The manager of Norway’s NOK12.1trn (€1.2trn) sovereign wealth fund has proposed adding some extra elements to draft international climate reporting requirements for companies – which would provide investors with a more detailed picture of how businesses are preparing their transition to a low-carbon operating environment.
In a letter to the International Sustainability Standards Board (ISSB), Norges Bank Investment Management (NBIM) made comments on the board’s IFRS S2 climate-related disclosures exposure draft, which was out for consultation until 29 July.
NBIM, which runs the Government Pension Fund Global, already published some reaction to the ISSB’s draft sustainability standards on general sustainability-related disclosure requirements as well as climate-related disclosures back in April.
But this latest response to IFRS S2 alone goes into more detail and includes new comment on two aspects of that draft – the reporting requirements on transition plans, and the increased transparency about the use by companies of carbon offsetting.
Regarding requirements on transition plans, NBIM said the ISSB’s proposals would help investors understand how a company was positioning itself in the low-carbon transition, how it was planning to manage risks and opportunities – including its significant environmental and social impacts – and how it was delivering on its transition plan.
“In our response to the survey, we propose some additional elements that could be included in this section, such as disclosing interim milestones and actionable steps the company is taking to meet its targets,” said the authors of the letter, NBIM’s Carine Smith Ihenacho, chief governance and compliance officer, Severine Neervoort, lead ESG policy adviser and Snorre Gjerde, interim head of environmental initiatives.
The trio also wrote that NBIM welcomed the board’s reporting requirements in the exposure draft on the use of offsets.
“To assess a company’s climate plan, it is useful for investors to know to what extent the company is relying on offsets, as well as the company’s view on any risks related to the reliance of offsets or tools that are not yet commercially deployed at scale,” they said.
“Other things equal, reducing actual emissions before relying significantly on carbon offsets seems a prudent approach. However, we recognise that some offsets and carbon capture will be necessary to reach net zero in 2050, for certain hard-to-abate activities,” they said in the letter, dated 26 July and published yesterday.