World’s Largest Sovereign Wealth Fund Flexes Its Muscles

Norway’s pension giant has divested from 240 firms since 2012.

Claiming ownership of approximately 1.4% of all the listed companies on the planet, Norway’s $1.03 trillion sovereign wealth fund has not shied away from using its financial weight to influence corporate activities.

And while the fund says that divestment is a “last resort” after other possibilities have been deemed insufficient, it has divested from 240 companies since 2012, including 30 companies in 2018, according to its most recent annual report.

Despite the divestments over the past six years, the number of listed companies the fund is invested in has risen 23% to 9,158 in 2018 from 7,427 in 2012.

Among the 30 companies the fund divested last year, 15 were in response to climate risks, nine for corruption risks, four for their handling of human rights, and two that were due to “other unacceptable risks.”

According to the fund, it may decide to divest from companies that impose substantial costs on other companies, “as well as society as a whole,” and therefore are not considered long-term sustainable.

“Responsible investment supports the fund’s objective in two ways,” said the fund. “First, we seek to improve the long-term economic performance of our investments. Second, we aim to reduce the financial risk associated with the environmental and social behavior of the companies we invest in.”

The fund supports the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) set up by the G20’s Financial Stability Board. Its policy is to work with companies to help with the transition to a low-carbon economy, consider climate issues in its investment decisions, and adjust the portfolio through divestments, if necessary.

According to the fund’s annual report, it held 3,256 meetings with 1,420 companies during 2018 to raise governance and sustainability issues relevant to its long-term return. Last year, the focus was on sustainability, board accountability and effectiveness, executive remuneration, and shareholder rights.

“In addition to these strategic topics, we monitored ongoing governance and sustainability developments at companies in the portfolio,” said the fund. “We prioritize our largest investments, which we know best, and engage in regular dialogue with companies representing about two-thirds of the value of the portfolio.”

During 2018 alone, the fund assessed 1,700 companies reporting on climate change, 600 reporting on children’s rights, and 598 reporting on water management. It also said it looked at how certain companies report on deforestation, anti-corruption, human rights, tax, and ocean sustainability. All totaled, the companies the fund assessed accounted for 62% the market value of its equity portfolio.

In its dialogue with companies in 2018, the fund raised issues such as climate disclosure, deforestation, automotive supply chains, tax and transparency, marine pollution from agriculture, the marketing of breast-milk substitutes, and the management of corruption risks.

It also held meetings with the Organization for Economic Co-operation and Development, the UN Global Compact, and the European Commission. In those meetings the fund raised issues it said it considers a priority, such as board composition and independence, shareholders’ voting rights, executive remuneration, and anti-corruption.

“We want companies to be equipped to deal with global challenges that may lead to major changes in the market and eventually affect their profitability,” said the fund. “We expect boards to understand how their companies impact on the environment and society, set their own priorities, and report on the results.”

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