NORWAY - A revised strategy for active ownership has been adopted by the Executive Board of Norges Bank on behalf of the Norway Government Pension Fund - Global which will in future include a new focus on water management.
The revisions to its strategy, adopted in June 2009 and outlined in the pension fund's latest quarterly report, mean there are now six focus areas including: the equal treatment of shareholders; shareholder influence and board accountability; and well functioning financial markets, which address "important principles of good corporate governance".
The final three areas comprise of climate change; children's rights and the new issue of water management, said Norges Bank Investment Management (NBIM) in its latest report entitled 'Investor Expectations on Climate Change', and published following a recent consultation on draft proposals. (See earlier IPE article: NBIM outlines expectations on climate change)
NBIM said it had decided to extend its environmental focus to include water management as it is broadly invested in "several sectors with high water consumption", and seven sectors are particularly exposed to water-related risk: food; agriculture; pulp and paper; pharmaceuticals; mining; manufacturing, and power and water supply.
Figures from the Government Pension Fund - Global's second quarter report showed water is an important input and output factor for more than 1,100 companies in which the pension fund is invested, with these holdings resulting in a combined market value of NOK 265bn (€30.4bn).
It claimed companies with poor water management face significant operational risk associated with supply interruptions and higher treatment costs, while further risks include regulatory requirements and opposition from local communities and activist groups, potentially leading to liabilities for damages or the loss of licences and permits.
Anne Kvam, head of corporate governance at NBIM, said: "We believe that investors should receive sufficient information to be able to assess how risk related to water scarcity, regulations and higher water purification costs can affect a company's profits and the likelihood of this occurring."
To highlight its increased focus on the area, NBIM said it intends to publish a document outlining its expectations for companies' management of water as a resource and the associated risk in the third quarter of 2009, which will be aimed at firms with activities or supply chains in high risk sectors and regions and based on international standards and best practices in water management.
Further details from the quarterly report showed the value of the Government Pension Fund - Global increased by NOK 309bn between the end of March and the end of June to push the value of the scheme to NOK 2.385trn, although the monthly balance sheet figures from Norges Bank for July showed the pension fund had grown to NOK 2.466trn at the end of last month.
Yngve Slyngstad, chief executive of NBIM, said: "The positive development in the second quarter has continued into the third quarter. Since the markets turned in March and up until today, the value of the fund has increased by more than NOK 600bn."
The second quarter investment return was 12.7%, or NOK 270bn, which was 2.1 percentage points above the benchmark, while the pension fund finally achieved its targeted equity allocation of 60%, following a two-year transition period to increase the allocation from 40%.
Figures showed the return on the equity portfolio was 19.5% in international currency terms, while the fixed income portfolio returned 5.1%, resulting in an annualised gross return of 3.4% since 1 January 1998.
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