Norges Bank Releases ESG Exclusions

Bank cuts companies that derive 30% income or power from coal.

If a bank could be labeled an environmental, social, and governance (ESG) Santa Claus with a naughty and nice list for ESG investments, it might just be Norges Bank, the manager of $8.1 trillion Norwegian kroner ($1 trillion). Each year, the central bank of Norway releases a responsible investment report describing what new actions it took on behalf of its ESG investments. This year, Norges divested from six companies that didn’t meet its ESG standards, and had 11 new exclusions.

Raytheon Company was put back on the “nice” list this year when the bank decided to revoke a 2005 decision to exclude Raytheon from the Government Pension Fund Global. To get back into good favor, Raytheon successfully convinced the bank’s Council on Ethics that the company no longer has any activities associated with the production of cluster munitions.

Companies have been put on the bank’s extensive exclusionary list for reasons ranging from alleged violations of individual rights and ethical norms to water pollution and the production of nuclear weapons. Norges currently invests in some 9,000 companies in 72 countries and the strategy seems to work for Norges; its 67.8 billion kroner ($11.29 billion) invested in environmental equity investments this year earned a return of 21.7%.

Following new criteria, the Ministry of Finance added to the guidelines for observation and exclusion which related to mining companies that derive 30% or more of their income, and power companies that base 30% of their power on thermal coal, the latest report listed new companies excluded from investments due to thermal coal mining or coal-based power production, including CEZ AS, Eneva SA, Great River Energy, HK Electric Investments & HK Electric Investments Ltd, Huadian Energy Co Ltd, Korea Electric Power Corp., Malakoff Corp. Bhd, Otter Tail Corp., PGE Polska Grupa, Energetyczna SA, and SDIC Power Holdings Co. Ltd. Bharat Heavy Electricals Ltd was excluded due to alleged “severe environmental damage.”

Companies placed under observation for thermal coal mining or coal-based power production included NorthWestern Corp. and Portland General Electric Co. Hansae Yes24 Holdings Co Ltd, Hansae Co. Ltd was placed under observation for alleged “serious or systematic human rights violations.” PetroChina Co Ltd and Leonardo SpA were placed under observation for alleged gross corruption.

Nearly 10 years ago, Norges Bank began to ask the companies in which it invested how they address global challenges related to child labor, water management, climate change, and more recently, human rights. “We expect company boards to understand the broader environmental and social consequences of their business operations. Companies should address the risks and opportunities related to sustainability in their business management,” wrote Yngve Slyngstad, CEO of Norges Bank Investment Management in the bank’s Responsible Investment Government Pension Fund Global report, released in February 2018.    

In December, Norges joined the One Planet Summit in Paris to explain how it works to understand the financial impacts of climate change. “We do this by asking companies to move from words to numbers, so that we can better understand how climate change may affect companies, and what steps they are taking. We welcome the Task Force on Climate-related Financial Disclosures and its efforts to promote disclosures on climate-related risks,” Slyngstad wrote.

The bank, which is beginning to measure the impact of climate change on its returns, found that the equity portfolio and the reference index experienced an increase in greenhouse intensity values in 2017, despite total emissions decreasing during the period.

“We have calculated our current carbon footprint at around 100 million tons a year,” he told investors at the United Nations in January.

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