Meaningful climate targets are often systematically impossible to implement at portfolio level, according to the climate change stewardship lead at Norges Bank Investment Management (NBIM), who said focusing on simpler items within a corporate transition plan is a more effective way of achieving long-term sustainable investments.

“We don’t see climate change or climate risks as an ethical overlay. It’s not an additional bolt on, it’s fundamentally written into the fund’s mandate,” said Tim Smith of NBIM, the asset management firm of Norway’s sovereign wealth fund.

Speaking alongside a panel of sustainable investment leads from Aviva Life UK, NEST Pensions and Wellcome Trust at the CFA UK Sustainability Conference in London last week, Smith said treating climate change as a fundamental driver of markets and asset prices in the long term was core to the NOK17.8trn (€1.53trn) sovereign fund’s sustainable investment strategy.

“I think that enables us to step out of some of the highly politicised discussions that we’re also coming across now,” said Smith.

“We can look people in the eye and say: this is not about a social or ethical overlay. This is about value maximisation and value preservation for the fund over the very long term,” he added.

His comments come shortly after climate NGOs filed a criminal climate case against TotalEnergie’s directors, led by chief executive officer Patrick Pouyanné, and its key shareholders including NBIM and BlackRock.

Sustainability across asset classes

Chaired by NinetyOne sustainability director Daisy Streatfield, the panel of sustainability chiefs discussed the tensions and trade-offs in sustainable investing, and what they, as universal asset owners, look for in the space.

Diandra Soobiah

Diandra Soobiah at NEST

Looking at the UK pension market, head of responsible investment at NEST, the UK’s largest workplace pension scheme by members managing £29.6bn, Diandra Soobiah, explained how the fund’s sustainability approach has evolved in recent years.

“At the beginning of our journey we were very ESG focused. We were really trying to get the investments that we own to focus on how they’re managing ESG risks within their business operations and supply chains. But now, we’ve broadened our approach and are putting emphasis on them and our fund managers to be clear about what impacts they are having through their business activities on the environment and society.”

She added: “In our private market’s mandates, for example, renewable infrastructure equity, it is easier to measure the direct social and environmental impacts these assets have as you’re dealing with one physical asset at a time.”

Soobiah continued: “There’s no point in our members saving hard throughout their lives if they’re going to be retiring into a world that’s been decimated by climate change, that they’re then going to have to end up paying for with their pension savings.”

The role of private markets in sustainable investing, along recognising the combined impact of climate, health and inequality on communities was also discussed, with the group stressing how factoring these into their investment processes aids financial returns overall.

Integration of sustainability considerations, along with factoring in a just transition was also a key theme of the discussion.

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