The Norwegian petroleum fund must be used actively in the battle against global warming

Publish date: September 15, 2008

Written by: Anne Karin Sæther

Translated by: Bjørn Utgård

Bellona finds it both environmentally and economically irresponsible for Norway not to use the power of the Norwegian petroleum fund in the battle against global warming. Bellona proposes a new climate vision for the fund, and recommends that it work out a set of Investors' Expectations on Climate Change.

“Money talks. The petroleum fund could become Norway’s most important voice internationally,” says Frederic Hauge, president of the Bellona Foundation.

Advice for Norwegian Finance Minister Kristin Halvorsen

[picture1 left] Norway’s Minister of Finance, Kristin Halvorsen, of the Socialist Left Party, has asked for advice on the further development of the ethical guidelines of the petroleum fund (formally known as the Government Pension Fund – Global).

In its response, submitted on Monday September 15th, Bellona urges the petroleum fund to start demanding that the companies it invests in show dedication to tackle global warming.

“The petroleum fund must be used actively in the battle against global warming. The fund must lay out a climate strategy, and start engaging systematically in the 7,000 companies it owns part of to see the necessary change happen,” says Hauge.

Pollution is bad business
The core of the fund’s ethical guidelines is that the fund “must be managed so as to generate a sound return in the long term, which is contingent on sustainable development in the economic, environmental and social sense.”

If the world is to avoid dangerous climate change, global society must stop emissions of greenhouse gases. In a zero-emission society, companies with large emissions must either adapt or go bankrupt.

The alternative to a zero-emission society is global warming with catastrophic destruction and a serious decrease in global economic growth. For an investor of the fund’s size, this would mean that its profits are seriously reduced.

“If the petroleum fund is to invest safely and for the long term, it must start facing the challenge of global warming proactively. If it decides to stay as passive as today, it will actually contribute to increase global warming,” says Hauge.

A climate vision
Bellona urges the petroleum fund to guide its work towards the following vision:

By 2020 the fund’s portfolio will be comprised solely of investments in companies that will have sustainable business models following the transformation to a carbon-neutral and resource-efficient society.

This could, for instance, mean that a coal power company that does not capture its emissions, and by 2020, does not have concrete plans to do so, could be thrown out of the fund’s portfolio.

By making clear its investors’ expectations on climate change, however, it can contribute to make the necessary change in a whole range of companies.

New guidelines
The existing Investors’ Expectations on Children’s Rights has already shown that such guidelines do have an effect. Bellona now urges the petroleum fund to make a concrete set of Investors’ Expectations on Climate Change.

Key elements of the new expectations must be to require open reporting of companies’ total emissions and a guideline for how they should reduce emissions. It should also contain criteria for how to evaluate the risks and opportunities embedded in global warming, such as the extreme weather and the economic consequence of a price on CO2.

Climate assessment
Bellona then urges the petroleum fund to undertake an evaluation of all companies in its portfolio to understand the climate risks it is currently exposed to. Upon this basis, the fund must use corporate engagement and, to the extent necessary, divestment to influence the companies in its portfolio in the right direction.

In the longer term, the fund should seriously consider positive screening – that is, investing in companies or sectors that are particularly important in reducing greenhouse gas emissions – as a means to realize its climate vision.

To promote the development of climate-friendly technology and companies, Bellona also urges the fund to start investing in new asset classes, such as clean-tech ventures and private equity. This investment should start small and grow with time as experience is gained.