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Recent announcements demonstrate how financial services organizations are becoming increasingly involved in managing climate-related issues and the transition to sustainability.
As ESG-related investment continues to grow rapidly, financial organizations such as banks, private equity firms, and venture capital organizations are conducting an increasing amount of investing and/or monetary lending contingent on investee ESG performance.
Two recent market announcements demonstrate how capital providers continue to attempt to shape and influence companies' ESG policies in a push towards increasing sustainability and transitioning away from a carbon-dominated economy.
Norway's Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. With over US$1.19 trillion in assets, it's the world's largest sovereign wealth fund.
Now Norges Bank Investment Management, which invests this fund's assets, has announced the launch of a new climate action plan, and a target to reach net zero emissions for all companies in the fund by 2050.
It expects all companies included in its portfolio to have set net-zero 2050 targets by 2040 at the very latest, and will be asking them for credible transition plans covering scope 1, scope 2 and material scope 3 emissions, as well as for improved disclosures on performance.
With holdings in over 9 000 companies in 70 countries, the fund's sheer size means that its attitudes and actions can have a considerable influence upon other investment funds and financial companies, as well as the multitude of organizations in which it's invested.
The European Central Bank (ECB) is another major financial institution that has introduced climate considerations into its policy.
As part of its plan to transition its corporate bond portfolio towards issuers with better climate performance, it recently announced that it will give companies climate scores before purchasing their bonds, and will favour those companies with better climate performance.
This will be assessed in terms of each company’s progress in reducing past emissions, its carbon reduction goals and targets, and its disclosure performance regarding the amount of greenhouse gasses emitted.
Two such major financial entities creating strong climate-related policies and actions is not only indicative of the global trend towards more sustainable lending and investing, it also sends a signal to other players in the financial industry that this is indeed the direction in which things are moving and encourages them to set their own sustainable investment policies.
Companies seeking financial investment and/or loans on the other hand, can expect more and more investment and lending organizations to require detailed ESG information and sustainability disclosures as requirements for financing and investment.