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.
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