Norges Bank published their second annual report on responsible investment of the Government Pension Fund Global. They clarified expectations towards companies in 2015 and are creating a model I hope many will follow
The report provides a comprehensive review of work by Norges Bank on responsible investment in the management of the fund. Key areas of this work include developing and promoting international standards and principles, expressing expectations towards companies, and being an active owner.
Norges Bank expects companies to address a broad set of long-term risks in their strategies, investment plans, risk management and reporting. They updated expectations with regard to children’s rights, water management and climate change in 2015, and today they are also publishing their expectations for how companies manage human rights. Monitoring environmental, social and governance risks in the portfolio is an important part of Norges Bank Investment Management’s work on responsible investment.
“We aim to quantify the risk in our investments,” says Yngve Slyngstad, CEO of Norges Bank Investment Management. “We expect companies to report on how their operations impact their surroundings and on factors that could affect their profitability in the long term.”
Norges Bank uses their voting rights to safeguard the fund’s investments. This includes voting to promote sustainable development and good corporate governance. During 2015 we voted at 11,562 shareholder meetings globally.
“In 2015, we began publishing our voting intentions in advance in selected cases, together with the reasoning behind them,” says Slyngstad. “The aim is to be clear about what we expect and where we stand.” In 2015 they announced votes for six meetings in advance. Already in 2016, they announced votes for another six in advance of meetings. I expect these announcements to accelerate and to influence the voting of other shareholders.
Norges Bank’s responsible investment approach may lead them to divest from companies following an assessment of environmental and social risk factors. They divested from 73 companies on the basis of such assessments in 2015. In the last four years, they have divested from a total of 187 companies. Norges Bank expanded its risk analyses in 2015 to look more closely at social and governance issues relating to health, safety and the environment, human capital and corruption.
Too many funds tell me they can’t divest because such actions add to the cost of essentially indexing the market. Norges Bank seems to be doing it. I hope others can learn from them. Norges Bank recently opened an office in New York. I hope that will lead to more interaction with American funds. We can learn from each other.