Norway Targets Net Zero for Sovereign Wealth Fund by 2050

Norges Bank Investment Management, which manages Norway’s $1.2 trillion sovereign wealth fund, has published a new 2025 climate action plan in which it sets targets for net-zero emissions by 2050 for all companies in its portfolio.

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

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A news release from Norges says the fund will engage with the companies in its portfolio to reach net zero by 2050, and set credible preliminary targets and create plans to reduce their direct and indirect emissions of greenhouse gases.

Norges is aiming to have a comprehensive system in place by 2025 that will measure its exposure to climate risk, as well as opportunities and potential portfolio emission trajectories. The release also says the fund will:

Develop principles for measuring and managing climate risk, and stress-test the equity portfolio against a 1.5°C and other climate scenarios on an annual basis;
Set a net-zero 2050 target for its unlisted real estate portfolio, and an interim target for 2030 of reducing scope 1 and 2 greenhouse gas emissions intensity by 40% compared to 2019;
Analyze the emissions of portfolio companies and unlisted real estate investments relative to their sector-specific emission pathways;
Increase investments in renewable energy infrastructure; and
Monitor climate risk in the portfolio, including equity benchmark inclusions, and divest from companies with unmitigated climate risks, particularly when engagement has failed or is unlikely to succeed.

The release says climate considerations will weigh heavily into Norges’ investment analysis, including considering sector- and company-specific climate information when evaluating ownership and investment cases. It also says the fund will have specific net-zero engagement agendas for companies with significant transition risks that it takes large positions in.

“Companies whose transition plans fall significantly short of those of their peers, and which do not respond to engagement, will be candidates for assessment under the climate-related conduct exclusion criterion,” Norges’ climate action plan says. “We want to support our portfolio companies to deliver long-term financial value, adapt their business models and achieve net zero emissions.”

The plan says its engagement focus list includes companies that make up 70% of the fund’s equity portfolio’s financed scope 1 and scope 2 greenhouse gas emissions. It also includes its largest holdings in sectors with significant indirect exposure to climate risk, and other companies with elevated climate risk.

“By 2025, our aim is that a significantly higher share of our portfolio companies, and in particular companies with high emissions, will have set net zero targets, putting us on a path where all companies in the portfolio have such targets by 2040,” the climate action plan says.

As part of the plan, Norges will ask companies to commit to business activities aligned with net-zero 2050, and will expect them to set science-based short-, medium- and long-term emission-reduction targets for their scope 1, scope 2 and material scope 3 emissions. According to the plan, it will also:

Ask companies to develop transition plans, define their time frames and milestones and disclose their progress annually;
Ask companies to undertake appropriate short-term actions to help mitigate global warming and reduce exposure to climate risk;
Ask companies to report in line with the Task Force on Climate-Related Financial Disclosures recommendations; and
Communicate its concerns to boards if they fail to meet expectations on oversight, management and disclosure of material climate risks.

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Tags: Climate Action Plan, Government Pension Fund Global, Net Zero, Nicolai Tangen, Norges Bank Investment Management, Norway, Paris agreement, Sovereign Wealth Fund

David Holmgren

David Holmgren has been dislodged from his post as CIO at Hartford HealthCare, which he has held for the past 12 years. He and his investment staff are being replaced by Morgan Stanley.

The $4.2 billion in pension and endowment assets he oversaw have enjoyed good returns. In fiscal year 2021, for instance, the plan advanced 33.5%, besting the stock market. Holmgren could not be reached for comment.

HHC issued a statement that didn’t say why it had embarked on what it called a “reorganization.” The statement says, “Hartford HealthCare’s investment funds have performed well over many years. The investment team’s acumen has earned national recognition from investment industry experts.”

The statement from the health care plan adds: “Our portfolio will benefit from Morgan Stanley’s deep bench of research analysts, market strategists and investment managers.”

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In response to Holmgren’s departure, the plan’s investment committee, including Wesleyan University CIO Anne Martin and General Electric CIO Harshal Chaudhari, has resigned, panel chair David Roth told Institutional Investor, which broke the story about Holmgren’s removal and quoted Roth as calling the move “unacceptable.” The committee members could not be reached.

Holmgren, who came to HHC from the Connecticut treasurer’s office, where he was principal investment officer, has long been known for his innovative spirit.

His strategy was centered on active management of the portfolio, rather than depending on index funds. During strong markets, Holmgren’s HHC favored undervalued assets. His approach also featured a large commitment to hedge funds.

“I firmly believe our record demonstrates the value-add of active asset management,” he told CIO last year. “These markets are way too risky to be flying on autopilot, and the best way to control market risks is to be actively allocated.”