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Giant Norway fund launches campaign to pressure 1100 companies on water risks

Report during third quarter will outline fund’s reporting ‘expectations’ from portfolio companies.

The €276bn Norwegian Government Pension Fund is to begin pressuring more than a thousand companies in sectors with high water-related risks to report on their responses to the issue so that it can assess potential future downside to its investments. Norges Bank Investment Management (NBIM), which runs the Norwegian fund’s assets, said it had holdings in about 1100 companies with a combined market value of €33bn where it believes good water risk management could be critical to future performance. During the third quarter of this year, the fund said it will publish a list of water reporting and risk management “expectations” it has for portfolio companies. The fund, Europe’s largest pension scheme, has identified seven high-risk sectors: food, agriculture, pulp and paper, pharmaceuticals, mining, manufacturing and power, and water supply. It said: “Many companies in risk sectors and regions do not have a proper water policy with risk assessments and performance reporting. Shortcomings in companies’ water management reporting makes it difficult to assess the degree of risk exposure resulting from their own operations or their supply chains.” On the macro level, the fund said economic growth, industrialisation and population growth were driving rising demand for water, while climate change, pollution and regulation were increasingly affecting water supply. It noted that agriculture is the world’s largest fresh water consumerand that manufacturing currently consumes around 22% of water licences and permits: “In the future, securing access to the quantity and quality of water needed for production and complying with requirements for wastewater emissions may become important for more and more companies and their results.” Norges Bank’s Executive Board has added the ‘active ownership’ of water management to its six-strong list of focus areas, which are: equal treatment of shareholders, shareholder influence and board accountability, climate change, water management, children’s rights and the well functioning financial markets. On the latter issue, NBIM said it had teamed up with a number of other large investors and support from several central banks in Europe to establish the Covered Bond Investor Council, with the aim of improving liquidity in the asset through enhanced transparency and standardisation. On children’s rights, NBIM said that a partnership it had initiated as part of its active ownership strategy between Monsanto, Bayer, Syngenta and DuPont had come to fruition on June 12 with an announcement that the companies would work together to combat child labour in seed production, a subject that the fund has lobbied hard on. The fund also recorded its highest ever quarterly return in Q2 at 12.7% and also reached a targeted equity allocation of 60%, after a two-year transition period.