Norway’s Ministry of Finance sounds the alarm on ESG challenges, asking the question of whether sustainable investing is at risk. In a recent white paper, they cautioned against setting unrealistic expectations for Environmental, social, and governance performance and warns that sustainable investment may become more demanding in the future.
Norway’s $1.3 trillion Government Pension Fund Global (GPFG) faces a bumpy road ahead. As the world faces democratic erosion, protectionism, inter-country rivalry, and economic decoupling, both financial and non-financial risks are set to rise.
With the economic center of gravity shifting towards emerging markets, the GPFG’s management by Norges Bank Investment Management (NBIM) will become more challenging, the paper warns.
NBIM’s investment strategy is based on the belief that sustainable development in economic, environmental, and social terms, along with well-functioning, legitimate, and efficient markets, is crucial for long-term, favorable returns.
Given the fund’s investments in thousands of companies across different countries and regions, it’s not feasible to completely avoid unwanted situations.
However, a recent report warns that the increasing presence of financial markets in countries with less democracy, transparency, and freedom of the press may weaken the scope for responsible investment.
The report emphasizes the importance of considering expectations, ambitions, and requirements from this perspective to uphold sustainable investment practices.
In the paper, the authors emphasize the importance of recognizing that Norway’s sovereign wealth fund may have a different reputation abroad than it does at home.
As Norway’s Ministry of Finance sounds the alarm on ESG challenges, they warn against setting overly ambitious ethical goals and warn against using the fund as a tool for foreign policy. Nonetheless, they note that foreign policy decisions can still impact the fund, even if its management remains financially motivated.
Source: The Government Pension Fund 2023