NORWAY - Norges Bank Investment management (NBIM) has warned companies that it invests in on behalf of the Government Pension Fund - Global must take a "long-term approach to the issue of water", and consider the impact of local communities on water and sanitation challenges.

The organisation responsible for managing the investments of the global pension fund outlined a new focus on the issue of sustainable water management alongside the publication of the pension scheme's second quarter results. (See earlier IPE article: Norway-Global to drill water management)

In its draft Investor Expectations for Water Management report, NBIM divided its proposals into three main areas:

Water management in direct operations and supply chain; Social and environmental impact, and Transparency.

NBIM claimed water scarcity on a global scale "represents a financial risk to the fund", as economic growth, industrialisation and population growth is increasing demand yet climate change, pollution and regulation are affecting the supply of water.

It noted: "For a diversified investor with a long-term horizon broadly invested in sectors exposed to water-related risk, water management is a critical factor."

The expectations, designed to act as a starting point for constructive dialogue, assume that companies in high risk sectors with the best systems and technologies to deal with water challenges "are better positioned to identify new market opportunities, mitigate risk and create shareholder value".

In the draft proposals, NBIM stated the potential impacts of water usage and other related water issues "must be integrated into the strategic business planning of the company", such as defining and implementing targets for water conservation, improved water quality and efficient water management.

The organisation also expects companies to take into consideration the social and environmental impact of both direct operations and the supply chain particularly on the water and sanitation of local communities, by implementing appropriate sustainable water measures and engaging with relevant organisations and experts.

On the issue of transparency NBIM also requests that companies disclose the commitment, policies and strategies relating to water management, and introduce measurement systems and targets for future performance reporting.

The decision to focus on sustainable water management has extended the pension fund's already large environmental focus, and follows a decision by the Norwegian Ministry of Finance in January to stop the pension scheme from investing in a gold mining company, as a result of concerns about environmental damage, after it was found to be dumping waste into a local river. (See earlier IPE article: Norway rules out investing in gold mining giant)

NBIM confirmed the draft expectations are open to comments and feedback until 9 September 2009, after which it will publish the finalised version.

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