Norway fund giant outlines ESG criteria for real estate billions

Property portfolio could reach €16bn.

Environmental, social and governance (ESG) factors including energy efficiency and water consumption are to be key planks of the giant NOK2.5trn (€316bn) Norwegian Global Pension Fund’s long-awaited build up in real estate investments. The Norwegian Finance Ministry said Norges Bank Investment Management, the arm of the central bank which runs the fund, will give priority to energy efficiency, water consumption and waste handling for the allocation, which is planned to reach 5% of total assets. Based on current values, the fund would have an ESG-referenced property portfolio of over €16bn. The portfolio shift, to come from a cut in the fund’s bond portfolio, will be phased in over several years. NBIM will be required by the government to produce an annual report of the portfolio, including anassessment of how it conforms to responsible management and the exercise of ownership rights. The bank will be allowed to hire external managers and outsource operational functions, with returns benchmarked against a customised version of the Investment Property Databank’s Global Property Benchmark. Sigbjørn Johnsen, Norwegian Finance Minister, said: “Real estate is the largest asset class after shares and bonds, and these investments fit well with the fund’s investment profile. In order to reduce risk, we have made it a requirement that the investments will be spread over time, over countries and over types of real estate. Investments will principally be made in well-developed markets and within traditional types of real estate. Even so, we must be prepared for real estate prices to fluctuate a good deal.