Norway’s sovereign wealth fund, the world’s biggest investor, has warned business leaders it will vote against their re-election to the board if they don’t up their game to tackle the climate crisis, human rights abuses human rights and board diversity.
Carine Smith Ihenacho, Director of Governance and Compliance at Norges Bank Investment Managementwhich manages more than 13 billion Norwegian kroner (£1 billion) on behalf of the Norwegian people, said the fund was preparing to vote against the re-election of at least 80 boards for failing to set or achieve environmental or social objectives.
Created in the 1990s to invest excess profits from Norway’s huge oil and gas reserves, it is the world’s largest sovereign wealth fund, controlling an average of 1.3% of 9,338 companies in 70 countries. Large holdings include Apple, Nestlé, Microsoft and Samsung.
“We all know we live in a world with a climate crisis, and we have a role to play and then corporations have a role to play,” Smith Ihenacho said. “So we’ve heightened our expectations of companies when it comes to setting targets to get to that net zero (emissions) goal by 2050. And we’ll be increasing the incentives for companies to set targets and understand how they will achieve it.
It comes as Norwegian Prime Minister Jonas Gahr Støre bowed to public pressure to free up more money from his oil profits to help support Ukraine. The country donated 10 billion crowns in civilian and military aid last year.
“We are in a situation where we have some leeway because of the extraordinary revenues from the oil sector,” he said. “We are now increasing this aid. We will contribute even more to the repair and reconstruction of damaged infrastructure.
The fund, which holds the equivalent of around 2.4 million crowns ($240,000 or £200,000) for every man, woman and child in Norway, invests some of the big profits the Norwegian makes oil sectormainly corporate taxes but also the payment of oil exploration licenses as well as the Direct financial interest of the State and dividends from the partly state-owned energy giant Equine.
Smith Ihenacho said the fund, which this week posted a 1.64t kroner loss for 2022, expected all major carbon emitters to set emissions targets now, and all others small businesses have done so by 2040 at the latest.” We also want businesses to publish scenarios that include (what if temperatures rise by) 1.5°C so we can really understand how they are going to get there.
She said only 17% of the more than 9,000 companies the fund invests in had set ‘clear, science-based net zero targets’, and the fund was actively ‘pushing’ the remaining 83% to move quickly to set their targets. .
“If companies absolutely don’t respond to what we’re saying, we have to step in,” she said. “What we’ve done so far for, say, the worst companies – the ones that don’t even have targets, no climate risk reports – we’ve started voting against the board because we’re saying the council is really responsible for this.”
This led to the fund voting against the entire board of 18 companies last year and Smith Ihenacho warned that in the upcoming spring AGM season there will be a “big step up in how we vote against board members”.
She said the fund would vote against at least 80 companies over the next few months.
Smith Ihenacho said if there is still no improvement, the fund may sell its stake in the companies.
“We want to support and push the business in the transition to a low carbon economy, we don’t believe the sale will solve the climate crisis,” she said. “But ultimately we can do that with some companies and we’ve already sold to a number of companies that we believe have an unsustainable climate business model.”
She said the fund is also taking a more active approach to tackling a company’s record on human rights, excessive executive compensation, tax transparency and board diversity.
Last month, the fund excluded two companies – China’s AviChina Industry & Technology and India’s Bharat Electronics – over the “unacceptable risk that the companies would sell weapons” for use by the military in Myanmar.