Norway’s $1.19trn fund issues three-year climate action plan

Norway’s sovereign pension fund is to target net zero by 2050 and has published a three-year plan to steer portfolio companies towards its ambition.

Norges Bank Investment Management (NBIM), which invests the assets of the Government Pension Fund Global (GPFG), said it would set “credible preliminary targets” and create emission-reduction plans alongside portfolio companies.

High emitters will be encouraged to set 2050 net-zero targets “as a matter of urgency”, while other portfolio companies must set their 2050 target by 2040 at the latest.

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

Executives overseeing the $1.19trn fund will be active in encouraging regulators to set climate standards as well as compulsory reporting requirements for public and private companies. NBIM said it anticipated working more closely with other investors to develop best practices.

Net zero and growth

The action plan cites research from the International Monetary Fund and the International Energy Agency, which indicates that achieving net-zero goals may add 0.4% to annual GDP growth.

At the portfolio level, NBIB will develop principles for measuring and managing climate risk, and stress-test the equity portfolio against a 1.5°C target and other climate scenarios on an annual basis.

The “comprehensive system” will be in place by 2025 and used to assess exposures to climate risks and the potential portfolio emission trajectory.

Some sector-specific actions have also been unveiled. For the fund’s private real estate holdings, 2030 targets for reducing Scopes 1 and 2 greenhouse gas emission intensity by 40%, compared to 2019 data, will be implemented, while a specific drive for investments within the green infrastructure space has been disclosed.

The fund’s investment mandate will target opportunities within the climate transition alongside a new climate advisory board to provide overarching scrutiny.

Divestment momentum

Divestment has been touted for companies with “unmitigated” climate risks, while those companies with transition plans not deemed on par with peers will be the subject of exclusion assessments.

Tim Clare, director and global lead for transactions and sustainable finance at Anthesis, said such exclusion assessments are currently uncommon, owing to the “newness” of green initiatives, but the move by NBIM to implement them was a “clear indication” of their future potential.

Clare said: “Financial institutions signing up and setting science-based targets will be committing to a longer-term movement to only investing in businesses that have set their own science-based targets and net-zero plans.

“In that scenario, laggard businesses which refuse to set such targets will threaten their investor’s own compliance. In a scenario where investors are setting these targets, partly to manage risk but also specifically to attractive capital being reallocated to ‘sustainable’ homes, such non-compliance will increasingly not be tolerated,” he added.

NBIM’s divestment policy may see the wealth fund join the growing list of “high-profile cases” surrounding divestment, Clare added, with investors becoming “direct” over their need to “see evidence” of transition plans coming to fruition.

He said: “What is clear is more and more investors, especially in the private real assets space, are being direct with the management teams in their portfolio companies that if they don’t have strong plans in place to manage climate issues, and wider ESG topics, then the issues have the potential to cause concern at exit with possible valuation concerns.

“That’s not the threat of early disinvestment yet, but a clear warning about longer-term attractiveness,” he added.