Fund Solutions

NBIM: Future Returns a Function of Net Zero Transition

Norwegian SWF to challenge companies on their decarbonisation targets, transition plans and climate reporting. 

Norges Bank Investment Management (NBIM), which manages Norway’s US$1.2 trillion sovereign wealth fund, has published its 2022-2025 climate action plan. It outlines how the fund plans to improve market standards for managing climate risks and opportunities, increase portfolio resilience and effectively engage with its 9,000 investee companies on their climate-related performance. 

“Our goal is to be the world’s leading investor in terms of how climate risk is managed,” said Nicolai Tangen, NBIM’s CEO. “Our long-term return will depend on how the companies in our portfolio manage the transition to a zero emissions society.” 

The fund will be engaging with all portfolio companies and asking for science-based short-term, medium-term and 2050 net zero targets. Firms will need to provide credible transition plans and commit to regular disclosure of their decarbonisation progress.  

Decarbonisation targets must cover all Scope 1 and 2 emissions as well as material Scope 3 emissions, the plan noted. NBIM will be examining the “robustness” of companies’ transition plans by analysing their governance structures, capital allocation frameworks, carbon price assumptions, and use of quality carbon offsets.  

“We will engage with the companies to reach [net zero] by setting credible preliminary targets and creating plans to reduce their direct and indirect emissions,” said Carine Smith Ihenacho, Chief Governance and Compliance Officer at NBIM.  

If company boards fail to meet NBIM’s expectations on board oversight, management and disclosure of material climate risks, the fund said it may decide to vote against directors, climate transition and/or executive remuneration plans, or file shareholder proposals. 

Over the next three years, NBIM also plans to develop principles for measuring and managing climate risks, stress testing its equity portfolio against difference temperature pathways on an annual basis. Last year, NBIM said financed emissions from its equities portfolio had halved in the past seven years. 

A 2050 net zero target will be set for the unlisted real estate portfolio, with an interim target to cut Scope 1 and 2 emissions intensity by 40% by 2030 compared to 2019 levels. 

The plan also outlined NBIM’s intention to set up a Climate Advisory Board to “challenge us and support our high ambitions”. 

“We believe that a good long-term return for the fund depends on sustainable economic, environmental and social development, as well as on well-functioning, legitimate and efficient markets,” it said.  

“Climate risk has long-term and systematic characteristics, and outcomes and trajectories are associated with great uncertainty. Mitigating and adapting to climate change is also associated with significant economic opportunities.” 

Raising ambition 

NBIM’s 2025 climate action plan is the fund’s latest commitment to improving its ESG-related performance. 

Last year, NBIM published a guide outlining how it addresses climate change as a financial risk across four tools: establishing principles and setting standards, climate change assessment, ownership, and investments. This includes the exclusion of certain coal companies and upstream oil and gas companies, in line with Norway’s Ministry of Finance stipulations 

The guide was accompanied by a paper describing NBIM’s approaches to carbon footprint and climate scenario analysis. 

In March, NBIM published its 2021 ‘Responsible Investment’ report, which noted that more than half of its divestments (32 out of 52) were the result of unacceptable social and governance-related risks, including poor tax transparency, anti-corruption and human rights violations. 

NBIM’s 2020-2022 strategy outlined the asset owner’s intention to vote against corporate boards with fewer than two women. 

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