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Norges Bank IM turns up heat on climate change with in-house model

Norges Bank Investment Management is developing an in-house model to measure the impact of climate change on individual companies and portfolio returns, the manager of Norway's Government Pension Fund Global, Oslo, said in a responsible investment report published Tuesday.

The manager of the 8.1 trillion Norwegian kroner ($1 trillion) sovereign wealth fund already monitors greenhouse gas emissions in its equity portfolio. Both the equity portfolio and the reference index experienced an increase in greenhouse intensity values in 2017, even though total emissions decreased in the period, NBIM said in the report. In an effort to incorporate the carbon price impact on the return of the portfolio, the model the money manager is developing will aim to examine future cash flows and greenhouse gas emissions on a company level.

In 2017, the sovereign wealth fund recorded a 21.7% return on equity investments with an environmental focus, making six divestments and adding 11 new exclusions, the report said. This compares with a return of 12.4%, 23 divestments and 64 new exclusions in 2016.

"Companies and investors are becoming increasingly aware that global challenges will affect long-term returns. We will continue to support company boards in their efforts to manage risks related to sustainability, and to improve disclosures," said Yngve Slyngstad, CEO of Norges Bank Investment Management, in the report.