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Sep 06, 2023

Focus on biodiversity and combined human capital and human rights, NBIM tells ISSB

World’s biggest SWF responds to standard-setter’s consultation

Norway’s mammoth sovereign wealth fund (SWF) has added its $1.5 tn voice behind a push for bringing together human capital and human rights reporting. In terms of new research areas, Norges Bank Investment Management (NBIM) also suggests the International Sustainability Standards Board (ISSB) focus on biodiversity over the next two years.

ISSB has asked for opinions on where it should focus its efforts over the near term and last week a 21-strong coalition of investors, representing $1 tn, also called for a focus on human capital and human rights reporting.

In its letter to the ISSB, NBIM writes that given the ‘limited capacity’ to take on new projects over the coming two years, it sees two areas as being key.

Norges Bank's Head Office, Oslo, Norway
Norges Bank's Head Office, Oslo (Photo: Esten Borgos)

Integrated human reporting

Talking about taking on both human capital and human rights, which NBIM describes as being ‘inherently linked’, the fund manager says that while it appreciates ‘and strongly supports’ the ISSB’s approach to social disclosures as part of financially material disclosures, it warns that the proposed plan to launch two separate projects – leading potentially to two different standards – risks reinforcing ‘the existing, misleading perception that human capital relates only to a company’s own workforce, while human rights are only relevant for a company’s supply or value chain’.

With that in mind, NBIM highlights the importance of addressing both issues and their reporting in an integrated fashion.

‘Companies’ operations impact their employees, contract workers, workers in supply chains, consumers and end-users, indigenous people and local communities, human rights defenders and the environment,’ it writes in the letter. ‘Data on workforce composition and costs can help investors understand to what extent compensation is competitive [as well as] the company’s ability to attract and retain talent.

‘Companies also have a responsibility to respect human rights, including in supply chains and other business relationships,’ it continues, adding that a ‘lack of respect for human rights is not solely a responsible business conduct issue – it can also have a material impact on businesses.’

Biodiversity and ecosystems

The other area NBIM says ISSB should consider for research and standard-setting is biodiversity, ecosystems and ecosystem services.

‘Changes to natural ecosystems and the biodiversity that underpins them likely pose increasing financial risks to companies in a number of industries globally – and impact their investors’ returns,’ states the fund manager. ‘Nature risks also have important interdependencies with climate change. At the same time, evolving trends may present new business opportunities.

‘As a long-term, financial investor, biodiversity and ecosystems have been priority topics on NBIM’s ownership agenda for several years, and the fund has specific expectations for how our portfolio companies should manage and account for these issues in their business activities.

‘The international attention and momentum on this subject has increased since the Kunming-Montreal agreement reached in December 2022, which includes a target requiring jurisdictions to take measures to ensure that large and transnational companies and financial institutions regularly monitor, assess and transparently disclose their risks, dependencies and impacts on biodiversity.’

It goes on to say that while the financial relevance of nature loss is clear, the information needed to identify and manage nature-related risks is often ‘not available or decision-useful’.

An ISSB biodiversity standard could build on the work of the Taskforce on Nature-related Financial Disclosures (TNFD), it adds. The TNFD is set to release its final framework this month.

NBIM last year published a document outlining its expectations around human capital management, which it described as ‘increasingly important’ at the time. It has also been ahead of the curve on biodiversity, publishing its expectations on the issue back in 2021.

It says a new project focusing on integrated reporting should be a lower priority.

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...