign exchange reserves by currency

Total comprehensive income is affected by exchange rate movements. A 1% depreciation of NOK against all currency crosses will result in a positive impact on the income statement of around NOK 6bn, and a corresponding negative impact on the income statement from a 1% appreciation of NOK.

Table 8.2 Exchange rates

1 Percentage change in the exchange rate.

2 See Note 17 International Monetary Fund (IMF) for further description

Note 9 Secured lending and borrowing

Secured lending and borrowing comprises transactions in which securities or cash is transferred or received secured by other securities or cash. Transactions are carried out under various agreements such as securities lending agreements and reverse repurchase agreements.

Table 9.1 Income/expense from secured lending and borrowing

The purpose of secured lending and borrowing is to generate additional income from securities and cash holdings as a part of liquidity management and contributes to efficient market pricing. The share of securities lent shall not exceed 20% of the equity portfolio’s market value. Lending is governed by demand for the equities in the portfolio and market pricing. All lending is secured by sufficient collateral received.

Table 9.2 Lending associated with securities financing transactions

Table 9.3 Transferred financial assets and secured borrowing

Cash collateral received is reinvested in its entirety. No securities received as collateral were reinvested at year-end 2022 or 2021. Therefore, these securities are not recognised in the balance sheet.

Note 10 Collateral and offsetting

1. Collateral

The balance sheet lines Cash collateral posted and Cash collateral received are exclusively associated with derivative transactions. In connection with secured lending and borrowing transactions, collateral will be posted or received in the form of securities or cash, see Note 9 Secured lending and borrowing for further information.

2. Offsetting

For various counterparties and transaction types, cash collateral will be both posted to and received from the same counterparty. Therefore, received cash collateral can be netted against posted cash collateral and vice-versa, as shown in Table 10.1 Assets and liabilities subject to netting agreements. The table shows an overview of financial assets and liabilities, the effects of legally enforceable netting agreements and related collateral to reduce credit risk. The column Amount in the balance sheet subject to netting shows the carrying amounts of financial assets and liabilities that are subject to legally enforceable netting agreements. These amounts are adjusted for effects of potential netting of recognised financial assets and liabilities, together with posted or received cash collateral, with the same counterparty. The remaining net exposure is presented in the column Amount after netting and collateral.

In the event of counterparty default, a collective settlement between Norges Bank and the bankruptcy estate could be performed for certain groups of instruments, irrespective of whether the instruments belong to the GPFG or Norway’s foreign exchange reserves. Such cross nettings will be settled between these portfolios but are therefore not adjusted for in this table.

Table 10.1 Assets and liabilities subject to netting agreements

Note 11 Pension

Norges Bank has funded and unfunded pension and other benefit obligations. All significant funded and unfunded plans are included in the Bank’s actuarial settlement. Norges Bank has a pension plan where the benefits are in line with the Norwegian Public Service Pension Fund and other comparable public sector pension plans. Pension benefits are subject to a life expectancy adjustment and are coordinated with benefits from the National Insurance scheme.

Norges Bank’s funded pension benefit obligations are covered by Norges Bank’s own pension fund, which is organised as a separate legal entity. Service credit for retirement benefits is generally earned for each year the employee is working up until age 70. Employees contribute 2% of their gross annual salary into the pension fund. Norges Bank’s contributions are covered by cash payments or the premium fund.

Table 11.1 Number of pension plan members (funded plan)

1. Norges Bank’s benefit obligation

Norges Bank has funded pension plans associated with membership of Norges Bank’s pension fund. In addition, the Bank has unfunded plans funded out of current income. These are special and allocated pensions, the unfunded portions of pensions for employees with salaries higher than 12 G earned after 1 January 2007, contractual early retirement pensions calculated on the basis of an expected 15% take-up rate and early retirement pension and redundancy pay agreements related to restructuring. The benefit obligation related to restructuring is the present value of all agreements, including agreements with disbursements in 2022 or later.

Table 11.2 Economic and demographic assumptions

Table 11.3 Net liability recognised in the balance sheet

Table 11.4 Specification of funded and unfunded plans

Table 11.5 Allocation of plan assets for funded plan

2. Pension expense for employees in Norway

Pension expense includes current service cost, interest expense and expected return on plan assets.

The change in the unfunded plans is included in the overall pension expense.

Expenses relating to employees associated with NBIM are covered in their entirety by the management fee and amounted to NOK 90.6m in 2022 and NOK 98.8m in 2021.

Table 11.6 Pension expense

3. Sensitivity analysis

The sensitivity analysis has been prepared in the light of possible changes in the assumptions discount rate and wage growth, which are expected to have the most pronounced effect on the pension obligation. The other actuarial assumptions are kept unchanged in the sensitivity analysis.

Table 11.7 Sensitivity analysis

1 Amounts in NOK millions.

2 Percentage change in the pension benefit obligation.

4. Pension plans for locally employed staff of foreign offices

Locally employed staff at Norges Bank’s offices in London, New York and Singapore have a defined-contribution pension plan in accordance with local provisions in addition to what has been established by the authorities. As employer, Norges Bank contributes up to 10% of fixed salary for employees in London, up to 8% of fixed salary for employees in New York, and up to 20% of fixed salary for employees in Singapore to the plans in line with market practice. The plans are managed externally, within rules determined by Norges Bank. Locally employed staff at Norges Bank’s offices in Shanghai have no pension plan beyond what has been established by the authorities. This is in line with market practice. Recognised expenses for the plans in London, New York, Singapore and Shanghai amounted to NOK 40.3m in 2022 and NOK 34.8m in 2021. The cost of pension plans for locally employed staff of offices outside of Norway is presented under Other personnel expenses in Table 12.1 Personnel expenses.

Note 12 Personnel expenses

1. Salary system

Norges Bank’s Executive Board sets the limits for the Bank’s salary and remuneration schemes and monitors how they are put into practice. The Bank’s salary system is based on individual assessments and is subject to agreements with the unions representing Bank employees. There is a separate system of individually determined salaries at NBIM.

Salary levels at Norges Bank are to be competitive, but not market-leading. Norges Bank employs external consultants to perform annual comparisons of salary levels with other employers. The Executive Board has a Remuneration Committee comprising three of the external members and one employee representative. The Committee contributes to thorough and independent discussion of matters pertaining to the salary and remuneration schemes.

The Executive Board sets salary bands for the CEO of NBIM, executive managers and employees in Central Banking Operations (CBO) and Norges Bank Administration whose salary is determined by the Governor. The Governor determines, within band set, the annual salary adjustment based on the managers´ performance in the previous year.

The Executive Board sets further salary bands for the employees in NBIM who are part of the NBIM´s leader group. The CEO of NBIM determines, within band set, the annual salary adjustment based on the managers´ performance in the previous year.

Performance-based pay

Norges Bank’s Executive Board lays down the principles for NBIM’s salary system. The leader group receive only a fixed salary.

In addition to a fixed salary, employees of NBIM whose work directly involves investment decisions, and certain other NBIM employees, may be entitled to performance-based pay. Performance-based pay is calculated on the basis of the performance of the GPFG, group and individual measured against set targets. Accrued performance-based pay is paid over several years. 50% is paid the year after it is accrued, and the other 50% is held back and paid over the following three years. The amount held back is adjusted for the return on the GPFG. For employees with performance base pay above 100% of fixed salary, 40% is paid the year after it is accrued, and the other 60% is held back and paid over the following three years. Performance-based pay is capped at 100% of fixed salary for employees in Norway. For a limited number of employees at international offices, the cap may be up to 200% of fixed salary. Employees receiving performance- based pay earned on average 73% of the total limit for 2022, based on performance over several years.

At year-end 2022, 226 employees of NBIM received performance-based pay, 13 of whom were employed by subsidiaries. Their total upper limit for performance-based pay was NOK 502m.

The remuneration scheme is reviewed annually. In addition, Norges Bank Internal Audit conducts an independent review of compliance with rules and guidelines for remuneration. The review in 2022 confirmed that the implementation of the remuneration scheme for 2021 was in compliance with the rules. The remuneration scheme for employees of NBIM follows the rules in the Securities Fund Regulation, in line with the mandate of the Ministry of Finance. There were no material changes to the remuneration scheme in 2022.

Employees of CBO whose work directly involves investment decisions for the foreign exchange reserves may be entitled to performance-based pay. Performance-based pay is calculated on the basis on performance measured against set targets for the management of the foreign exchange reserves. Accrued performance-based pay is paid over several years. The maximum bonus payment per year may not exceed the fixed salary. 60% of the calculated performance-based pay is paid the year after it is accrued, and the other 40% is held back and paid over the following three years.

Ten employees had a performance-based pay agreement in 2022. Employees receiving performance-based pay earned on average 35% of the total limit for 2022.

Table 12.1 Personnel expenses

Table 12.2 Number of employees/FTEs

2. Benefits to governing bodies

Supervisory Council

Total remuneration paid in 2022 was NOK 1 072 000. Of this amount, fixed remuneration was NOK 960 000. Remuneration rates for 2022 were set by the Storting as from 1 January 2022 (cf Recommendation 40 S (2021-2022)).

The remaining NOK 111 400 is other remuneration for attending meetings, including for lost earnings. Total remuneration paid in 2021 was NOK 1 051 430.

With regard to remuneration to the director of the Office of the Supervisory Council and other expenses, see the Supervisory Council’s report to the Storting for 2022.

Table 12.3 Remuneration to the Supervisory Council and the Permanent Committee

Executive Board – external members

Service on the Executive Board is remunerated at fixed annual rates. Remuneration to members and alternates of the Executive Board is determined by the Ministry of Finance. Total remuneration to members and alternates of the Executive Board and its committees was NOK 2 817 100 in 2022, compared with NOK 2 735 400 in 2021.

Table 12.4 Remuneration to the Executive Board

¹ Member in the period 1 January 2022 to 30 May 2022 in the Risk and Investment Committee and 1 June 2022 to 31 December 2022 in the Remuneration Committe.

² Member in the period 1 January 2022 to 30 May 2022 in the Remuneration Committee and 1 June 2022 to 31 December 2022 in the Ownership Committee.

3 Member in the period 1 January 2022 to 30 May 2022 in the Ownership Committee and 1 June 2022 to 31 December 2022 in the Risk and Investment Committee.

Monetary Policy and Financial Stability Committee – external members

Service on the Monetary Policy and Financial Stability Committee is remunerated at fixed annual rates as set by the Ministry of Finance. Total remuneration to the external members of the committee was NOK 673 600 in 2022, compared with NOK 654 000 in 2021.

Table 12.5 Remuneration to the Monetary Policy and Financial Stability Committee

3. Benefits to senior executives

Senior executives are entitled to the same retirement benefits and have the same borrowing rights as the Bank’s other employees. Pension benefits earned for the year are equal to the individual executive’s accrued service cost for the year. Pension plans are discussed in Note 11 Pension, and loans to employees are discussed in a separate section in this note.

Senior executives do not earn performance-based or other variable remuneration. See above Section 1. Salary system for further information regarding performance-based pay.

Value of other benefits shows the tax value of benefits-in- kind and primarily comprise coverage of electronic communication, personal insurance and some travel expenses.

Governor and Deputy Governors

The salaries of the Governor and Deputy Governors of Norges Bank are determined by the Ministry of Finance. In addition, they have a free telephone, free newspaper subscription and insurance covered by their employer.

A six-month quarantine period applies to the Governor and Deputy Governors after stepping down or the end of their terms of office. The Ministry of Finance may grant an exemption from this quarantine period. As long as the quarantine period is in force, the Governor and Deputy Governor are entitled to maintain a normal salary and other remuneration.

Table 12.6 Remuneration to the Norges Bank Executive Management Team

1 Began in the position as Governor on 2 March 2022. Resigned from the position as Deputy Governor on 1 March 2022. Remuneration shown from-/up until the date the appointment/resignation of the respective positions became effective.

2 Began in the position as Deputy Governor on 29 August 2022. Remuneration shown from the date the appointment became effective.

3 Resigned from this position on 28 February 2022. Remuneration shown up until the date the resignation became effective.

4 Resigned from this position on 1 November 2022. Remuneration shown up until the date the resignation became effective.

¹ Gross salary includes holiday pay received. Part of the holiday pay was earned in another position.

² Began in this position on 2 August 2021. Remuneration shown from the date the appointment became effective.

Benefits to senior executives in Norges Bank’s Central Banking Operations

Table 12.7 Remuneration to senior executives in Norges Bank’s Central Banking Operations

¹ Began in this position on 1 December 2022. Remuneration shown from the date the appointment became effective.

² Resigned from this position on 1 July 2022. Remuneration shown up until the date the resignation became effective.

¹ Gross salary includes holiday pay received. Part of the holiday pay was earned in another position.

Remuneration to senior executives in Norges Bank Investment Management

A quarantine period of six months applies to the CEO of NBIM after stepping down or the end of his term of office. Moreover, he has contractually waived his rights to employment protection in exchange for severance pay. Severance pay shall be paid for six months in the event of dismissal by Norges Bank and for three months in the event of resignation. Any income from a new employer will be deducted from this compensation.

Table 12.8 Remuneration to senior executives in Norges Bank Investment Management

1 Began in this position on 1 July 2022. Remuneration shown from the date the appointment became effective.

2 Began in this position on 1 July 2022. Remuneration shown from the date the appointment became effective.

3 Resigned from this position on 1 April 2022. Remuneration shown up until the resignation became effective.

4 Resigned from this position on 1 July 2022. Remuneration shown up until the resignation became effective.

5 Members of the leader group in Norges Bank Investment Management only receive a fixed salary. Some members of the leader group who previously had a performance-based salary no longer have this scheme, but will in the coming years be paid the withheld performance salary. The amounts stated in the table are performance salaries paid in the financial year, but earned and recognized in the income statement in previous periods.

Loans to employees

The Bank’s loan scheme for its employees comprises residential mortgages and consumer loans. Mortgages are provided in accordance with guidelines from the Supervisory Council within 80% of the lowest amount of the purchase price and documented market value, limited to NOK 3 653 000 and a maximum term of 30 years. Consumer loans are limited to a maximum of four times the employee’s monthly salary, though not exceeding NOK 350 000. The loan schemes apply to all permanent employees in a minimum half-time position with an employment contract in Norway. The interest rate is linked to the norm rate for loans on favourable terms from an employer. The Ministry of Finance sets the norm rate six times a year. The norm rate at December 2022 was 2.3%. Total loans to employees at 31 December 2022 were NOK 217.5m, compared with NOK 167.3m at 31 December 2021.

Note 13 Management fee, GPFG

Norges Bank’s total operating expenses related to the management of the GPFG are reimbursed by the Ministry of Finance as principal. The management fee corresponds to actual costs incurred by Norges Bank, excluding administrations fees invoiced separately to Norges Bank’s subsidiaries in Norway and including performance-based fees to external managers. The management fee was NOK 5 226m in 2022 and NOK 4 640m in 2021. See Note 20.12 Management costs for a specification and further information

Note 14 Non-financial assets

Table 14.1 Non-financial assets

Table 14.2 Non-current assets

Bankplassen 4

In 1986, Bankplassen 4 was transferred from Norges Bank to the government by the then Norwegian Directorate of Public Construction and Property, now Statsbygg. The transfer agreement pertains to ownership rights to the building and a ground lease, limited to the plot the building occupies. Norges Bank does not receive rent for the right of use. The term of the lease is 80 years, with the option of 10-year extensions. If the lease is not renewed, the building reverts to Norges Bank free of charge. The building is fully depreciated and its carrying amount at 31 December 2022 is NOK 0.

Note 15 Other operating expenses and other operating income

1. Other operating expenses

Table 15.1 Other operating expenses

See Note 20.12 Management costs for specification and further information regarding costs covered by management fee.

Table 15.2 Fees, external auditor shows the breakdown of fees to external auditor between Norges Bank and subsidiaries.

Table 15.2 Fees, external auditor

Statutory audit

Statutory audit consists of audit fees of Central Banking Operations and the GPFG. Norges Bank´s external auditor is Ernst & Young AS (EY). EY began as elected auditor for the audit of the financial year 2022. Former external auditor Deloitte AS (Deloitte) resigned after the end of their engagement, at the end of the audit of the financial year 2021. In 2022, the fees for Norges Bank to EY and Deloitte were NOK 9.5m and NOK 3.6m, respectively.

Norges Bank has established subsidiaries which invest exclusively as part of Norges Bank´s management of the investment portfolio of the GPFG. The subsidiaries have separate engagement agreements with their external auditors and are not bound by the agreement between Norges Bank and EY.

Other assurance services

The external auditor assists the Supervisory Council in several of their supervisory reviews. The fees for this work are agreed separately and are presented as Other assurance services. In 2022, the fees for Norges Bank to EY and Deloitte were NOK 0.9m and NOK 0.3m, respectively.

Tax advice

Services provided to Norges Bank in 2022 relate exclusively to services provided by EY. This is mainly related to tax advice to NBIM in London provided by EY Norway and EY UK.

2. Other operating income

Table 15.3 Other operating income

Services for banks

Norges Bank performs settlement services for banks through Norges Bank’s settlement system (NBO). To promote efficient and robust settlement of payments in Norges Bank, expenses for account maintenance and settlement services are covered by the annual fees for NBO. The assumption is that revenues will cover two-thirds of the overall cost of implementing and operating the settlement system. A third of expenses is attributable to central banking functions and covered by Norges Bank.

Note 16 Notes and coins

Table 16.1 Notes and coins in circulation

Of notes and coins in circulation at 31 December 2022, NOK 5 652m comprised withdrawn notes. This pertains to all denominations in Series VII, which were withdrawn in 2018, 2019 and 2020. Norges Bank is still obliged to redeem these notes at face value.

In 2022, NOK 69m was recognised as income related to withdrawn notes and coins. This is due to a previously recognised income, from withdrawn banknotes, being too low. No withdrawn notes and coins were recognised as income in 2021. In 2022, withdrawn notes and coins were redeemed in the amount of NOK 7.2m, compared with NOK 7.5m in 2021.

Note 17 International Monetary Fund (IMF)

Pursuant to Section 3-10, Sub-section 1, of the Central Bank Act, Norges Bank shall administer Norway’s financial rights and obligations ensuing from participation in the International Monetary Fund (IMF).

Norway helps to finance the IMF through Norway’s IMF quota subscription and various lending agreements with the IMF. The current lending agreements are: the multilateral lending programme New Arrangements to Borrow (NAB), bilateral borrowing agreements with the IMF and agreements to finance the Poverty Reduction and Growth Trust (PRGT).

Table 17.1 Claims on and liabilities to the IMF

¹ Commitments giving the IMF a borrowing facility with Norges Bank up to an agreed amount. Only the portion drawn is recognised in the balance sheet.

² The net subscription refers to the reserve tranche position and is Norway’s quota less Norway’s krone liability to the IMF. If necessary, Norges Bank may draw from the IMF an amount equal to Norway’s reserve tranche position.

The IMF has created an international reserve asset called the Special Drawing Right (SDR). All rights in and commitments to the IMF are denominated in SDRs. The value of the SDR is calculated on the basis of a currency basket comprising the US dollar, euro, Chinese renminbi, Japanese yen and pound sterling. The currency weights are adjusted each year in accordance with changes in bilateral foreign exchange rates.

1. Norway’s IMF quota subscription

The IMF is owned and directed by member countries and functions like a credit union in which each member country pays in a subscription, also called its quota. These subscriptions are the IMF’s basic source of funding for loans. The amount of the subscription reflects the member country’s relative position in the global economy. The quota determines a member country’s voting power in IMF decisions, the member’s financial contribution to the IMF, the amount of financing the member can access in the event of balance of payments problems and the amount of SDRs the member receives when SDRs are allocated. Norway’s quota at 31 December 2022 was SDR 3 755m, unchanged from year-end 2021.

2. Holdings and equivalent value of Special Drawing Rights (SDRs)

SDRs are periodically allocated to IMF member countries, most recently in 2021. Equivalent value of SDR allocations shows the amount of SDRs Norway has been allocated since the scheme was established. Holdings of SDRs may be used to pay in quota increases, for other transactions with the IMF or for purchase or sale of SDRs from or to other IMF members. However, SDRs cannot be used for direct purchases of goods and services. As at 31 December 2022, a total of SDR 5 162m had been allocated to Norway, unchanged from year-end 2021. Norway’s holdings of SDRs have been deposited with the IMF and amounted to SDR 5 474m at 31 December 2022, compared with SDR 5 355m at year-end 2021.

3. Norges Bank’s loans to the IMF

New Arrangements to Borrow (NAB)

The New Arrangements to Borrow (NAB) programme is used for loans if the IMF has a need for funds in excess of subscriptions from member countries. At 31 December 2022, Norway’s total resource commitments under the NAB were SDR 3 933m, unchanged from year-end 2021. Norges Bank’s loans to the IMF under the NAB at 31 December 2022 totalled SDR 19m compared with SDR 46m at year-end 2021.

Bilateral borrowing agreement

In 2017, the IMF and Norges Bank concluded a new bilateral borrowing agreement, after the previous such agreement terminated on 4 November 2016. Under the agreement, the IMF is provided with a borrowing facility in the form of a drawing arrangement of up to SDR 2 585m. The agreement is part of a broader international effort to ensure the IMF sufficient resources to meet the borrowing requirements of member countries in times of crisis. This borrowing agreement has for the time being not been drawn on.

Poverty Reduction and Growth Trust (PRGT)

Norway participates in the financing of the IMF’s subsidised lending programme for low-income countries under four agreements. Norway signed such agreement in 2010 and 2016 to provide SDR 300m each. These facilities have been fully drawn by the IMF, and the IMF will henceforth only make interest and principal payments without the ability to draw further amounts. In 2020 and 2022, Norway signed new borrowing agreements with the IMF for further SDR 400m and SDR 150m, respectively. Loans to the PRGT at 31 December 2022 totalled SDR 331m, compared with SDR 333m at year-end 2021.

4. The IMF’s deposits with Norges Bank

The IMF has deposited its entire NOK holdings with Norges Bank, referred to as the Krone liability to the IMF. However, the value of these deposits is adjusted so that the IMF bears no risk associated with exchange rate movements between the krone and the SDR. At 31 December 2022, krone deposits from the IMF totalled SDR 2 662m, compared with SDR 2 768m at year-end 2021.

5. Net interest income on claims on and liabilities to the IMF

Table 17.2 Net interest income, claims on/liabilities to the IMF

6. SDR interest rate

The SDR interest rate forms the basis for interest income and expense related to member countries’ relationship with the IMF. The rate is calculated and published every week by the IMF. It is based on a weighted average of the three-month sovereign yields in countries/currency areas included in the SDR basket (USD/EUR/CNY/JPY/GBP). The interest rate has a floor of 5 basis points.

7. Interest on the IMF quota subscription and interest on the krone liability to the IMF

Interest on the reserve tranche position is calculated by the IMF. Interest is calculated net by the IMF but presented gross in Norges Bank’s financial statements as interest income and interest expenses associated with the quota subscription. Interest is calculated monthly and netted quarterly. The interest rate is based on the IMF’s SDR, with the deductions and additions resulting from the IMF´s Burden Sharing mechanism.

8. Interest on Special Drawing Rights and interest on equivalent value of SDR allocations

Norges Bank earns interest income on its holdings of SDRs and is charged for interest expenses on the equivalent value of SDR allocations. Interest is calculated monthly and netted quarterly. The interest rate is the current SDR interest rate at any given time.

9. Interest on IMF lending programmes

Interest is calculated monthly and netted quarterly. The interest rate is the current SDR interest rate at any given time.

Note 18 Loans and deposits

Table 18.1 Lending to banks

Table 18.2 Deposits from banks

Table 18.3 Deposits from the Treasury

Table 18.4 Interest income from lending to banks

1. Interest terms for loans to banks

Fixed-rate loans (F-loans) are the instrument primarily used to supply liquidity to the banking system. They are issued to banks at a fixed or floating rate and specified maturity against collateral in the form of securities. The maturity on F-loans is determined by Norges Bank and varies depending on the projection of structural liquidity. Average maturity on floating rate F-loans to banks was 3.8 days in 2022 and 5.5 days in 2021. Average maturity on fixed rate F-loans to banks was 1.0 day in 2022, compared with 3.5 days in 2021.

The interest rates on F-loans are normally determined by multi-price auctions. In a multi-price auction banks submit bids for a desired amount and interest rate. Norges Bank decides the aggregate amount of the allotment. The banks’ interest rate bids are ranked in descending order. Banks that place bids within the aggregate amount will be awarded in the amount and at the interest rate submitted. The interest rate is normally close to the policy rate.

D-loans may be intraday or overnight. Intraday D-loans improve the efficiency of payment settlement, as banks can obtain cover for their positions. These loans are interest-free and are normally repaid by the end of the day. If the loan extends overnight, it becomes an interest-bearing D-loan, with an interest rate 1 percentage point above the policy rate.

Table 18.5 Interest expense on deposits from banks and the Treasury

2. Interest terms for deposits from banks

Sight deposits: Banks can deposit unlimited reserves in Norges Bank via the standing deposit facility. The interest rate on deposits less than or equal to a bank’s quota is equal to the policy rate (sight deposit rate). Sight deposits in excess of this quota, referred to as reserve deposits, are remunerated at a lower rate, the reserve rate. The reserve rate is 1 percentage point lower than the policy rate.

Fixed-rate deposits: Norges Bank reduces the quantity of reserves in the banking system by providing banks with fixed-rate deposits (F-deposits). As in the case of F-loans, the interest rate is normally determined by multi-price auction. The maturity on F-deposits is determined by Norges Bank and varies depending on the projection of structural liquidity. Norges Bank can offer F-deposits at a floating rate, i.e. the interest rate on the F-deposits depends on the benchmark rate in the money market. Average maturity on F-deposits was 2.1 days in 2022 and 1.5 days in 2021.

3. Interest terms for deposits from the Treasury

Interest terms for deposits from the government are set in a special agreement between Norges Bank and the Ministry of Finance. The interest rate on the government’s account is calculated on the basis of yields on foreign short-term government securities, weighted by the investments in the foreign exchange reserves.

In 2022, interest on Treasury deposits was paid at an annual rate of 0% in Q1 and Q2, 0.50% in Q3 and 1.75% in Q4. In 2021, interest was paid on these deposits at an annual rate of 0% throughout the whole year.

Note 19 Related parties

Norges Bank, including the GPFG, is a separate legal entity that is wholly owned by the government through the Ministry of Finance. See Note 1 General information for information regarding the relationship between the Ministry of Finance, Norges Bank and the GPFG. All transactions are carried out in its own name and on market terms.

For information regarding transactions with governing bodies and senior executives of Norges Bank, see Note 12 Personnel expenses.

1. The management of the GPFG

The Ministry of Finance has placed funds for asset management by the GPFG as a krone deposit in a special account with Norges Bank (the krone account). GPFG assets are invested further in an investment portfolio comprising financial instruments, real estate and renewable energy infrastructure.

Inflow to/ -withdrawal from the Ministry of Finance´s krone account

Inflow to/ -withdrawal from the krone account are carried out by monthly transfers between the GPFG and Norges Bank. In 2022, net inflow amount to the krone account was NOK 1 090bn, compared with net withdrawal amount from the krone account of NOK 120bn in 2021.

Of the transferred amount, 5% is held back to the month after, in order to adjust the transferred currency amount to the amount in NOK instructed by the Ministry of Finance. Unsettled transfers between the GPFG and Norges Bank are presented in the balance sheet as a net balance between the two reporting entities, either on the balance sheet line Other financial assets or Other financial liabilities. Unsettled transfers were NOK 1.5bn at year-end 2022, compared with NOK 1.4bn at year-end 2021.

See additional information regarding inflow/withdrawal during the period in Note 20 GPFG Statement of changes in owner’s capital.

Management fee

Norges Bank charges the Ministry of Finance a management fee relating to management of the GPFG. The management fee amounted to NOK 5 226m in 2022 and NOK 4 640m in 2021.

The management fee is withdrawn from the krone account during the year based on forecasts. The difference between the total amount withdrawn and the actual management fee for the year is presented either on the balance sheet line Other financial assets or Other financial liabilities.

In 2022, Norges Bank received a payment of NOK 5.0bn withdrawn from the krone account, compared with NOK 10.5bn in 2021. The amount withdrawn in 2021 included the management fee for 2020 and 2021. This is due to a change in the time of withdrawal to before year end. At year-end 2022, Norges Bank has a liability of NOK 274m to the GPFG, compared to a liability of NOK 536m to the GPFG at year-end 2021.

For further information, see Note 20.12 Management costs.

2. Transactions between Norges Bank and the GPFG

Internal trades in the form of money market lending or borrowing between the GPFG and Norges Bank’s equity portfolio are presented in the balance sheet as a net balance between the portfolios, either on the balance sheet line Other financial assets or Other financial liabilities. For Norges Bank, net balance between the portfolios amounted to a liability of NOK 302m at year-end 2022, compared to a liability of NOK 130m at year-end 2021.

Associated income and expense items are presented net in the income statement as Other financial income/expense. All transactions are carried out at market prices.

3. Transactions between Norges Bank and wholly owned subsidiaries

As part of the management of the GPFG’s investments in real estate and infrastructure for renewable energy, Norwegian subsidiaries have been established that are wholly owned by Norges Bank. These subsidiaries are charged a quarterly administration fee. In 2022, invoiced administration fees totalled NOK 2.1m, compared to NOK 1.6m in 2021.

4. Other transactions with the government

Pursuant to Section 3-7 of the Central Bank Act, Norges Bank provides services in connection with government borrowing and government debt management and the central government’s group account. Under the new Central Bank Act in force from 1 January 2020, Norges Bank’s costs related to these tasks are no longer covered by the Ministry of Finance.

Pursuant to point 5 of the Guidelines for provisions and allocations of Norges Bank’s profit or loss, “In connection with the closing of the books each year, an amount equal to one third of the capital in the Transfer Fund shall be transferred to the Treasury.” This transfer amounted to NOK 8.1bn for 2022 and NOK 11.1bn for 2021.

On the basis of the prepared financial statements, the transfer takes place in the following year, but the amount due appears under the balance sheet item Other liabilities in the balance sheet at 31 December.

5. Other related party transactions

Norges Bank has transactions with other government agencies and bodies. These transactions are primarily related to leasing of buildings and amounted to NOK 33.8m in 2022 and NOK 27.2m in 2021.

Note 20 Government Pension Fund Global (GPFG)