The world's largest sovereign wealth fund
Norway’s oil fund, or the “Government Pension Fund Global” which is its official name, was created after the first oil was discovered in the Norwegian part of the North Sea. The fund was set up to shield the economy from ups and downs in oil revenue. It also serves as a financial reserve and as a long-term savings plan so that both current and future generations get to benefit from Norway’s oil wealth. Although revenue from oil and gas production is transferred to the fund, these deposits account for less than half the value of the fund.
The Norway’s oil fund is now the world’s largest sovereign wealth fund and has close to 1.2 trillion USD in assets and owns almost 1.5 percent of all shares in the world’s listed companies. As a long-term and global financial investor, the Norwegian oil fund states they are dependent on sustainable development, well-functioning markets and good corporate governance.
The fund’s climate expectations to the world’s listed companies
The oil fund has established a set of formal expectation documents that it will base its investment guiding on. Their expectation documents set out how they expect companies to manage various environmental and social matters. The oil fund’s expectations are based on internationally recognised principles such as from the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the G20/OECD Principles of Corporate Governance, the OECD Guidelines for Multinational Enterprises and other topic-specific standards.
The oil fund states that climate outcomes may affect company and portfolio returns over time. To reduce future risk and increase opportunities, the fund has an interest in well-functioning carbon markets and other measures that may contribute to the transition to a low-emissions economy. The Paris Agreement, evolving Nationally Determined Contributions and UN Sustainable Development Goals 13 (Climate Action) and 15 (Life on Land) provide business with reference points for global climate change commitments.
The oil fund climate expectations should be recognised as high-level guidance for the world’s listed companies and they are primarily directed at company boards. Their expectations are ownership guidance to all companies in their portfolio. However, the oil fund states that climate change risks may be especially relevant to companies whose operations or value chains result in significant greenhouse gas emissions.
Four specific climate expectations your company should live up to
Integrate climate change considerations into policies and strategy. Specifically, you should consider the sensitivity and resilience of the long-term business strategy and profitability to relevant transitions to low-emissions economy and physical climate scenarios - and incorporate material financial impacts in your investment planning over relevant timeframes. Further, you should identify future potential climate regulations (such as carbon pricing), technological developments and market conditions of relevance to your business.
Integrate material climate change risks into risk management. Specifically, you should identify and consider programmes to improve energy and resource efficiency, increased use of less carbon-intensive raw materials and processes. Further, you should develop related procurement policies for products and services, engage with your strategic suppliers to share best environmental practices, and integrate the cost of carbon into supply chain management systems.
Disclose material climate change information. Specifically, you should report greenhouse gas emissions to appropriate, internationally recognised reporting initiatives (such as CDP). You should report absolute and relative greenhouse gas emissions in accordance with the Greenhouse Gas Protocol or other relevant industry or national standards. Further, you should disclose a strategy to address material physical and transition climate change risks and opportunities. Your company should seek to align their disclosures with applicable reporting standards, in particular with the TCFD recommendations.
Engage transparently and responsibly on climate change policy. Specifically, you should develop policies or guidelines for engaging with policy makers and regulators on climate change and related topics and be transparent about relevant associated spending and activities. You should review your membership in industry associations and interest groups on a regular basis and assess whether the advocacy positions on climate and energy policies held in these groups are aligned with your own positions. Further, you should describe how your company considers existing and emerging regulatory requirements related to climate change and outline your position on specific climate change regulation relevant to business profitability and outlook.
So what about your company?
Does your company live up to these climate expectations stated by world's largest sovereign wealth fund?
Does your company prioritise climate related opportunities and address the significant risks of its operations and its supply chain? Does your company report financially material information to investors, and broader impacts as appropriate? And does your company board effectively guide and review the company management in these efforts?