The world’s biggest sovereign-wealth fund wants to rid itself of poor ESG performers

The boss of Norway’s $1 trillion oil fund has said it should sell out of more companies that perform badly on environmental, social and governance (ESG) issues, to increase its returns.

Nicolai Tangen, chief executive of Norges Bank Investment Management (NBIM), which runs the world’s largest sovereign-wealth fund, told the Financial Times that the fund, should “use risk in a more clever way” by divesting its holdings in more companies for ESG reasons.

The fund, which owns 1.5% of globally listed stocks and portfolios of bonds and real estate, sold out of 42 companies in 2019 following assessments of ESG risks. These included shedding holdings in 16 power producers and 12 mining companies.

Tangen said he wanted to increase that number, and was planning to recruit more staff to deal with ESG matters.

The fund’s risk-based divestments has helped improve returns in recent years. From 2012 to the end of 2019, they boosted the cumulative return on the equity reference portfolio by around 0.27 percentage points, or 0.02 percentage points annually, according to NBIM’s latest Responsible Investment report.

Risk-based divestments linked to climate change and human rights have increased the cumulative return on the equity reference portfolio by 0.21 and 0.06 percentage points respectively.

Increased pressure from activists and investors in recent years has forced companies and financial institutions to become more focused on ESG matters.

JPMorgan, Citigroup, and Bank of America have all issued green and social-good bonds this year.

Multinational food and drinks group Danone placed greater focus on its ESG goals in June when it adopted the French “Entreprise à Mission” legal framework, and set up an independent committee to oversee and report on its progress.

Tangen, 54, took over from Yngve Slyngstad as chief executive of the fund in September, after a recruitment process that led to him donating his controlling stake in AKO Capital — the $21 billion asset manager he set up in 2005 — to a charitable foundation.

On Tuesday, Tangen unveiled his new leadership group

“We have formed a smaller leader group to strengthen our areas of expertise and gain more synergies. Our main responsibility is to continue to deliver good return,” Tangen said in a statement.

A third of the fund’s leadership group will be women, while women make up 21% of its employees overall.

“This is not good enough. One of my primary priorities is to promote diversity. A good organization needs employees with different perspectives,” Tangen said, adding that he will relaunch the trainee program to achieve an even more diverse working environment, and promote more skilled women.

This article originally appeared on MarketWatch.


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