Nicolai Tangen, chief executive officer of Norges Bank Investment Management (NBIM), has spoken out against soaring executive pay and the politicisation of ESG issues, highlighting the sovereign wealth fund manager’s plans to file its own shareholder proposals in future.
In an opinion piece in the Financial Times on Monday, Tangen wrote: “This week, I am at the World Economic Forum in Davos to talk to other investors and companies. Our message to them is clear: We expect boards to sharpen up.”
As manager of the NOK13.1tn (€1.23tn) Government Pension Fund Global (GPFG), he said NBIM would increasingly hold boards accountable.
“In the future, we will vote against board members if we see material failures in disclosing, managing or overseeing climate risk,” he said, adding: “Starting in 2023, we also plan on filing our own shareholder proposals.”
The comments echo elements of NBIM’s new three-year strategy plan unveiled last month.
Tangen said NBIM was worried that ESG considerations were increasingly becoming “a hot political topic”.
“But ESG is not politics. It is common sense. In an uninhabitable world, the value of our fund is zero,” the CEO said.
Shareholders in companies were paying CEOs more and more every year, he said, adding that in many cases, pay hikes had not been driven by corresponding value creation over the long term.
“We will focus on chief executive pay packages of $20m or more, and on cases where outcomes are unusually costly, and the incentives do not clearly align with shareholders’ interests,” he said.
Diversity was also crucial for board quality, he said.
“We expect boards to have at least 30% representation of each gender, and we will increasingly vote against those that fail to meet this condition,” said Tangen.
OPF invests in technological solutions that reduce loneliness
Oslo Pensjonsforsikring (OPF) has invested NOK45m (€4.2m) in a local firm which provides a social benefit by producing simplified communications technology for young as well as older people.
The company, No Isolation, provides two key products – AV1, a classroom robot for children and young people, and a computer, Komp, which is operated with a single button, and adapted for the elderly and their motor skills.
Mette Cecilie Skaug, investment director at OPF, said: “Our starting point is to invest in companies that can give a good return on the pension funds we manage.”
She said OPF – Norway’s largest independent municipal pension fund – was not looking for risky projects, but rather well-established companies with fully developed products that had already been commercialised.
OPF said No Isolation had good growth opportunities in both the Norwegian and international markets, which made it interesting for investors.
Karen Dolva, founder and CEO of No Isolation, which she set up in 2015, said the company’s aim was to reduce social isolation and loneliness through technology that created closeness and belonging.
“There are millions of involuntarily analogue people, who for various reasons do not master generic technology,” she said, adding that the longer people lived with diagnoses such as dementia, ALS and Parkinson’s, the greater the need for simple solutions.
FSA flags up weaker profitability for pension institutions, but strong solvency
In its latest risk report, the Norwegian FSA (Finanstilsynet) said the country’s pension institutions and non-life insurers had been showing weaker profitability in the second half of 2022, but that solvency was strong.
The FSA said in its December 2022 Risk Outlook reports that the risk-free market rate, represented by the 10-year Norwegian government bond yield, had risen considerably by late 2022, to a level far higher than the average defined-benefit guaranteed rate of return.
Pension institutions’ fluctuation reserves and buffer funds had been reduced and profits were weak, it said, after negative investment returns – following a fall in bond prices and the stock market decline.
But at the same time, higher interest rates had strengthened solvency, it said.
“When interest rates have risen from a level below the average guaranteed rate of return, the duration gap between assets and liabilities has, as an isolated factor, caused the present value of liabilities to fall more than the value of the assets, which has had a positive effect on solvency ratios,” the financial watchdog said.
However, even though long-term interest rates had risen, the FSA warned it had to be taken into account that the upward trend might be short-lived and that interest rates might fall in the longer term and approach the low level of recent years.
On the topic of higher-risk investments, the FSA said Norwegian life insurers’ exposures to commercial property were high – also in a European perspective.
“The rise in interest rates and higher risk premiums may lead to a substantial fall in commercial property prices, thereby weakening life insurers’ profitability and solvency,” it warned.
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