Nordic asset managers pushes for increased ESG investing

With the effects of climate change becoming ever more palpable, Norway’s sovereign wealth fund, managed by Norges Bank Investment Management (NBIM) is turning up the heat against a range of carbon emitting industries paving the way for other funds to follow their example.

Last week, NBIM, excluded five companies, including Glencore, from its holdings after placing a hard limit on coal-related emissions.

Nordic investors have been among the vanguard of environmental, social and governance (ESG) investing, with Norway’s NBIM being the prominent because of its sheer size.

This week, the $1 trillion fund also evicted four oil firms for “unacceptable” emissions placing any laggards in sectors, including cement and steel on notice.

In 2015, NBIM was part of a group of investors which excluded all firms that derived more than 30% of revenues from thermal coal. Since then more than 50 investors have introduced some form of revenue-based limit, and following years of political debate in Norway, NBIM’s rules are expected to bolster such efforts regardless of whether they are uniformly adopted.

“You’re never going to get a perfect metric for any of this stuff: different asset owners and different asset managers are going to be doing it differently,” said Mark Lewis at BNP Paribas Asset Management.

KLP, a Norwegian pension fund has already applied a new volume limits on coal, said Jeanett Bergan, KLP’s head of responsible investments while adding, it had been interested to see what criteria were used for “unacceptable” emissions.

“I understand it as them trying to say that ‘if you are an outlier, who has way higher emissions than your peers, then we don’t want to finance you’,” said Bergan.

In a statement DNB Asset Management said it had already moved to reflect the tighter rules, which are also followed by Norway’s Storebrand Asset Management.

“It was important for us to implement stricter criteria within climate mitigation as part of the climate strategy and also because NBIM is seen as best practice for many institutional investors in Norway,” said Janicke Scheele, DNB’s head of responsible investments.

“It is seen as the consensus for what the Norwegian people’s expectations are.”

Varma, a Finnish pension fund said, it had already moved to tighten its climate policy in late 2019 and aims to be carbon neutral by 2035; by 2030 it aims be fully divested from some sectors such as oil exploration.

In March 2020, Sweden’s AP had said it would exit fossil fuels completely.

For assets managers, including NBIM and BlackRock, engaging with companies remains preferable to portfolio exclusions.

“What you can say with 100% certainty … is all of these targets, thresholds, metrics, methodologies are only going to get tighter over time,” said Lewis at BNP Paribas Asset Management.

With government pressure building to gradually shift to a low-carbon economy, divestment remains a fund’s nuclear option. For Yossi Cadan of campaigning group, NBIM’s absolute ceiling represents “a game changer”.

“Up until now, a vast majority of those institutions who divested adopted the criteria of the portion of revenues generated from coal and in most cases … 30% was the threshold for divestment,” said Cadan.

Other investors are likely to have their own approaches to measure the risk posed to their investments and not all funds are likely to follow as quickly.

“There are regional differences,” said Belinda Gan, investment director for global sustainability at Schroders, said. “I wouldn’t see, necessarily, Asia jumping on board and embracing everything that’s going on in Europe, as they’re more advanced over here (on sustainability issues).”

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