The Only Investment Option is Net Zero
NBIM is Norway’s Sovereign Wealth Fund. It is one of the world’s largest. So its investment decisions have massive global influence. NBIM is invested in more than 9000 companies in more than 70 countries. It holds on average 1.4% of all listed companies globally.
Therefore other leaders and investors need to take note of NBIM’s strategy to help reduce the climate risk, and promote sustainability. So what is it? Carine Smith Ihenacho is NBIM’s Chief Governance and Compliance Officer. Here she describes the uncompromising approach to investing in sustainability. She also explains the reasons.
This is a lightly edited version of her remarks to the Oslo Energy Forum on 16 February 2020.
Climate risk is financial risk. The financial sector has a role and interest in an orderly climate transition. As an owner of a small portion of the world’s economy, we bear the same climate risk. There is no place to hide. We cannot spread the risk or divest away from climate change. Divesting is to pass the problem to others. We need to tackle the problem at its core, to reduce emissions from the companies we invest in.
Pressure to Invest Differently
15% of our portfolio is in companies that need to transition in the way they operate, or what they produce. Oil and gas companies fall in the latter category. As a shareholder, we can influence these companies. We use this right actively. In 2020 we discussed climate change in 536 company meetings. This represents 25% of the fund’s net asset value. In other words, we raise climate risk with investments worth more than 200 billion US dollars. In 2021 it was even higher.
No Place to Hide
Influencing companies starts with setting clear expectations. We expect companies to adopt climate plans in line with the Paris Agreement. This means net zero by 2050. Do we see change? We certainly have a more concrete dialogue with companies about the climate transition. Let’s take oil and gas. The discussion in our company meetings is now about a company’s execution of energy transition plans, capital allocation, progress against climate targets, measures to reduce methane emissions. And we will intensify our dialogue with the largest emitters.
The Board Cannot Hide Either
The climate transition is ultimately a board responsibility. We will hold the board to account and increasingly vote against boards that we do not think sufficiently manage climate risks. We may also submit shareholder proposals. It is encouraging that our data shows that companies are taking actions. We also see from our assessments that the companies we have engaged with on climate change, improve more than the companies we didn’t engage with. Our ownership efforts gave results. Climate change also means investment opportunities. The NetZero transition will need investments and capital reallocation of 12 to 20 trillion US dollars over the next two decades.
New Mandate to Invest in Green
We have a dedicated environmental mandate for investing in low carbon energy, energy efficiency, and natural resource management. And recently, we got a mandate to invest up to around 14 billion US dollars in unlisted renewable energy infrastructure. Our work will evolve. We will increase our collaboration with other investors, both in company engagement and in initiatives that develop standards and methods for assessing company progress. We will seek stakeholder input in our priorities. We look forward to engaging with companies and the rest of the financial sector in this work.