The Petroleum Fund uses its influence to reduce emissions

Norway’s huge sovereign wealth fund has long imposed social and ethical requirements on the companies it invests in. Now its managers also want all the companies in the fund’s portfolio to reduce their carbon emissions, while making money at the same time.

Companies the Petroleum Fund invests in will need to have a “credible” plan in place by 2040 to reduce emissions to net zero, and then achieve those reductions by 2050. PHOTO: Klima- og miljødepartementet

Known as the Petroleum Fund, it admittedly owes its existence to all the revenue injected into it by Norway’s own carbon-emitting oil and gas industry over the past few decades. The fund has invested these earnings in more than 9,000 companies in 70 countries around the world, and has thus become a major force in international markets.

Most companies want to attract capital from the fund, but now they will have to make themselves attractive by reducing their emissions to net zero by 2050, according to Norwegian companies themselves.

“There is every reason to celebrate,” said the leader of one of Norway’s leading climate and environmental organisations. Anja Bakken Riise is one of those who responded very favorably to the Petroleum Fund’s new long-term criteria.

“When the Petroleum Fund now sets concrete targets of zero emissions within a defined timeframe, the whole world will have to pay attention,” said Riise, head of the organization. Fremtiden i vare hender (The future in our hands). “Investors and companies will have to comply.”

Manage climate risk
Even though the fund itself is rooted in Norway’s fossil fuel industry, or perhaps because of it, fund managers now want it to play a major role in tackling climate change resulting from emissions. of carbon. The fund must manage its own climate risks and opportunities, and therefore invest in companies that do the same.

The fund claims in its new “Climate Action Plan 2025” (external link) that “the fund’s good long-term performance depends on sustainable economic, environmental and social development”, and not just on “well-functioning, legitimate and efficient markets”. The goal now is to “drive portfolio companies to net zero emissions by 2050 through credible targets and transition plans” for emissions reductions.

The head of the Petroleum Fund, Nicolai Tangen, managing director of Norges Bank Investment Management, sees no conflict between reducing emissions and generating profits. PHOTO: NBIM

All Petroleum Fund portfolio companies must also have such a plan to achieve net zero emissions by 2040. Petroleum Fund chief Nicolai Tangen sees no conflict between reducing emissions and generating profits, and seems convinced that both can be achieved.

Tangen told the NTB press office that he and his colleagues at Norges Bank Investment Management (NBIM) are responsible for looking out for economic interests. An oil fund in a world destroyed by climate change, he said, “wouldn’t be worth anything.”

Hence the call for “credible plans” for anything but zero carbon emissions from any company hoping to retain or obtain capital from the Petroleum Fund. Only about 10% of the companies in the fund’s portfolio already have such a plan at present. Fund managers have already targeted the 174 companies that currently generate 70% of the fund’s portfolio emissions. They undertake to follow them specifically.

“More important than ever”
Tangen told a press conference on Tuesday that it was “more important than ever” for the fund to champion sustainable investments and refine climate goals.

“We’ve seen that the policy debate has flipped a bit when it comes to ESG (the environmental, social and governance criteria used to measure sustainable investing),” Tangen said. Increased demand and record prices for Norwegian gas due to Russia’s war against Ukraine have restored pride in the oil and gas industry.

Just last week, one of Norway’s most prominent investors, Tor Olav Trøim, slammed ESG at a conference in Oslo and sang the praises of oil and gas. Newspaper Dagens Naeringsliv (DN) reported how Trøim was also applauded after saying he was fed up with ESG politics, which he also blamed for the current energy shortages.

Tangen, meanwhile, said DN Tuesday that he worries about how “the oil and energy lobby has gotten stronger” against ESG and has regained its confidence because oil and gas prices have risen since the Russian President Vladimir Putin began threatening Ukraine in late 2019. Tangen called it an “unfortunate development.” even if it injects more and more money into the Petroleum Fund which he heads.

Parliamentary incentive too
The fund’s new “climate action plan” was in turn pushed by Norway’s parliament earlier this year, when a majority agreed to change the Petroleum Fund’s climate risk mandate. Neither Tangen nor his Oil Fund colleague Carine Smith Ihenacho would rule out selling shares in companies that do not comply with the new plan or achieve net zero emissions. Selling businesses will not solve the climate crisis, they wrote in a commentary published in DN Wednesday, “but we will assess the sale of companies with high climate risk and without climate plans”.

Bellona, ​​another Norwegian environmental organization, also praised the Petroleum Fund’s climate plan this week, calling it “another step for the Petroleum Fund as a leading global investor in addressing big challenges.” challenges of our time”.

Bellona’s Christian Eriksen still has questions about how the Petroleum Fund will actually implement the plan and what sanctions it might impose. He said, however, that the Petroleum Fund’s climate plan “shows that they are serious about creating long-term value, because there are still far too many companies that generate a lot of emissions” and are led by executives. who “only think about quarterly results and next year’s bonus. Berglund