A surprisingly candid conversation with NBIM Chief Compliance

Author

Gyubin Hwang
September 25, 2023

Bottom line: NBIM is a net negative-impact fund wrapped in sanctimony and hypocrisy, like much of Norwegian politics.

Key quote

Why it’s interesting

"We can't be a one-and-a-half-degree fund in a two or two-and-a-half-degree world"

Probably the pithiest - and most cynical - statement of purpose for an index/near index institutional investor.

But again, we don't think the climate will be solved by big allocation decisions; we think the climate will be solved by companies changing their investment, and basically getting their emissions down.

Discuss: Are engagement and/or capital reallocation necessary and/or sufficient to induce decarbonisation at scale?

We are invested in many of the large emitting companies in the world. And if you look at our portfolio, what's interesting, 70% of our financed emissions are actually contributed by only 170 companies.

170 companies is 1.8% of NBIM's 9k equity investments. Wonder what % of NAV this represents?

We have around... we have 2% actually allocated to unlisted renewable energy infrastructure, although we haven't used all that. But I think when you when you look at that, what you don't take into account, is all the investment that's going to take place in the companies that we already invested in. So, we will still be investing much more in, let's say, opportunities and renewable infrastructure, than our allocation.

2% allocated but currently only one investment listed representing 0.1%(!) of NAV. 2% of $1.5T is $30b -huge amount of dry powder because of what exactly? I don't buy the argument that their opportunity set is too small, maybe just a lack of portfolio construction expertise in this field? Sort of thing that consultancies should be tripping over themselves to pitch for.

So, I think you have to think about, again, the purpose of the fund is really to create wealth for future generations. It's not a climate policy tool. But within that, we work with climate, within the allocation set out for where we invest.

Hmm….

We work within the mandate given by the ministry, and work as well as we can, first of all, to generate as much as we can, of returns, and also we do it in a responsible manner, not the least taking account climate. We think it will impact our long term returns, but we don't make the allocation decisions.

Any asset owner/manager can pass the buck like this, right? And that's why the international system's alphabet soup of investor alliances etc. (60+?) is so ineffectual because there is no concerted effort to identify bottlenecks in mandates vis-à-vis nature/climate risk.

I mean, if you look at climate change, and how to address it, it's not going to be solved by investors like us. In the end, it's going to be solved by much larger groups, and politicians in the end. And you say, of course, in a way, allocating huge amounts of money to the developed world will help, but that's not the purpose of the fund.

One hell of a depressing conclusion to come to on the SR/LR capital allocation problem. Solution: 25 year olds in government for 25 year terms?