Why does NBIM take a more active ESG approach to its investments?
Responsible investment and active ownership are important priorities in our management of the fund. Our work on responsible investment has three pillars: improving industry standards; exercising our ownership rights responsibly; and monitoring and managing the risk in the fund’s investments by integrating a range of factors.
 ‘The majority of our investments are managed in-house’ |
We engage in active ownership to enhance returns and to manage our global and diversified portfolio within an acceptable level of risk. Our work on responsible investment has evolved as the fund has grown.
How are assets managed at NBIM?
The majority of our investments are managed in-house and less than 5 percent is managed by external managers. We use external equity managers for the majority of our emerging markets investments and for all our investments in frontier markets. External managers are also used to complement our internal efforts in specific strategies such as investments in smaller companies and environmental mandates.
Your decision to divest from coal companies has been well publicized. What other issues are of concern?
We have three focus areas dealing directly with environmental and social issues: children’s rights, water management and climate change. We have formulated expectations in each of these areas for how companies should manage risk and report on their activities. We take a risk-based approach and analyze risks related to ESG issues. We analyze risk at country, sector and company level.
Few sovereign wealth funds (SWFs) are as open as NBIM. What are the benefits of this approach? And are there any drawbacks?
We manage the fund on behalf of current and future generations. We aim to be transparent and open about all aspects of our management, and disclose timely, accurate and relevant information to ensure legitimacy, both in Norway and internationally. Our ambition is to be open about all relevant matters as long as it does not jeopardize the fund’s expected return.
How do you engage with the companies you invest in?
We typically engage in two main ways. The first is through published expectations of the companies we are invested in. The second is through active ownership. We vote at [the meetings of] all the companies in our portfolio and we have also started publishing position papers on corporate governance issues that we consider to be very important matters of principle.
In addition to this we have more than 3,000 company meetings on an annual basis where we can address issues with company management, specialists and the company board. We prioritize contact with companies on the basis of holding value, ownership share, specific issues and companies that present particular challenges. We do all this to safeguard the fund’s assets.
What does NBIM want to see from a company in terms of investor relations?
We see investor relations as one of the key interfaces. Companies should have a clear and coherent IR strategy and for us, some of the vital areas are:
– Clear, concise, consistent and targeted reporting across results presentations, annual reports and news releases. They should also demonstrate the links between important reporting content such as key performance indicators, risk, sustainability and remuneration. All reporting should be comparable over time and allow a clear indication of trends in the specific business
– Consistent and proactive outreach and in-person dialogue are important; being proactive with news flow and speaking to investors directly when there are material events builds understanding, respect and a long-term relationship
– The ability to meet with senior management is also very important. This is an important part of the investment process for us and allows us to better understand the business and the market in which that company functions.
This article appeared in the fall 2015 print issue of IR Magazine
