Stockholm (NordSIP) – Climate laggard companies beware, Norges Bank Investment Management (NBIM), which handles the EUR 1.2 trillion Norwegian Pension Fund Global, has got you in its crosshairs. On this morning of Thursday 9 February 2023 CEO Nicolai Tangen, Chief Governance and Compliance Officer Carine Smith Ihenacho, Global Head of Corporate Governance Wilhelm Mohn and Head of ESG Risk Monitoring Christopher Wright presented NBIM’s latest responsible investment report and signalled the fund’s intention to step up its shareholder activism ahead of the next round of corporate AGMs this spring.
No time for the ESG backlash
Frustrated by the fact that only 17% of the more than 9,300 companies in its portfolio have set a science-based net-zero target, NBIM says it will not hesitate to vote against the reappointment of company directors that fail to take the necessary action. As Ihenacho puts it: “2022 was a challenging year for many companies, who needed to take short-term action, but they also need to consider the long-term implications of their decisions.” She explains how NBIM expects portfolio companies to align themselves with the goals of the Paris Agreement, but also stresses that NBIM also retains strong expectations regarding other ESG issues. In particular, human capital and Board composition are highlighted throughout the presentation.
Both Tangen and Ihenacho refer to the “ESG backlash” that characterised much of 2022. Ihenacho makes their position clear: “for us ESG is financial.” She goes on to explain how they see it as fundamental to value creation and growth, and benefiting from ever increasing transparency and accountability, pointing to the high level of detail in NBIM’s reporting, which includes demonstrably positive results from their engagement activities. Two thirds of the fund’s company meetings last year focused on ESG matters.
Push towards net-zero
Wilhelm Mohn explains how NBIM is determined to get all the companies in its portfolio firmly on track to net-zero. “The energy transition for many sectors if the biggest economic opportunity and risk that they are facing. […] Our aim is to discuss the energy transition with 70% of the emissions in our portfolio – some 200 companies.” This effort has already started, with an initial focus on the highest emitting sectors. Mohn reiterates the observation that there is a measurable positive effect on company behaviour following engagement, including on social matters such as forced labour in supply chains.
NBIM believes that Board quality and composition are key to companies’ success and long-term sustainability. Ihenacho explains how they do not hesitate to vote against Board recommendations, doing so in a third of cases last year. The main objections concern the election of Board members, for instance where the CEO and Chairperson roles are combined or if there will not be at least two women members in place. They are also actively working to keep spiralling executive remuneration in check.
Aside from governance concerns, Ihenacho explains how “last year we voted against 61 Board members in 18 companies due to lack of management of climate change risk.” In terms of shareholders proposals, Ihenacho highlights the main focus on climate change and human capital, but also the emergence of new themes regarding racial equity, reproductive rights and animal welfare. It is interesting to note that many of the examples offered up by NBIM involve US-based companies.
Focus on Adani Group
When engagement does not work NBIM may make risk-based divestments, explains Christopher Wright. NBIM exited 74 companies in 2022, which is the fund’s highest level of divestment since inception. Perhaps pre-empting questions from the assembled members of the Norwegian media, Wright spends some time focusing on the Adani Group: “ we have monitored the Adani Group for many years […]. Since 2014 we have divested from six Adani-linked companies mainly for reasons of handling environmental risks.” Wright goes on to explain that while NBIM remained invested in Adani Green Energy, Adani Total Gas and Adani Ports at the end of 2022, that combined exposure of NOK 2 billion has since been reduced such that “for all intents and purposes we have no exposure left in these nine companies.” Market movements during the period mean that NBIM has roughly broken even on these Adani investments.
Wilhelm Mohn concludes by with another look at NBIM’s new Climate Action Plan 2025 along with its new dedicated advisory Board. This will inform the fund’s engagement efforts for the coming year, fuelled by the renewed determination to use its clout to push for swifter positive action from the companies in its global investment portfolio. The presentation and press conference are available in full on the NBIM website.