Asset AllocationFebruary 23, 2024

Norges Bank Reports Early Signs of Success in 1st Year of Climate Action Plan

A growing number of portfolio companies held by Norway’s $1.5 trillion sovereign wealth fund are adopting net-zero targets.

Reported by Michael Katz

The manager of Norway’s $1.5 trillion Government Pension Fund Global said it has seen early signs of success in the first full year of its climate action plan as an increasing number of its portfolio companies are adopting goals to become net-zero of greenhouse gas emissions by 2050.

Norges Bank Investment Management, which addressed climate risk at more than 800 company meetings in 2023, said in its 10^th annual responsible investment report that it has seen a growing number of companies setting net zero targets across all regions, with the highest increase in the Pacific region.

NBIM launched its “engage-to-change approach” with its portfolio companies in 2023, and while it said it is still early to evaluate the results the firm is “observing encouraging changes.” NBIM said that 2,385 portfolio companies had set science-based net-zero-2050 targets at the end of 2023, 790 more than in 2022. It also said that 68% of its financed emissions – a key metric defined in its climate action plan – are covered by net-zero 2050 targets, up from 56% the previous year.

“An increasing number of companies have targets and transition plans. However, there is still a way to go before we reach our goal of net-zero targets and transition plans for all the companies in the portfolio,” Carine Smith Ihenacho, NBIM’s chief governance and compliance officer, said in a release. “We want to support the companies, but we also want to be clear voice and actively address current issues concerning the companies we invest in.”

Financed emissions measurements seek to provide comparable metrics for financial institutions’ reporting on aggregate emissions weighted by their “financed share” of the companies’ total value.

NBIM calculates financed emissions by dividing the net asset value of all of its equity and bond investments in a company by its enterprise value including cash, and then multiplying that by the sum of the company’s scope 1 and 2 emissions. The firm said the financed scope 1 and 2 emissions in its equity and corporate bond portfolio totaled 59 million tons of carbon dioxide equivalents in 2023, which is 12% lower than in its benchmark index.

The firm also said its financed emissions were lower in the portfolio than in the equity benchmark index in all industry sectors except real estate and telecommunications. NBIM attributed the lowering of the portfolio’s financed emissions from its investments in the industrials, basic materials, and utilities sectors.

“Our ambition is for our portfolio companies to reach net-zero emissions by 2050,” NBIM said in its report. “We expect large emitters to set net-zero targets with urgency and all companies to set targets by 2040. We also have a net-zero-2050 target for our unlisted real estate investments and aim to reduce their emissions intensity by 40% by 2030.”