Norges Bank Investment Management ESG Initiatives in 2019 & Priorities for 2020
NBIM throws its support for SASB and will continue to monitor TCFD company reporting. It adds tax transparency, deforestation and ocean sustainability as focal points.
<<In 2019, we focused on effective boards, executive remuneration, climate and environment, human rights, anticorruption and tax.>>
NBIM Responsible Investments 2019 report (page 42)
Leaders Arena is delighted to provide its fourth annual summary of the Environmental, Social and Governance (ESG) investment priorities for Norges Bank Investment Management’s (NBIM) from its March 2020 Responsible Investment report (1). We hope Investor Relations, Communication and Sustainability officers will find these insights useful as a quick investor policy update in order to help prioritise ESG communication & sustainability goals and to support internal presentations.
The Government Pension Fund Global returned 19.9 percent equivalent to USD 192.1bn in 2019. This is the highest return in kroner in a single year in the fund’s history and the second best year in percent. Managing USD 812.8bn in equity assets at the end of 2019 (2) across 9,000 companies globally, NBIM continues to be the largest and one of the most influential Responsible Investors (RI) on the market. NBIM is widely regarded as a trend setter and thus its ESG priorities are an indication of likely topics of focus by other investors going forward.
From an ownership standpoint, NBIM which owns an average of 1.5% of shares in listed companies globally (3), exerts a notable influence on the companies’ sustainability strategies through its published ESG expectations and its dialogue with companies.
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
During 2019 NBIM held 5% more ESG-related meetings than in 2018 (3,412 vs. 3,256). The total number of companies it met with reached 1,474 vs. 1,420 in 2018 and 1,380 companies in 2017. Meetings with large cap companies continued to be prioritised. The 1,474 companies NBIM met with only account for 16% of the total companies in their portfolio; however, they represent more than 2/3 of NBIM’s equity portfolio value. Although Financials still attract the largest amount of meetings with NBIM, Technology companies saw the largest increase (+35.1% year on year).
The most commonly raised ESG topics by NBIM during company meetings were related to climate change (12%), board effectiveness (11%) and executive compensation (7%). Ocean sustainability was added as a new key topic in meetings by NBIM in 2019.
Active ownership & voting:
Since NBIM announced in 2014 that it would publish its voting intentions ahead of company shareholder meetings, it has only done so in very few instances: only for 3 companies in 2019 and 5 companies in 2018. In 2019 these supported board-related items and the reduction of water pollution. In the future, they intend to disclose voting intentions ahead of all shareholder meetings.
Support for sustainability-related resolutions (against management) slightly declined in 2019 vs. 2018 (40% vs. 52%), but was still higher than 2017 (27%). NBIM supports “well-founded resolutions” that are aligned with their priorities.
NBIM has a very strong viewpoint that the roles of chairman and CEO should be separated, even in the US where the combination of roles is common. This topic was the second most common reason NBIM voted against board members in 2019, right behind board independence.
Reporting areas where companies can improve in 2020:
Frameworks: NBIM showed its support for a materiality-focused framework by joining SASB’s Investor Advisory Group. In addition, according to NBIM, only 9% of companies analysed report information in line with TCFD, another key framework for NBIM.
Disclosure quality: NBIM has been assessing the quality of companies’ environmental and social disclosures since 2008. The weakest sustainability reporting areas as assessed by NBIM were: ocean sustainability, tax reporting and human rights, where most companies in NBIM’s research samples failed to meet its standards. These therefore will be areas where NBIM is likely to push companies to improve in 2020 and beyond.
ESG focal points for NBIM in the near-term include:
‘E’. On the environmental front, as part of its climate risk management, NBIM seeks to assess and quantify physical and transition risks at portfolio companies and will soon conduct scenario analyses. In addition, NBIM seems to be placing more emphasis on emerging risks such as deforestation and ocean sustainability.
‘S’. Regarding social impact, in 2019 NBIM put more emphasis on tax transparency which we expect to continue at other investors as well going forward.
‘G’. During 2019, governance risks such as the efficacy and reporting of progress of anti-corruption programs were probed with companies. In addition, NBIM will continue to focus on the key ESG oversight role of company boards.
<<We encourage companies to move from words to numbers, so that we can better understand financial risks and opportunities. To perform such analyses , we need relevant, comparable and reliable data on environmental, social and governance topics.>>
NBIM Responsible Investments 2019 report (page 17)
Recommendations for companies:
Integrate: Investor Relations, Corporate Communication and Sustainability Officers can use these insights to prioritise ESG investor communication and reporting in 2020.
Engage: Proactively engage with key ESG Investors such as Norges Bank Investment Management to tell your company story.
Lead: 1. Own your story, don’t let 3rd party ESG data providers be the only source of sustainability information on your company. 2. Reap the rewards from this dialogue with ESG investors by bringing their perspective into internal company discussions on strategy.
Norges Bank Investment Management 2019 Responsible Investment Report: https://www.nbim.no/contentassets/aaa1c4c4557e4619bd8345db022e981e/spu_responsible_investments_2019_web.pdf
Norges Bank IM latest fund value: https://www.nbim.no/en/the-fund/market-value/
Norges Bank Investment Management 2019 Annual Report: https://www.nbim.no/contentassets/3d447c795db84a18b54df8dd87d3b60e/spu_annual_report_2019_en_web.pdf