Norway’s Sovereign Wealth Fund to Flex Muscle on Environmental and Social Issues
Posted on 02/15/2023
Norges Bank Investment Management (NBIM) oversees Norway Government Pension Fund Global. The universal asset owner published its ninth report on responsible investment and launched its 2025 Climate action plan, where they set out actions targeted at driving portfolio companies towards net zero emissions by 2050. NBIM plans to influence corporate boards to embrace net-zero carbon emission targets. Norway’s sovereign wealth fund, as a universal asset owner, in effect, wants all listed companies to agree to global net zero emissions in line with the Paris Agreement. NBIM believes that companies that understand the drivers of net zero emissions and anticipate regulatory developments will be well-positioned to capture the financial opportunities arising from a low-carbon economy. Norway’s SWF is invested in listed equities, tradable bonds, unlisted real estate, and unlisted renewable energy infrastructure.
Norway Government Pension Fund Global is funded by its investments and oil & gas extraction.
“We prioritise the largest emitters, and these account for about 70 percent of the emissions in the portfolio. Climate considerations is always part of the engagements we have with these companies. Among several topics, we discuss the companies’ climate targets, transition plans and emission pathways. We set concrete goals and follow the progress over time”, says Carine Smith Ihenacho, Chief Governance and Compliance Officer said in a February 2023 press release.
In 2022, the sovereign wealth fund had 2,911 company meetings. NBIM published its first investor expectations on climate change, directed at company boards, in 2009.
Some of these traditional energy producers making some transition to cleaner forms of energy are incurring losses. In February 2023, Duke Energy Corporation reported a loss of US$ 1.3 billion on the sales of its commercial renewable business unit. The unit includes wind and solar farms in Texas, Wyoming, and Utah.
Listed Equity Direct Holdings
Around 70% of the sovereign wealth fund’s investment portfolio is held in listed companies. As a major owner of global stocks, NBIM plans to have specific net zero engagement agendas if they take large positions in companies with significant transition risks. Likely these candidates are oil and gas companies like Royal Dutch Shell plc and Exxon Mobil Corporation whose primary business is in fossil fuels. Companies whose transition plans fall significantly short of those of their peers, and which do not respond to engagement, will be candidates for assessment under the climate-related conduct exclusion criterion.
NBIM may also decide to vote against directors, climate transition plans and/or executive remuneration plans, and file shareholder proposals.