Reversal of Decisions: Norges Bank Alters Its Dissociation Plans
Norges Bank Investment Management (NBIM), the asset management arm of Norway's Government Pension Fund Global, manages an impressive $1.8 trillion in assets. The fund's investment strategy is not static, and it often reverses divestment decisions in response to changes in financial performance, risk factors, and compliance with ethical guidelines or evolving political considerations.
NBIM's decision-making process is thorough and ongoing. It involves continuous monitoring of global markets and ethical considerations, revaluation of companies’ compliance with NBIM’s ethical investment guidelines, financial performance assessments relative to benchmarks and risk management, and responses to changes in political or humanitarian circumstances influencing investment stance.
One area where NBIM has been active is climate change. In 2024, 74% of NBIM's portfolio emissions were covered by net zero targets. However, the fund has also divested from companies due to climate concerns. Interestingly, climate change related divestments have increased the fund's return on equity by 0.30 percentage points.
The fund's latest responsible investment report reveals details of how it approaches divestment decisions and why it reverses them. In 2024, NBIM reversed the divestment of 16 companies, bringing them back into its investment universe. These companies had committed to net zero targets for their emissions.
NBIM's decisions to move a company out of its investment universe can be financially motivated or ethically (known as 'exclusions'). For instance, the fund has a policy for selling companies if they do not meet the fund's climate expectations. However, improved climate risk management over several years can be a significant factor in the reversal of these divestments.
The reversals suggest that divestment by large asset owners could incentivize companies to improve, but causal links are not straightforward. A commissioned research report for the Border to Coast Pensions Partnership in 2024, authored by Dr. Tom Gosling, posed the question: does divestment work? The report offers evidence worth considering, as the correlation between divestment and altered corporate behavior is evident.
NBIM's dynamic portfolio management strategy reflects its adaptability to evolving financial, ethical, and geopolitical realities. The fund holds investments in nearly 9000 companies across 70 economies. Its increased renewables allocation amid rising capital costs is a testament to its commitment to sustainable investments.
However, the practice of both divestment and reinvestment is part of a wider debate over the effectiveness of divestment. Financial prudence is a key piece of NBIM's divestment puzzle, with the fund's divestments increasing the cumulative return from the fund's equity portfolio.
In conclusion, NBIM's approach to investment is characterised by its commitment to long-term returns, financial prudence, and ethical considerations. Its dynamic portfolio management strategy, which includes both divestment and reinvestment, is a reflection of its adaptability to the ever-changing global investment landscape.
- Norges Bank Investment Management's (NBIM) dynamic portfolio management strategy encompasses both divestment and reinvestment, reflecting its adaptability to the ever-changing global investment landscape, particularly in the field of environmental science, as evidenced by its increased focus on sustainable investments such as renewables.
- In response to climate change concerns, NBIM has made divestment decisions from some companies, but interestingly, some of these divested companies have shown improvement in their climate risk management, leading to the fund's reversal of divestment and reinvestment decisions.
- By integrating financial prudence, long-term returns, and ethical considerations into its investment strategy, NBIM's decision-making process on divestment and reinvestment serves as an incentive for companies to improve their environmental practices, contributing to the broader discussion on the effectiveness of divestment in driving corporate behavior change.
