​NBIM criticises OECD’s draft climate risk tool for its divestment focus

The manager of Norway’s NOK11trn (€1.1trn) sovereign wealth fund has criticised the OECD’s draft climate risk tool for focusing on divestment to mitigate adverse impacts on the climate, saying the paper should focus more on engagement with high emitters.

Norges Bank Investment Management (NBIM) said that while divesting would reduce an individual investor’s exposure to climate risk, it would not directly reduce greenhouse gas emissions, and therefore the detrimental impact on society and the environment.

In the letter to the OECD secretariat, NBIM’s chief corporate governance officer Carine Smith Ihenacho and senior analyst Séverine Neervoort wrote: “We believe the paper should further develop the engagement and stewardship section.”

In their consultation response to the OECD’s draft “Tool for Institutional Investors on Managing Climate Risks and Impacts Through Due Diligence for Responsible Business Conduct”, the NBIM pair said divestment would also prevent an investor from engaging with a company to encourage positive change through its mitigation of adverse impacts.

The manager of the Government Pension Fund Global also suggested the OECD’s paper should have a single focus on Responsible Business Conduct (RBC), saying the paper’s dual object of RBC and the shift of capital in a green direction created confusion.

“With the current drafting, the paper might create the expectation that RBC due diligence should guide investment strategies and portfolio allocation decisions. For most investors, this is not the case and might not be possible under their mandates,” Smith Ihenacho and Neervoort wrote.

The Oslo-based GPFG manager suggested the paper could identify climate-related actions by investee companies that were deemed irresponsible under the RBC approach, saying this would help investors in their due diligence, and that further guidance on how best to engage with high emitters would also be beneficial.

“There is a need for more guidance on the responsible use of carbon offsets for instance,” the pair wrote.

Publishing its response to the EU’s corporate reporting consultation last month, NBIM said companies should comply with both the letter and spirit of laws – but that this was not always the case.

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