World’s largest sovereign wealth fund says green backlash is a chance for it to 'phase in' — not out (2024)
Nicolai Tangen, chief executive officer of Norges Bank Investment Management, during a news conference in Oslo, Norway, on Tuesday, Jan. 30, 2024. Norway's $1.6 trillion wealth fund added to its bets in the biggest technology companies last year after interest in artificial intelligence drove a surge in the sector.
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Norway's $1.6 trillion sovereign wealth fund says it will continue to advocate for investments based on environmental, social and governance (ESG) factors, brushing off the impact of a green political backlash.
It comes at a time when environmentally conscious investments have become a politically polarized issue in the Western world, particularly in the United States.
Republican lawmakers have decried ESG as a form of "woke capitalism" that seeks to prioritize liberal goals over investment returns.
Democratic lawmakers have sought to oppose that view, describing attacks on a range of ethically responsible business practices as "an attempt to manufacture a culture war and protect corporate special interests."
Analysts expect the outcome of this year's U.S. presidential election to determine whether the pushback against ESG investment strategies will have a deep and lasting effect.
Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), told CNBC that the country's wealth fund continued to advocate for the ESG agenda.
"We think it is part of long-term investing. You really need to care [about] the impact that companies have on the environment otherwise you're not going to make good long-term investing. So that's important," Tangen told CNBC's "Squawk Box Europe" on April 23.
"And we think the fact that some other people are pulling away gives us a better opportunity to kind of phase in. So, really interesting times."
The headquarters of the Norges Bank, Norway's central bank, in Oslo, Norway , on Tuesday, Jan. 30, 2024.
Bloomberg | Bloomberg | Getty Images
BlackRock, the world's largest money manager, was estimated to have more than tripled its security spending on CEO Larry Fink in 2023, following criticism over the firm's stance on ESG investments, the Financial Times reported on April 21, citing a filing from the company.
NBIM manages the so-called Norwegian Government Pension Fund Global. The world's largest sovereign wealth fund was established in the 1990s to invest the surplus revenues of Norway's oil and gas sector.
To date, the fund has put money in more than 8,800 companies in over 70 countries around the world, making it one of the largest investors across the globe.
Green investments
The ensuing controversy over ESG has prompted some Wall Street firms to step back from environmentally conscious commitments, while global sustainable funds witnessed net quarterly outflows for the first time on record in the fourth quarter of last year.
The global universe of sustainable funds rebounded slightly in the first quarter, however. Data published via Morningstar on Thursday showed that sustainable funds attracted nearly $900 million of net new money in the first quarter, compared with restated outflows of $88 million in the final three months of 2023.
When asked about the current state of play for green investments, NBIM's Tangen said the situation had improved slightly in recent years.
"I think this area is more attractive than it was because you go back a couple of years the boards were really on the investment managers; you have to get into more green investments," Tangen said.
"There was huge competition for very few projects, prices were high, returns were low — and we think that has kind of improved a bit over the past year or so," he added.
Norway's $1.6 trillion sovereign wealth fund says it will continue to advocate for investments based on environmental, social and governance (ESG) factors, brushing off the impact of a green political backlash.
Some funds may prefer returns over liquidity and vice versa. Depending on the assets and objectives, sovereign wealth funds' risk management can range from very conservative to a high tolerance for risk.
Largest SWFs funds worldwide April 2024, by total assets
The largest SWF was the Abu Dhabi Investment Authority, managing assets just shy of one trillion U.S. dollars. Asia also played a prominent role in the global SWF landscape.
Some countries may have more than one SWF. Also, while the United States does not have a federal sovereign wealth fund, several of its states have their own SWFs. The list does not include pension funds that do not meet the SWF criteria.
Norway is home to the biggest sovereign wealth fund globally, valued at nearly $1.4 trillion. In 2023, the fund posted record profits, bolstered by tech holdings that include Microsoft, Apple, and Nvidia.
Many nations use sovereign wealth funds as a way to accrue profit for the benefit of the nation's economy and its citizens. The primary functions of a sovereign wealth fund are to stabilize the country's economy through diversification and to generate wealth for future generations.
The Pros of SWF include stabilizers in times of nationwide recession and increased government spendings. It can help to gain income other than taxes. It promotes diversified management of funds strengthening the economy. There are certain cons of the SWF, such as the returns of SWF are not guaranteed though predicted.
Exchange rate fluctuation serves as the main source of currency risk. Any sovereign bond offering foreign currency with a history of volatility may not be a good deal for investors even if the debt instrument offers a high interest rate.
Sovereign bonds issued by countries with low ratings are experiencing economic troubles, political instability, or both. That makes them more likely to default on their debts. Sovereign bonds issued by countries with high ratings are more stable and have a low risk of default.
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