By Nick Hedley
Norges Bank Investment Management, which manages the world’s largest sovereign wealth fund, says it wants regulators to agree on “sound standards” for ESG-labeled products as it works towards a goal of net-zero emissions for all companies in its portfolio by 2050.
A lack of common standards has helped fuel skepticism towards environmental, social and governance (ESG) strategies in recent months. In May, Tesla CEO Elon Musk said ESG was a “scam” after his electric vehicle company was booted off the S&P 500 ESG Index – even as oil companies remained.
In August, lawmakers in Florida told the state’s $186.2 billion retirement system it would no longer be allowed to consider climate risk and other ESG factors when making investment decisions.
To ensure the integrity of ESG strategies, the European Commission, the U.S. Securities and Exchange Commission and other authorities are working towards comprehensive frameworks.
“We observe that the market for ESG-labeled instruments is undergoing rapid development and we want to contribute with our expertise to developing sound standards for such instruments,” Wilhelm Mohn, global head of corporate governance at Norges Bank Investment Management, tells Markets Group.
“We plan to increasingly participate in the development of standards by engaging with regulators and other standard setters.”
Norges Bank Investment Management is already a “substantial investor” in green bonds and other ESG-labeled products, but believes it needs well-functioning markets to deliver decent long-term investment returns, Mohn says. The fund has 11.7 trillion kroner (US$1.1 trillion) under management.
In late September, as the fund announced its 2050 net-zero goal, it said more efficient carbon markets and standardized climate disclosures would be needed to achieve “an orderly transition to a low-carbon economy.”
“Our goal is improved global, science-based standards that create a level playing field for companies,” the fund said at the time, referring to its interim 2025 targets.
It said it would advocate for robust methodologies for climate risk management, including transition pathways, so that investors could assess companies’ progress in reducing their emissions.
And the fund would support academic research on the financial impacts of climate change, while also pushing companies on their transition plans and progress.
To cope with the extra workloads, Norges Bank Investment Management has bulked up its teams focused on climate issues, Mohn says. It has also established a dedicated ESG analytics team to focus on reporting and plans to set up a climate advisory board.
“Our climate-focused engagements are also carried out in close collaboration with our portfolio managers,” Mohn says.