Norges Bank Investment Management has laid out its expectations for portfolio companies when it comes to nature, in the latest sign that the topic is moving up the investor agenda.
In a report published on Wednesday, the asset owner said the degradation of land, freshwater systems and marine environments “all affect the long-term value of companies in our portfolio”.
“Companies face risks when natural resources they depend on become scarce or degraded, and when their environmental impacts lead to regulatory action, legal liability, operational restrictions or reputational risks,” it wrote.
To mitigate these risks, NBIM said it wanted to “support” portfolio companies as they develop strategies to make their businesses more sustainable.
“We acknowledge that companies have different starting points and capabilities, and that approaches to nature management will vary across regions, industries, and the specific ecosystems,” it continued.
“We will consider such factors, as well as a company’s trajectory, or progress over time, when we engage with portfolio companies on our nature expectations.”
Expectations include board oversight of nature-related topics, internal policies, adequate reporting to the market, and supply chain due diligence.
Portfolio companies should set specific targets, accompanied by plans to achieve them over clear time frames, NBIM said.
“These expectations are a foundation for our engagement activities, which include company dialogues, filing and voting on shareholder proposals, and voting for or against the re-election of board members,” it noted.
“Companies face risks when natural resources they depend on become scarce or degraded”
Norges Bank Investment Management
“Our expectations also inform our investment analysis and risk management. In specific cases, companies that do not respond to engagement will be candidates for assessment under risk-based divestment criteria for nature-related risks.”
The update comes as UK pension fund Railpen announced this week it would sharpen its focus on biodiversity over the coming five years, and will develop a “structured, outcomes-focused and comprehensive path” for engaging on the topic.
It will publish a high-level version of the engagement plan in coming months, to enable fellow investors and companies to understand its strategy.
On Monday, representatives for Robeco, Impax Asset Management, Achmea Investment Management and Storebrand were among those to meet with firms and lawmakers to discuss the EU’s troubled Deforestation Regulation (EUDR).
Aggressive lobbying from industry and government has seen the law delayed and diluted.
Now due to enter force for Europe’s largest businesses in December, the EUDR will require goods using key commodities, including wood, cattle and coffee, to be free from association with deforestation before they are placed on the EU market.
The European Commission is due to evaluate the current proposals next month, with a view to further simplifying the rules.
Chris Dodwell, global head of policy and advocacy at Impax, urged the Commission to stick to the current implementation deadline and keep its review “limited to practical steps – not a re‑write”.
“Policy certainty is the cheapest form of investment stimulus for traceable, deforestation‑free commodities,” he said in a statement.
Senior engagement specialist for Robeco, Laura Bosch Ferreté, said the EUDR would help investors engage with companies on deforestation, and called on the Commission to retain the current timeline.
