NBIM to invest in unlisted companies

The world largest sovereign wealth fund, Norway´s Oil Fund, managed by Norges Bank Investment Management (NBIM) is planning to invest in unlisted companies in the future. The proposal by the Norway´s Central Bank is expected to get some political debate,  while this would mean that portfolio exposure is getting a new kind of risk element.

According to Financial Times, NBIM would be able to invest 1 % of its equity portfolio and this would mean about 7 billion NOK, while the fund´s market value is about 9,5 trillion NOK. NBIM invest nowadays in equities, bonds and real estates globally.

Business Finance

NBIM to review climate risk

The Norway´s Pension Fund, NBIM, will be reviewing Climate Risk. According to the information from the Ministry of Finance in Norway, the Pension Fund is to review the Climate Risk in the portfolio.

The information was given at the same time when the Fund decided to exclude the oil & gas exploration and production companies from the Fund.

– Climate risk is an important financial risk factor for the GPFG, and will over time have an impact on several of the companies in which the GPFG is invested. The Ministry of Finance will ask Norges Bank to review its efforts relating to climate risk in the GPFG, with a view of strengthening efforts in relation to those individual companies accounting for the largest contributions to the climate risk associated with the Fund, according to the press release.

Companies classified as exploration and production companies by the index provider FTSE Russell will be excluded from the GPFG’s benchmark index and investment universe in a longer term perspective.

 

Business Finance

Investors to take actions on climate risk -NBIM excludes 52 coal companies

Stranded assets and climate change risks have become reality in the financial markets. During last week the world largest pension fund, the Norway Pension Fund, NBIM, said that they have excluded 52 coal companies from their portfolio and the pension fund says that further divestments will follow during this year.

According to the Pension Fund this exclusion does not include for example the green bonds if the company has issued such an instrument to finance environmental projects and is being verified by a third partner.

Also in France, institutional investors are to disclose their climate impact and carbon risk exposure. But also the Bank of China and the Bank of England have been rising the awareness of the climate-related risks to the financial sectors.

For long-term passive investors, climate change poses a financial risk which is not priced in the markets. According to study “Hedging Climate Risk” by Mats Andersson (CEO, AP4), Fredrick Samama (Deputy global head of institutional clients at Amundi Asset Management) and Patrick Bolton (Professor, Columbia University, New York) hedging climate change is a possibility to maximize long-term returns while limiting political and timing risks. The writers argue that investor holding a decarbonized index is hedged against the timing risk of climate mitigation policies because the decarbonized indexes are structured to maintain a low track error to the benchmark index.

What happens then when company is disclosing changes in carbon footprint? According to writers inclusion in a decarbonized index should have a positive effect in the company valuation and vice versa. And companies, that are excluded, could more easily determine their carbon footprint ranking in their industry sector and how much carbon footprint reduction it would take for their stock to be included again in the index.

According to the study, in order to foster the engagement of financial markets with climate change, it is advisable to appeal to investors´rationality and self-interest.

– Any rational investor with a long-term perspective, should be concerned about the absence of a market for carbon and the potential market failures that could result from this incompleteness, they say.

 

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Business Finance

NBIM: Global standards important in our investment process – 49 divestments in 2014

The largest oil fund in the world, the Norges Bank Investment Management (NBIM) has published its guidelines and information regarding last year.  According to the CEO of the fund, Mr. Yngve Slyngstad, the fund made 49 divestments last year. One of the biggest reasons for divestments were the environmental risks in the portfolio company.

– Our fund has a long-term perspective in responsible investing and we are a large, international investor. For us, the global standards are important in our valuation process. For example the UN Global Compact and OECD principles for international companies are examples for us that the company is having responsible business processes and management. We have invested in over 8000 companies in 82 different countries so they are important guidelines for us. During last year we have also developed our prosesses regarding the environmental issues, Mr. Slyngstad said.

– Last year we have increased our investments in renewable energies, energy efficiency and efficiency in the natural resources. And this is part of our investment strategy that we pay more attention to climate change issues, water mangement and children rights. The other elements in our investment strategy are: equal treatment of shareholders, shareholder influence and board accountability, legitimate and well-functioning markets and risk management.

The oil fund market value is 6534 billion Norwegian kronor and 60 % are in equities, 35 % in fixed income and 5 % in real estate.  45 % of the fund is invested in Europe, 35 % in North America, 16,5 % in Asia and 3,5 %  rest of the world. According to the governace of the fund, the fund can have max 10 per cent of the voting shares in a company. The return of the fund has been 5,7 per cent from the establishment in 1998 to the end of 2013.

Finance