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Mar 05, 2020

Norges calls for boards to up game on sustainability

SWF manager held nearly 1,000 meetings on ESG issues in 2019

The world’s biggest equity investor has urged corporate boards to up their focus on sustainability.

Norges Bank Investment Management (NBIM), which manages Norway’s $1.1 tn sovereign wealth fund (SWF), made the call in a new position paper released this week.

In the document, it says boards ‘should ensure that company reporting reflects all material sustainability risks and opportunities’. It adds that sustainability disclosure should be ‘quantitative’ and released at least once a year. 

Recognizing the lack of accepted international standards for ESG reporting, the bank suggests companies start by using Sustainability Accounting Standards Board (SASB) metrics for specific areas and the GRI Standards for broader topics.

NBIM also warns that it may support shareholder resolutions demanding better disclosure at companies that fail to meet its expectations.

The size of Norway’s SWF makes it one of the world’s most influential shareholders, with stakes in more than 9,000 companies. On average, it holds around 1.5 percent of companies in the FTSE Global All Cap index. 

While the fund has long campaigned on ESG issues, in recent years it has stepped up its efforts. For example, last year it announced it would divest from a number of oil and gas companies, although it said it would remain invested in some of the larger, more diversified producers.

The position paper was published at the same time as NBIM’s annual report on responsible investment, which outlined the bank’s engagement efforts during 2019. The report reveals that NBIM had dialogue with more than 1,800 companies last year, either through meetings or written correspondence. 

‘Climate change, board composition and executive remuneration were the responsible investment topics that we raised most often with companies,’ notes the report. The engagement efforts included nearly 1,000 meetings with companies focused specifically on sustainability issues, the report adds. 

For example, NBIM says it spoke with emerging market banks about deforestation, cement producers about adapting to a low-carbon economy, and shipping companies about new emissions regulations, among various other engagements.

This week, NBIM also released a separate report on sustainability reporting that called for greater international harmonization of reporting standards and predicted the end of the use of ESG questionnaires. 

The document – the latest in a series of ‘perspective’ articles that set out NBIM’s view on financial industry topics – says further standardization of sustainability reporting is required to allow investors to properly assess and compare disclosures.

‘A good next step would be reporting requirements based on a core set of globally accepted, financially material and standardized sustainability metrics. Over time, a coherent standard responding to the needs of both investors and other stakeholders is needed,’ notes the document.

The report acknowledges that companies today respond to a large number of ESG questionnaires from a variety of stakeholders, such as ratings agencies, NGOs and index providers. 

‘As standards and technologies for information gathering and sharing evolve, we believe that publishing information in company reports and on websites will be sufficient. It should not be necessary to respond to questionnaires if a company has published complete and standardized information elsewhere,’ says NBIM.