The world’s largest sovereign wealth fund is betting everything on green: it will only invest in firms with net zero_CO2 emissions

The Norwegian sovereign wealth fund, which manages assets worth 1.2 trillion dollars, has just doubled down on its commitment against climate change by requiring that its entire investment portfolio be fed by shares of companies that certify their goal of energy neutrality by 2050. Now, only 10% of values comply with this guiding principle of the Paris Agreements.

The strategy of Norges Bank Investment Management, the managing institution of the Norwegian sovereign wealth fund, oozes forcefulness: any delay in the full decarbonization of global production systems poses an enormous financial risk that the resources with which the Oslo authorities guarantee the pensions of future generations and, at the same time, feed the generous Welfare State of the Scandinavian market with the highest per capita income, He is not willing to tackle.

Hence, its executive leadership has just warned the market that it will divest itself of the values of all those companies that do not certify that their corporate investment projects are aimed at consummating net zero_CO2 emissions in 2050. That is, and in other words, they do not contribute to delaying the energy transition towards sustainability.

The challenge is not trivial because, among other reasons, only 10% of its assets could currently be qualified as leaving no carbon footprint in the fund that has perhaps expressed a greater awareness of green investments. Keep in mind that this fund, under the supervision of the country’s Ministry of Finance, manages 1.2 trillion dollars – a figure similar to the size of Spain’s GDP.

The change of strategy has had the decisive impulse of its prime minister, the Labour Jonas Gahr Store, who made this battle for ecology one of the slogans that led him to victory in the elections a year ago. He then promised that his government would promote, through the Ministry of Finance, the configuration of the sovereign wealth fund with shares exclusively of companies with inexorable objectives of net zero emissions.

The tricolor coalition of Labour, Left and Greens that ended eight years of conservative executives has led to this conceptual change to the detriment of fossil fuels and the privileges and interests of the Old Economy, which has corroborated Norges Bank itself. Carine Smith Ihenacho, its head of Governance and Commitments, said this week, at the presentation of the institution’s corporate strategy, that the largest owner of public shares on the planet will thus pressure companies and investors to opt for a “credible” path of “feasible” goals and long-term objectives “demanding and seamless”, that converge in the verification of their compliance with reliable audits.

Smith Ihenacho also bucked investor criticism of ESG certifications and the regressive actions capital markets are taking to weather today’s asset declines. The directive ruled out the influence of lobbies associated with fossil fuels and oil and gas powers to consolidate corporate interests trying to distort any sustainable agenda with ambitious energy paradigm shifts.

“The best formula to solve the fight against climate change is to ensure that shareholders, investors and executives and managers of companies are responsible with net zero emissions and channel their corporate projects without carbon footprints,” said Nicolai Tange, CEO of the investment bank that pulls the strings of the Norwegian sovereign wealth fund. Before giving the tip to his thesis of zero collusion with pollution: “as long as we facilitate the stay of polluting firms in investment portfolios and do not expel them from future strategies, we will not solve the environmental problem but, rather, on the contrary, we will perpetuate it”. For Tange, “someone has to put a stop to these companies.”

In parallel, and from the Norwegian Ministry of Finance, a white paper was issued a few days ago in which it urges the managers of its sovereign wealth fund to “align their investment objectives with assets consistent with net zero emissions” through “responsible efforts” in their capital portfolios that “compeldie” the sustainable actions of the firms that support their strategies in the markets. In this regard, Tangen said: “In the long term, we must achieve the return to renewable energy and alternative spaces of shareholder movements that have now returned to fossil combustion assets and catapulted energy prices to unsustainable limits.”

Thorough asset portfolio review

The fund will review 9,123 companies of 73 nationalities, which contribute assets to the composition of its investment structure, through scientific examinations of emissions in the short and medium term, surveys on transition plans and audit reports on the development of ongoing initiatives.

The portfolio of the Norwegian fund has 174 preferred companies, which account for 70% of all its assets and will be the ones that must record three areas as a priority: first, the one that marks direct CO2 emissions; the second, those produced by firms associated or recently acquired by the group and, thirdly, those generated during the production process or by the use of their goods and services by their consumers.

“It will not be easy, but it is an unavoidable opportunity,” said Smith Ihenacho, for whom the absence of the carbon footprint in the corporate strategy, in the value chain and in the after-sales of each merchandise, capital flow or services of a company “will be supervised”. And he recalled that, in the last 50 years, the Norwegian fund has divested more than 150 business assets that have not fought climate change with their operations.

The appeal of the head of governance of Norges Bank is not free, but seeks to restore lost confidence in the market, with growing skepticism towards the so-called ESG principles or towards its associated bond market, where it is traded for 170,000 million dollars.

According to Bloomberg Intelligence calculations, after the Great Pandemic, an investment alliance worth 35 trillion dollars was going to be forged against climate change, with prospects of hoarding a stock market capital of 50 billion dollars in 2025. However, the urgency of the energy crisis that emerged in autumn 2021 has interrupted this trend towards green assets.

But the invasion of Ukraine has put ESG investments at the rear of the portfolios. Laith Khalaf, head of portfolios at AL Bell Investments, admitted that “continuing with the use of coal, something unthinkable months ago, is now on the official European agenda which, together with the increase in the price of gas and oil, could have persuaded certain ESG investors to seek alternative benefits and increase their exposure in traditional energy sectors”. Clarifies.

Tariq Fancy, former manager and CIO of BlackRock, the largest private investment firm that defends ESG flows in its portfolios at all costs, said in the Financial Times that the war in Ukraine and the use of gas as a weapon of foreign action by Vladimir Putin, “has left the capital linked to ESG principles on the verge of insolvency.”

Source: El Diario