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The ESG Review: Norwegian mega-fund turns up the ESG heat on corporate USA

After months of reports that some US companies are getting caught up in a political backlash against ESG, one of the world’s most influential investors has fired a shot that will likely get the attention of many of them.

Norway’s $1.4 trillion sovereign wealth fund, the world’s latest sovereign investor, gently let slip that it is starting to crank up pressure on American firms by using shareholder proposals to outline its stance on ESG topics. The fund has historically said little publicly in the area, but in the past couple of years has become more vocal in outlining its proposed action on companies it sees as posing too much ESG risk.

The new move only involves proposals to four companies, but the fund is, by doing so, leaning on all of them to set 2050 net zero carbon targets as a minimum.

It has already said it will vote against firms not committing to those goals, and CEO Nicolai Tangen said that executive pay would also be under greater scrutiny in 2023 given economic conditions.

Yet just as such an influential investor has used its weight to counter the pushback against ESG-led corporate change, so politics in the US have continued to intervene, with 25 Republican-led states this week moving to try to get the courts to block President Joe Biden’s rule on socially-conscious investing by “retirement plans”.

A piece in Fortune underlined the political entanglement, making the point that companies based in more northerly and Democrat-leaning states typically had larger public pension funds at stake but backed ESG investing principles given the amount of money in play, while states generally opposing them tended to be home to energy companies. As one observer put it in the article, “ESG issues that matter to one company can be completely different from ESG issues that matter to another company.”

Boards would have to be highly responsive to stakeholders’ ESG expectations, and sustainability heads - and presumably communicators alongside them - would need to continue to make strong cases that commitments were delivering value, particularly by maintaining the ears of the CEO and CFO, it said.

In Europe though, ESG has not become nearly this politicised, although as a piece in Forbes pointed out recently, it has been “vexed by continual revisions to incomplete rules, exacerbated by inconsistent reporting standards”.

Ultimately, while the political quagmire in the US will rumble on as the elections approach and campaigning gathers pace, the sheer bulk of the largest institutional investors and their chess-like moves to increase pressure on companies stands to be a growing factor in setting goals and actions.

The ESG News Review is written by Steve Earl, a Partner at BOLDT.

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