Sustainability due diligence
Conducting ongoing social and environmental due diligence is integral to our work as a responsible investor.
We seek to identify and assess potential and actual adverse impacts which our investee companies may cause or contribute to. As a minority investor, we cannot direct companies to take action, but we use our leverage to encourage them to take steps to prevent and mitigate these impacts.
Our ownership work is therefore directed at using leverage to seek to influence the practices of our investee companies. We can exert our leverage, for instance, through our company dialogue or voting. We can also voice our concerns publicly and engaging with standard-setters and regulators to impact standards. If our objectives are not met over time and the future risk is not reduced, we may within our management mandate, consider risk-based divestment. The financial risk the activities or the divestment itself incur, will be central in such decisions. We may also share information on companies with the Council on Ethics for consideration, who can recommend companies for exclusion from the fund on a purely normative basis.
Activities from 2024 that are part of our sustainability due diligence are disclosed in our latest report on responsible investment.
Embedding responsible business conduct into policies and management
We respect human rights in our activities. As stated in our principles and policy for responsible investment management, we follow relevant international standards, including the UN Global Compact, the OECD Guidelines for Multinational Enterprises and Guidance for Institutional Investors, the UN Guiding Principles on Business and Human Rights, and the G20/OECD Principles of Corporate Governance.
These principles and standards form the basis for our expectation documents. We set clear expectations that our portfolio companies should integrate material sustainability issues into their policies, strategies and risk management practices, and that they should identify and manage adverse impacts on the environment or society. The expectations are the starting point for our risk monitoring and ownership dialogue with companies the fund is invested in.
We embed due diligence in our work across asset classes, including with external managers.
We set clear expectations that our portfolio companies should integrate material sustainability issues into their policies, strategies and risk management practices.
Identifying and prioritising actual and potential adverse impacts
We have several integrated processes that aim to identify companies that could have significant adverse impacts on the environment and/or society–both before and after we invest. Limited access to information can make it challenging to determine these impacts and the companies’ connections to them. We use external data sources, news media, company reports and information from stakeholders, including rights holders, to make our assessments and prioritise our efforts. We systematically analyse sustainability risks across all companies due to enter the fund’s equity benchmark on a quarterly basis. All companies in our equity portfolio and equity benchmark index are monitored for severe sustainability-related incidents on a daily basis.
Our quarterly environmental and social due diligence screening evaluates investee companies’ exposure to sustainability risks. The screening metrics are based on our expectation documents and are selected on the basis of relevant quantitative data from external data providers.
Beyond our quantitative and automated processes, we may conduct deeper research into topics and trends related to heightened sustainability risks. We undertake a detailed assessment of the sustainability risk profile of companies where our ownership share has surpassed five percent during the year, thus making the fund a significant owner,
Our sustainability risk monitoring efforts focus on companies with the most significant potential impacts in terms of scale, scope and irremediability. Based on the level of risk identified and other factors including size of investment, we may take any of the following actions: i) ongoing monitoring, ii) share information internally with relevant teams iii) initiate or continue dialogue directly with the company, iv) share information with the Council on Ethics, and v) consider risk-based divestment if there is a significant financial risk.
Seeking to prevent and mitigate adverse impact
Active ownership is our primary tool for encouraging investee companies to prevent and mitigate potential and actual adverse impact. Our engagement approach is informed by the nature of the risk or issue, and an assessment of our leverage, including the size of our investment and previous dialogue with the company. We set clear objectives for each company dialogue, such as improved policies and management systems, remediation or increased transparency. We engage with company boards, management, subject-matter experts, and may send formal letters to company boards, especially those that appear to inadequately manage sustainability risks.
In addition to dialogue, we can address adverse impacts or escalate engagement by using other ownership tools, for instance by voting against board members at a company’s annual meeting, or supporting relevant and timely shareholder proposals.
We may also work collaboratively with other investors and organisations and engage with standard setters. For instance, we are a member of the advisory committee for ADVANCE, the PRI stewardship initiative on human rights and social issues, and an investor co-lead for an engagement with a mining company.
We publish our responses to consultations on our website.
Active ownership is our primary tool for encouraging investee companies to prevent and mitiage potential and actual adverse impact.
Tracking and communicating results
We have systems to track companies’ progress in addressing their sustainability risks. We set bespoke objectives for each company dialogue and track outcomes after engagement. This helps us focus our company interactions and ensure internal coordination. We disclose our engagement and share information about the progress of the dialogues across topics.
We share information with stakeholders through our responsible investment report, website and ongoing stakeholder dialogue. We publish our policies and frameworks, and report on our prioritised dialogues, divestments and exclusions. We also publish our voting intentions five days ahead of shareholder meetings. We explain publicly why we vote against sustainability-related shareholder proposals.
Stakeholder engagement and grievance mechanism
We draw on internal and external expertise to assess risk and engage in meaningful consultation with different stakeholders. We encourage stakeholders to share information that they believe could be relevant for our investments, and we regularly engage with stakeholders through bilateral or multilateral dialogue.
We expect companies to maintain effective and accessible grievance mechanisms and to engage with their stakeholders, including workers and their representatives. We expect companies to provide or cooperate in remediation where required, as set out in the UN Guiding Principles on Business and Human Rights, and the OECD Due Diligence Guidance for Responsible Business Conduct.
We expect companies to maintain effective and accessible grievance mechanisms and to engage with their stakeholders, including workers and their representatives.
Who's involved in this work?
The Executive Board is responsible for establishing principles for responsible investment management, which cover Norges Bank Investment Management’s due diligence efforts. Daily due diligence tasks are conducted by several teams, including the risk monitoring and active ownership teams, and portfolio managers. Norges Bank Investment Management’s Leader Group and Norges Bank’s Executive Board are regularly updated on matters related to responsible investment. The Executive Board decides on ethical exclusion and observation, either based on recommendations from the Council on Ethics or on its own initiative for certain criteria.
Latest report on responsible investment
Our task is to generate the highest possible financial return in a responsible manner. In 2024, we made progress in line with our 2025 Climate action plan, made further renewable energy investments and increased our transparency. CEO pay remained a priority for us and we advocated for simpler and longer-term incentives. To mitigate financial risk for the fund, we divested from companies with unsustainable business models.