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Norway’s climate change investment review misses the point: climate change

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Today a report was released on the coal and oil investments of Norway’s sovereign wealth fund, as a means of addressing climate change. Norway’s fund is the largest of its kind in the world valued at USD$893 billion. The report was presented to the Ministry of Finance by an appointed Expert Group – expertise with narrow views on what is at stake.

The Government of Norway gave the expert group the following mandate, to:

“Evaluate whether the exclusion of coal and petroleum companies is a more effective strategy for addressing climate issues and promoting future change than the exercise of ownership and exertion of influence,” and “advise on possible criteria for the potential exclusion of these types of companies.”

The expert group’s report responded with three recommendations on climate change:

  1. Engage companies through active ownership.
  2. Exclude worst-case climate offenders on a case-by-case basis.
  3. Increase reporting of climate change impact on investments.

However, WWF believes the report missed the most crucial point:

Its recommendations are not at the scale necessary to align with a 2°C global limit.

This is required both by science, and by honouring Norway’s agreement to this target within the UN Framework Convention on Climate Change. This is also required to properly address economic and financial risks related to climate change. Incorporating climate change is not only about “using the Fund as a climate policy instrument” as stated in the report, it is about setting the path to a new climate economy. Funds such as Norway’s can do this through wise financial approaches in line with what a sovereign wealth fund ultimately is: providing for future generations – both in hedging risks from fossil fuel price shocks and in caring for the natural environment.

To do this, the report would have needed to include the following:

1. Assess how its own investments impact climate change.

The fund’s investments in coal, oil and gas have their own impact on climate change by enabling unsustainable energy, contributing further to emissions. This matters because Norway’s sovereign wealth fund holds shares in 147 of 200 of the world’s most carbon-intensive coal, oil & gas companies with emissions equivalent to 108 times the Norway’s total annual emissions.

The fund’s own practices, as a global actor, should be aligned to limiting global warming to 2°C – however the report’s recommendations are not sufficient to reach this target. As WWF-Norway’s CEO Nina Jensen said today, “How ethical is it to invest in coal, which we know is the world’s largest contributor to climate change?”

2. Apply criteria for both engagement and exclusion of fossil fuel companies.

Companies involved in fossil fuel mining, electric utilities, and oil and gas production are included in this sector. Setting limits for each is crucial to moving forward on climate change.

For active ownership, this should be done only for companies that are acting in compatibility with a 2-degree world.

For exclusion, this should apply to companies that have a large share of their business in fossil fuels. WWF has recommended the following criteria:

  • Coal: excluding coal companies – with over 30% of their revenue coming from coal – would be a clear initial step.
  • Utilities: should be excluded based on their percentage of coal versus renewables production, or if their use of coal is actively increasing.
  • Oil & gas: companies should be measured on their carbon intensity of oil and gas produced, and explicit exclusion of companies actively searching for new production in inaccessible an expensive areas.

The timing of this review was crucial

The UN climate talks open this week in Lima, Peru. Last month, the UN Secretary General Ban Ki-moon called major funds and pension funds to action, saying:

“Please reduce your investment in coal and the fossil fuel based economy, and move to renewable sources of energy.”

The International Energy Agency has clearly shown that the energy infrastructure in place by 2017 has the ability to lock the world into dangerous climate change, unless major advances in energy efficiency and renewable energy are made.

The rest of the world is moving

Last week, neighbouring Sweden saw its Pension Group meet for the first time, in an emerging situation where all political parties agree their pension funds must move out of fossil fuels. This Monday, Norway’s KLP released its list of coal companies it will exclude because of its intent to act on climate change.

And today, Bloomberg released a piece titled, “Oil investors may be running off a cliff they can’t see. Climate: Now or never,” saying: “A growing minority of investors and regulators are probing the possibility that untapped deposits of oil, gas and coal — valued at trillions of dollars globally — could become stranded assets as governments adopt stricter climate change policies.

What’s next?

Norway’s investment report will likely to face parliamentary opposition, since the majority of parties are in favour of coal divestment. A White Paper is due to be presented to Norway’s parliament in April, which will take into account this report’s recommendations.

Norway’s sovereign wealth fund has a global role in setting a responsible and high standard for investors on all fronts – but it remains to be seen whether Norway will respond to this report at the level required by climate change.

Santiago Lorenzo Alonso is the head of green finance for WWF’s Global Climate and Energy Initiative, and is based in Mexico. slorenzo@wwfmex.org 

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