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Norges Bank Investment Management raises corporate climate expectations

by Janessa Lee

Norges Bank Investment Management, the in-house manager of the Norwegian Government Pension Fund Global, is increasing its expectations for companies to manage climate risk and opportunities. With a portfolio valued at 15.3 trillion Norwegian kroner ($1.43 trillion), Norges Bank Investment Management holds significant stakes in various companies and wants them to go beyond setting targets and focus more on transition planning and strategy.

In an updated policy statement released on September 15, Norges Bank Investment Management outlined six core expectations for companies in relation to climate change. These expectations will directly influence voting decisions and will be particularly important in board-level dialogues. Carine Smith Ihenacho, the chief governance and compliance officer, highlighted the need to sharpen expectations as the effects of climate change become more evident.

Tim Smith, the lead investment stewardship manager for Norges Bank Investment Management, emphasized the importance of companies demonstrating credible transition plans and explaining their strategies to investors. Many companies are still in the early stages of their climate transition journey and need to move from setting targets to the execution phase.

In addition, Norges Bank Investment Management addressed the use of voluntary carbon credits. While the focus should be on reducing companies’ own emissions, using verified credits can be helpful in signaling high climate ambitions. However, transparency regarding how these credits are used is essential. The policy statement stressed the need for carbon credits that represent durable removal of CO2, noting that many companies aiming for net-zero emissions by 2050 will require carbon removals.

Investors also stand to benefit from transparency regarding companies’ use of carbon credits and their associated costs. This information allows investors to assess companies’ climate commitments and their alignment with global climate goals.

The Government Pension Fund Global portfolio consists of 71.3% equities, 26.4% fixed income, 2.3% unlisted real estate, and 0.1% unlisted renewable energy infrastructure. With such a substantial investment, Norges Bank Investment Management aims to ensure that its holdings contribute to a sustainable and low-carbon future.

By setting higher expectations, Norges Bank Investment Management is pushing companies to take more proactive measures in managing climate risks and opportunities. As the effects of climate change become more apparent, it is crucial for companies to prioritize their transition plans and strategies, while maintaining transparency with investors. This approach not only benefits the environment but also enhances long-term value for shareholders.

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