Norway Wealth Fund Sets Net-Zero Target for Portfolio Firms

Just 10% of companies in the wealth fund’s portfolio have a net-zero target for 2050, even as many have taken strides toward emission targets, Norges Bank Investment Management Chief Governance and Compliance Officer Carine Smith Ihenacho said at a news conference in Oslo on Tuesday.

The world’s biggest owner of publicly traded companies will push for businesses to reach the goal via “credible” interim targets and plans to reduce emissions, it said in its climate action plan on Tuesday. While many investors including BlackRock Inc. have set net-zero targets, some have argued such goals would not be helpful in fighting climate change.

“The best way to solve these problems is that the companies have responsible shareholders,” Chief Executive Officer Nicolai Tangen said, speaking at the same event. While it would be easy to reduce the fund’s climate exposure by selling shares in firms that are large polluters, “it doesn’t solve any problems, on the contrary,” Tangen said, “someone has to own these companies.”

Norway’s finance ministry said in a white paper earlier this year that it wants the sovereign wealth fund to use its responsible investment efforts to make sure companies align their activities in a way that’s consistent with global net-zero emissions.

Read More: Norway Wealth Fund to Step Up Climate Risk Work Toward Net-Zero

The energy crisis in Europe is putting pressure on global climate ambitions, Tangen said. “In the longer term though, these higher energy prices will probably spur more investments into the alternative energy space.”

The fund will change how it engages with the over 9,000 companies it owns by asking for science-based short-term, medium-term and 2050 net zero targets, credible transition plans, and improved disclosures on performance, it said on Tuesday. Within the portfolio, 174 companies account for 70% of Scope 1 and 2 emissions,  Ihenacho said.

While Scope 1 refers to pollution produced by the company directly, Scope 2 emissions are those produced by the energy sources that a business buys. Scope 3 emissions are generated by supply chains and customers’ use of products.

“This is a huge challenge. It is not easy,” Ihenacho said. “We are at the beginning of an economic, technological and societal shift. The whole energy system must change.”

Over the past fifteen years, the fund has sold out of over 150 businesses and invested more in companies willing to tackle climate change, she added.

The fund aims to develop a system for measuring “exposure to climate risks and opportunities” by 2025. A “significantly higher” share of its portfolio companies should have net zero targets that same year, in particular companies with high emissions. It is targeting that all companies in the portfolio have such targets by 2040.