NBIM books €880m profit from ESG risk divestments, takes hit on ethics blacklist

The fund raised AI topics at 600+ separate meetings with portfolio companies in 2023.

Euro banknotes

Risk-based ESG divestments have delivered an additional NOK10 billion ($948 million; €880 million) in returns to Norges Bank Investment Management (NBIM) since 2012, according to chief compliance officer Carine Ihenacho.

“The main contributor is divestment due to climate change risk. These are great results – not only can we reduce risk, we can get rid of unsustainable companies and make money too,” she said at a launch event for the Norwegian oil fund’s annual responsible investment report.

The NOK10 billion represents a 44 basis points increase in the cumulative returns on equities over the roughly 12-year-period, compared to a portfolio not adjusted for risk-based divestments.

NBIM made a total of 526 risk-based divestments in that time, 86 of which were in 2023.

The fund divested these companies after finding heightened risks across a range of ESG topics, including potential violations of human and labour rights, poor risk management related to corruption, and exposure to thermal coal, Ihenacho said.

A total of 190 climate change-focused company divestments were recorded by the fund, followed by 120 based on human rights, 58 on water management and 45 on corruption risk.

NBIM noted that divestments made on the basis of corruption risk were the only type of risk-based exclusion which had resulted in losses for the fund (of 3bp).

Ethical losses

However, the fund reported losses of around 170bp associated with sales made under a separate ethical divestment programme, which is decided by the executive board based on recommendations from an independent Council of Ethics. The council can recommend that companies are blacklisted outright or placed under observation.

The losses were calculated based on how NBIM’s portfolio would have performed if no ethical exclusions had been implemented since 2006. It did not disclose the dollar value of the losses and has been contacted for additional details.

According to its ethical guidelines, NBIM is not allowed to invest in companies which make certain types of weapons or sell military material to certain countries, those producing cannabis and tobacco or coal-dependent companies.

The fund said the exclusion of weapons companies had done the most to reduce returns, followed by tobacco companies.

NBIM separately reported that it had ramped up its engagement on AI topics in 2023, raising the issue in 631 meetings with portfolio companies, compared to 177 meetings in 2022. In the same year, the fund discussed human rights issues in 121 meetings and biodiversity in 73 meetings.

The fund released a framework for responsible AI in 2023 and said that it engaged on the template with directors at 60 of its top portfolio companies. According to NBIM, responsible AI should incorporate three key elements: board accountability, transparency and robust risk management.