Norges Bank ESG priorities in 2018
Norges Bank Investment Management’s Environmental, Social and Governance Integration & Key Priorities for Investor Relations in 2018
Leaders Arena is happy to provide its second annual summary of the Environmental, Social and Governance (ESG) investment priorities for Norges Bank Investment Management’s (NBIM) from its February 2018 Responsible Investment report. We hope Investor Relations, Communication and CSR officers will find these insights useful as a quick policy update and to support internal presentations.
With USD 689bn in equity assets under management, a substantial increase from the USD 544bn it managed a year earlier, and invested across 9,000 companies globally, NBIM is the largest Responsible Investor (RI) in the equity market. Coinciding with the publication of its annual RI review, NBIM has also published its ‘Anti-Corruption Expectations Towards Companies’ paper which we also summarise in this analysis.
The impact of NBIM’s ESG expectations on companies goes beyond the large holding NBIM typically owns in these companies. These ESG guidelines often set a benchmark for other large Responsible Investors. From an ownership standpoint, NBIM which owns an average of 1.4% of shares in listed companies globally and 2.4% in European stocks, understandably exerts a notable influence on the companies’ sustainability strategies.
Don’t hesitate to get in touch with us if you want to know what these drivers mean specifically to your company or sector. We will also be more than happy to provide you with a PowerPoint summary. Feel free to contact us at: firstname.lastname@example.org
Leaders Arena summary of NBIM’s latest ESG policies and their impact on Investor Relations:
Engagement with companies:
NBIM continues to support the dialogue with companies vs. divestment. During 2017 it divested from 6 companies on various ESG grounds vs. 23 in 2016. 152 companies are excluded from its portfolio based on different criteria (tobacco and weapon producers, human rights violations, severe environmental damage and coal-based revenues).
Interestingly, in 2017 NBIM saw a decrease in the total number of company meetings to 3,252 vs. the 3,790 meetings it held in 2016. The dialogue comprised 1,380 companies vs. 1,589 companies a year earlier.
However, the number of ESG-focused meetings it had (1,737) grew as a percentage of the total to 53%.
The most commonly raised ESG topics by NBIM during these meetings related to board nomination and election, shareholder rights, CEO remuneration, sustainability reporting and anti-corruption.
‘'Voting is one of the most important tools
we have for exercising ownership.
Through voting, we seek to
strengthen governance, improve performance,
and promote sustainable practice’ (NBIM)
Active ownership & voting:
During 2017, NBIM continued its strategy of publishing certain vote intentions and explanations ahead of shareholder meetings. It did so for five companies including Credit Suisse Group and Royal Bank of Scotland where NBIM announced support for the executive remuneration policies.
In 2017, NBIM voted at 98% of the 11,084 shareholder meetings it could take part globally. It supported the Boards’ recommendations in 94% of cases.
The largest topic where NBIM voted against management recommendations was the election of directors (52% of their votes against management).
NBIM also focused on executive remuneration where they look for transparency, and the degree to which the pay plan is aligned with increasing shareholder value. This resulted in voting against 7% of remuneration proposals vs. 3% in 2016.
Near-term ESG priorities:
1. Reporting. NBIM will continue to engage companies with poor disclosure on children’s rights, water management and climate change.
’. On the environmental front:
NBIM reported extensively on its carbon footprinting efforts and reported a 15.5% return on its environmental-related equity mandates over the last 5 years vs. 12.9% overall return on equities. NBIM is expanding their knowledge and analysis around climate scenarios and the impact of carbon price on the return of their portfolios.
On climate change reporting, NBIM recently published its ‘Updated expectations on climate change’. A key focus will be reporting on climate change as most companies still fall short of NBIM expectations on this. Its 2017 annual Responsible Investment report highlighted how according to NBIM just over 10% of companies analysed can be considered as ‘good’ or ‘very good’ at reporting climate related risk.
Water management is another key risk likely to be discussed by NBIM during its meetings with companies during 2018. NBIM is expected to publish a paper on its water expectations for companies soon.
3. 'S’. Regarding social impact, in 2017 NBIM continued to focus on children’s rights while it also began to map human rights disclosure at the company’s in which it invests. A 3-year partnership project commencing in 2018 will focus on improving metrics and models to measure a company’s adherence to human rights principles.
4. ‘G’. On governance, NBIM is focusing on Tax Transparency and applies 3 principles: taxes paid should 1) align with where economic value is generated, 2) be a board responsibility and 3) be disclosed on a country-by-country basis for greater transparency.
NBIM's focus on Anti-Corruption policies(2):
NBIM believes corruption can negatively impact businesses within its portfolio as it:
Exposes companies to legal and financial risk through penalties and blacklisting.
Exposes their investors to significant reputation risk
NBIM expects companies to identify and manage corruption risk and to report publicly on their anti-corruption efforts.
NBIM uses such information to understand how corruption may affect the performance of
‘Corruption remains a serious challenge
for companies in most parts of the world
and across all industries’ (NBIM)
NBIM places the ultimate responsibility for a company’s ethical behaviour on its board. It believes boards should therefore:
Ensure that the company sets a clear policy on anti-corruption and that relevant measures are integrated into business strategy, that it carries out a comprehensive risk assessment, and that it reports adequately.
Guide, monitor and review management in carrying out these efforts.
Furthermore, companies should:
Ensure these policies are properly communicated to all its employees and business partners and ensure all business units implement anti-corruption policies effectively.
Integrate anti-corruption into business operations through due diligence, training and an effective whistleblowing mechanism.
Report how they deal with incidents and engage with policy-makers, other businesses and stakeholders in a transparent way.
Recommendations for IR & CSR teams
More than ever before, Investor Relations, Corporate Communication and Corporate Responsibility officers need to INTEGRATE these key ESG drivers in their regular communication with investors and proactively ENGAGE with key Responsible Investors such as Norges Bank Investment Management. That will in turn better position to LEAD those conversations and for their businesses to benefit from this dialogue.Leaders Arena’s unique ESG market intel helps companies to better INTEGRATE, ENGAGE and LEAD their dialogue with Responsible Investors.
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1. Norges Bank Investment Management 2017 Responsible Investment Report: https://www.nbim.no/contentassets/67c692a171fa450ca6e3e1e3a7793311/government-pension-fund-global---responsible-investment-2017.pdf
2. Norges Bank Investment Management February 2017 ‘Anti-corruption Expectations Towards Companies’ report: https://www.nbim.no/contentassets/6ca89f09d9ec4af9b976c3dad755bd0c/expectations-document---anti-corruption.pdf