Norway’s huge sovereign wealth fund has long put social and ethical demands on the companies in which it invests. Now its managers also want all the companies in the fund’s portfolio to slash their carbon emissions, while still making money at the same time.
Known as the Oil Fund, it admittedly owes its existence to all the revenues pumped into it by Norway’s own carbon-emitting oil and gas industry over the past few decades. The fund has invested those revenues in more than 9,000 companies in 70 countries around the world, and thus become a major force in international markets.
Most companies want to attract capital from the fund, but now they’ll have to make themselves attractive by cutting emissions down to net zero by 2050, in line with Norwegian companies themselves.
“There’s all reason to celebrate,” claimed the leader of one of Norway’s leading climate and environmental organizations. Anja Bakken Riise was among those responding highly favourably to the Oil Fund’s new long-term criteria.
“When the Oil Fund now sets concrete goals for zero emissions within a set time frame, the whole world will have to pay attention,” said Riise, leader of the organization Fremtiden i våre hender (The future in our hands). “Investors and companies will have to conform to this.”
Managing climate risk
Even though the fund itself is rooted in Norway’s fossil fuel industry, or perhaps because of that, the fund’s managers now want to it to play a major role in tackling the climate change that’s resulted from carbon emissions. The fund needs to manage its own climate risk and opportunities, and thus invest in companies that do the same.
The fund claims in its new “2025 Climate action plan” (external link) that “good long-term return for the fund depends on sustainable economic, environmental and social development,” not just “well-functioning, legitimate and efficient markets.” The goal now is to “drive portfolio companies to net zero emissions by 2050 through credible targets and transition plans” for emission reductions.
All of the companies in the Oil Fund’s portfolio must also have such a plan for achieving net zero emissions by 2040. Oil Fund chief Nicolai Tangen sees no conflict between cutting emissions and generating profits, and appears confident that both can be achieved.
Tangen told news bureau NTB that he and his colleagues at Norges Bank Investment Management (NBIM) are charged with taking care of economic interests. An Oil Fund in a world destroyed by climate change, he said, “wouldn’t be worth anything.”
Hence the call for “credible plans” for all but abolishing carbon emissions from any company hoping to retain or secure capital from the Oil Fund. Only around 10 percent of the companies in the fund’s portfolio already have such a plan now. Fund managers have already targeted the 174 companies that currently generate 70 percent of the emissions in the fund’s portfolio. They vow to especially follow up on them.
‘More important than ever’
Tangen claimed at a press conference on Tuesday that it’s “more important than ever” for the fund to advocate sustainable investment and sharpen climate goals.
“We have seen that the political debate has been swinging a bit the other way when it comes to ESG (the environmental, social and governance criteria used to measure sustainable investment),” Tangen said. Heightened demand and record high prices for more gas from Norway because of Russia’s war on Ukraine has restored pride in the oil and gas industry.
Just last week one of Norway’s most high-profile investors, Tor Olav Trøim, bashed ESG at a conference in Oslo and sang the praises of oil and gas. Newspaper Dagens Næringsliv (DN) reported how Trøim also won applause after claiming that he’s tired of ESG policy, which he also blamed for current energy shortages.
Tangen, meanwhile, told DN on Tuesday that he’s concerned about how “the oil and energy lobby has become stronger” against ESG and regained self-confidence because oil and gas prices have risen since Russian President Vladimir Putin started threatening Ukraine in late 2019. Tangen called it “an unfortunate development,” even though it’s pumping more and more money into the Oil Fund he runs.
Parliamentary prodding, too
The fund’s new “Climate action plan” was in turn prodded by the Norwegian Parliament earlier this year, when a majority agreed to change the mandate of the Oil Fund regarding climate risk. Neither Tangen nor his Oil Fund colleague Carine Smith Ihenacho would rule out sales of shares in companies that don’t comply with the new plan or achieve net zero emissions. Selling out of companies won’t solve the climate crisis, they wrote in a commentary published in DN on Wednesday, “but we will evaluate selling out of companies with high climate risk and without climate plans.”
Bellona, another Norwegian environmental organization, was also praising the Oil Fund’s own climate plan this week, calling it a “new step for the Oil Fund as a leading investor globally in addressing the major challenges of our time.”
Christian Eriksen of Bellona still has questions about how the Oil Fund will actually implement the plan, and what sanctions they might impose. He said, however, that the Oil Fund’s climate plan “shows that they’re serious in their pursuit of long-term value creation, because there are still far too many companies generating lots of emissions” and run by executives who “only think about quarterly results and next year’s bonus.”