PensionsSeptember 28, 2023

Norway’s SWF: Stop Talking, Take Action on Climate Transition

The $1.4T Norges Bank Investment Management has increased its climate expectations for more than 9,000 companies in its portfolio.

Reported by Michael Katz

Norges Bank Investment Management, which manages Norway’s $1.4 trillion sovereign wealth fund, is telling its more than 9,000 portfolio companies that the time for talking about climate transition is over, and the time for action has arrived.

“Many companies now need to move on from disclosures and target setting to the execution phase,” Tim Smith, NBIM’s lead investment stewardship manager, said in a release. “They need to show investors credible transition plans and explain how they will ensure delivery.”

The firm published its updated expectations to provide guidance as its portfolio companies manage climate-related risks and opportunities. It presented six main expectations, which apply to all portfolio companies and will directly inform the board’s voting decisions.

Board Oversight: Company boards are expected to ensure climate risks and opportunities are integrated into corporate strategy and risk management. They are also expected to be transparent on how they establish oversight and provide details of their governance structures, mechanisms and board activities.
Climate Risk Disclosures: Companies are expected to analyze and disclose how climate risk may impact their operations, value chains and demand for their products.
Greenhouse Gas Reporting: Companies should report scope 1, scope 2 and scope 3 greenhouse gas emissions in accordance with the Greenhouse Gas Protocol. They are expected to at least seek reasonable assurance of their scope 1 and scope 2 emissions.
Net Zero 2050: Companies are expected to commit to achieving net zero status by 2050 or sooner and align their activities with the objectives of the Paris Agreement.
Interim Targets: Companies are expected to set science-based interim emission reduction targets that cover scope 1, scope 2 and material scope 3 emissions, consistent with reaching net zero by 2050.
Transition Plans: Companies are expected to implement time-bound and quantified transition plans intended to deliver on their interim emission reduction targets.

“We expect companies to manage climate risks and opportunities in a manner that is meaningful to their business model and situational context,” NBIM’s published expectations stated. “They should set net zero and interim decarbonization targets, define strategies to achieve these, and be transparent about their approach.”

NBIM also published its opinion on the corporate use of voluntary carbon credits, saying companies should prioritize reducing their own emissions and that carbon credits should not be counted toward science-based interim emission reduction targets.

The firm stated that “legitimate concerns have been raised” about the quality of offset projects and warned that companies buying low-quality carbon credits risk overstating their emission reductions to investors.