"Ja, vi elsker dette landet," goes the Norwegian national anthem. "Yes, we love this country."
There is a lot to love — universal healthcare, free college tuition, a healthy work-life balance. And, the world’s largest sovereign wealth fund, providing a value of roughly $250,000 per Norwegian.
The Government Pension Fund Global is managed by Norges Bank Investment Management (NBIM), the asset management arm of the Norwegian Central Bank. The fund has over $1 trillion in assets; 70 percent of that is in listed shares in 70 markets, with an average ownership stake of 1.4 percent per company.
The fund was established in 1990 with the first transfer to the fund in 1996, and was established to invest the surplus revenues of Norway’s petroleum sector. Although on its surface a paradoxical phrase, yes, it is an oil fund acting as a climate-conscious investor.
We’re in an era of universal ownership in investing, one in which asset owners such as Norway’s sovereign wealth fund own a representative slice of the entire economy — thus making it impossible to diversify away entirely from systemic risks. Funds of this scale and nature have an existential stake in addressing climate risk across the global economy.
As such, the Norwegian sovereign wealth fund’s approach to and leadership on governance and stewardship is highly influential when it comes to how the path to a net-zero economy is followed.
To learn more about how the fund is navigating and supporting the transition to a clean economy, I spoke with Wilhelm Mohn, global head of corporate governance at NBIM.
The corporate governance function Mohn leads is responsible for developing the fund's positions and expectations when it comes to governance and sustainability matters, and for implementing them in company engagements and voting.
Read on to learn more about how NBIM engages with companies to support a not-so-distant net-zero future, and how the fund’s climate action plan informs that effort.
The interview was edited for klarhet og lengde (that is, clarity and length).
Grant Harrison: Can you describe the uniqueness of what it's like to work on governance and sustainability for a major sovereign wealth fund?
Wilhelm Mohn: It's hard to speak about the uniqueness of a sovereign wealth fund as such, because the sovereign wealth funds are all pretty different — where they are set up and also, to some extent, what their ultimate purpose is. In our case, being a sovereign fund means that ultimately we look after the wealth of future generations of Norwegians.
Big decisions are anchored in the Norwegian parliament, and there is scrutiny on strategic decisions as well as scrutiny on results. We have a very long-term approach to ownership. We invest and safeguard these assets according to a mandate, and we follow up not least through engagements with companies. 70 percent of the fund is in listed shares around the world across some 70 markets with an average ownership stake of 1.4 percent in each company. So that tells you a little bit about the size of the fund, which is the third characteristic that has a bearing on what we can do.
Disclosure is ultimately what we're asking for at scale, and we would like companies to disclose material information so that we can contribute to the functioning of markets in a way that is premised on good principles for corporate governance.
The uniqueness then becomes representing one pot of money for the long term on behalf of future interests where the long-term interest of the fund is pretty much overlapping with global growth by the way we're set up. So yeah, it's different to most institutional investors.
Harrison: NBIM’s Global Voting Guidelines states, in regards to sustainability disclosure: "Where a company’s disclosure does not meet our needs as a financial investor, we will consider supporting a well-founded shareholder proposal calling for reasonable disclosure." Can you share more about the characteristics of a well-founded proposal, and what constitutes reasonable disclosure?
Mohn: If you take one step back: Why disclosure? And, why these words, "well-founded" and "reasonable"? Disclosure is ultimately what we're asking for at scale, and we would like companies to disclose material information so that we can contribute to the functioning of markets in a way that is premised on good principles for corporate governance. Where the board is accountable to shareholders for company strategy and also monitoring the implementation of it.
We look at a few elements. First, whether the issue is material, because if it isn't material there isn't really a reason why we should support it [a proposal] in the first place, considering who we are. We look at whether it's too prescriptive, because this goes down to the division of labor, the roles and responsibilities in this delegated chain. We are not there to second-guess, micromanage or direct decisions specifically. So it needs to be at the level of principle — something that gives the board and management the signal they can then implement.
And clearly it also comes down to the specific context of the company, because sometimes you can have shareholder proposals that are material and not too prescriptive but still wrong because the company is already one way or the other meeting the requirements. Or maybe for some specific reason, the requirements are still not appropriate given the realities on the ground.
Harrison: A few months back, NBIM announced a new climate action plan for the fund. What would you care to highlight about the new action plan? What does it share in common with other universal owners or what makes the plan unique?
Mohn: We launched this action plan last two months ago, but we've worked on climate change for 15 years and raised it as an engagement topic since 2006. We’ve had public expectations directed to companies since 2009. So this is, in that sense, not a new topic.
The main elements you'll recognize from other asset owners and asset owner initiatives. But our emphasis might be different. I do believe that we have a very unique plan well-suited to a unique fund. As our investment mandate changed, the strategic basis for our plan was subject to expert reports and advice which was ultimately anchored in the Norwegian parliament. For example, it was decided that adjusting our benchmark was not the right way to address the fund’s climate risk, but rather that we needed to work with the world we're investing in to reduce climate risk in a meaningful sense. Otherwise, when we sell, somebody else buys.
This doesn't mean that we will not adjust the portfolio because we see heightened risks where we believe that’s relevant or that we won't increasingly use sophisticated assessments or integrate climate data in our investments. But it does mean that the core of our efforts is an "engage for change" approach.
So we say that our goal is for the companies in the portfolio to reach net zero by 2050. And then we go into quite a lot of detail on how we plan to get there. For us, that work starts at the market level, arguing for improved climate disclosure standards, transition plans, some of those things that will actually change or affect the market as a whole. And for that reason, [will] be very impactful for an investor that holds the market as a whole.
And we also have a focus list for engagements and very clear public expectations, escalation mechanisms and what I already described a little bit through our approach to voting, which I believe will be very impactful over time. Where we go maybe further than many others is on our ambitions for transparency — not simply on the climate risk exposures that we see or the results from stress tests or future emissions trajectories but also on the progress we are actually making.
One final element, which has actually been a pillar of our work for a very long time, is to contribute to the public capacity and knowledge building, both in academia through providing grants for academic research into the way climate risk can affect financial markets, and also taking part in initiatives to bring stakeholders, companies, academics and other interested parties together to discuss what is ultimately a big coordination failure.
Harrison: The aforementioned climate action plan clarifies that NBIM’s own ability to reach net zero "depends on governments fulfilling their commitments to enable an orderly transition of the global economy." How are you seeing governments show up in this regard, especially post-COP27?
Mohn: We don't really take a view on whether countries are doing enough currently to reach the climate goals that have been agreed. But what we can say is that, as you say, for a fund like ours that is long-term and global, there is ultimately nowhere to hide from climate risk. We stand and fall with the global economy, and therefore we also have an interest in an orderly transition.
That's what the analysis of our equity portfolio’s transition risk shows — it shows very clearly that the delayed policy response will create much greater financial losses than staying on a 2 degrees [Celsius] pathway throughout, for example. We also know that mitigating and adapting to climate change is associated with significant economic opportunities. So from that point of view we would like to see climate action and an orderly transition.
An orderly transition requires effective climate policies at the global and the market levels. Efficiently pricing and restricting greenhouse gas emissions are not something companies and investors can achieve alone.
But again, that orderly transition requires effective climate policies at the global and the market levels. Efficiently pricing and restricting greenhouse gas emissions are not something companies and investors can achieve alone. There is not a caveat as such, it's just a description of reality, and I think companies and investors can be a very important player in it. They can certainly respond to policy signals and even make them more credible over time by then making the investments that are necessary. But those policy signals and that predictable policy framework needs to be there in the first place.
Harrison: Thinking through the lens of stakeholder capitalism here — the Government Pension Fund Global is managed on behalf of current and future Norwegians. How is civil society engaged when making decisions about the fund’s sustainability strategy?
Mohn: It was very important for the policymakers at the time, both the government and probably also the civil service, that it was established with the broadest possible support in Norway and, not least, political support in Parliament. And for that reason they sought to build a framework, including in an ethical or normative sense, that ensured that the fund was managed in a way where there was a sort of overlapping consensus in the Norwegian population.
Which means that there are certain ethical exclusions for things we simply don't take part in, irrespective of whether it will be profitable. That was anchored in Parliament, certain products, weapons that have been restricted through international conventions that Norway support or tobacco due to its public health impact or coal, closer to the climate discussion. It was considered that coal had ethical sides to it — the emissions from coal were sufficiently grave for it to warrant exclusion from an ethical point of view.
So that discussion has been going on since the beginning of the fund. And there is a discussion in Norwegian Parliament every year where the finance committee meets civil society and gets input on the broader nonfinancial aspects of the fund strategy. The financial aspect and the fact that this fund should have a financial objective and be operating within acceptable levels of risks, and be cost-efficient and all the rest — that's very broadly accepted, I think, in Norwegian society, and very broadly supported in Parliament.