Norges Bank Investment Management (NBIM) has stepped up its climate plans and expects its portfolio companies to follow suit as it continues to divest from more companies carrying high environmental and social risks.
Last year the investment bank divested from 86 companies that posed ESG risks and identified companies with heightened risks across a variety of ESG topics, including potential violations of human and labor rights, insufficient risk management related to corruption and business models highly exposed to thermal coal. In total, NBIM has made 526 divestment decisions since 2012.
As it increases its commitments to net-zero, NBIM says it has been consistently integrating ESG data into its investment processes. ‘The mandates for our portfolio managers require [companies] to take ESG considerations into account in their analyses,’ the firm notes in its latest responsible investment report. ‘They know well our expectations of companies on sustainability matters and our positions on governance matters, and [we] discuss them directly with companies.’
In the report, which outlines the bank’s climate strategy from last year, its investment mandate calls on companies to align their climate goals with that of the Paris Agreement and establishes a long-term goal for responsible investment.
‘We identify ESG risks across all companies in the portfolio and benchmark using a variety of risk-monitoring processes,’ NBIM writes in the report. ‘In broad terms, we consider ESG risk to be high if a company’s market valuation may be adversely affected by its management of ESG issues.’
The firm’s research observes that 2,385 portfolio companies had set science-based net-zero 2050 targets at the end of 2023, an additional 790 since 2022. Last year also saw the company take proactive steps to initiate climate risk discussions with 633 companies, with nearly half of these engagements concerning how to foster net-zero goals.
During proxy season, NBIM filed four shareholder proposals in the US calling for greater commitment by companies toward meeting net-zero goals.
In 2023, the bank screened 1,048 companies entering the fund’s equity benchmark index and identified 317 as having ‘high exposure’ to ESG risks. This sparked 263 companies being placed on an internal monitoring list, while NBIM decided to divest from, or abstain from investing in, the remaining 54 firms. NBIM also identified 124 companies associated with severe ESG incidents or controversies and placed them on the monitoring list.
‘As a global investor, our fate is intrinsically linked with that of the world economy,’ says Nicolai Tangen, CEO at NBIM. ‘Last year, the physical risks of climate change and the advancements in AI impacted people everywhere, which in turn affected the businesses we invest in and the management of the fund. Climate risk is financial risk.’