Lessons for Canada from the Norway sovereign wealth fund's climate impact

At the Carney government’s recent Canada Investment summit, foreign sovereign wealth funds had a major presence, led by Norway’s USD$2-trillion Government Pension Fund Global (GPFG), the world’s largest. Newly released research from the Institute for Sustainable Finance reveals the extent of the influence of the GPFG’s climate engagement with the firms it invests in, and the impact it has on corporate environmental practices even in firms that it doesn’t.

This work has real practical implications for Canada. As Canada seeks foreign investment in Canadian firms for its growth agenda and as it develops its own Canada Strong Fund, it is important to understand how the GPFG balances development of Norway’s large hydrocarbon reserves with its substantial climate commitments.

“The Canada Strong Fund will be seeded with $25 billion in federal money and will invest domestically to help Canada build its future economy. Its mandate specifies investment in conventional energy,” notes report co-author Paul Calluzzo. “This has raised concerns about how the fund will coexist with Canada’s substantial climate commitments. To manage that tension, Canada can look to Norway, which can hold lessons for climate engagement by Canada’s pensions as well.”

Norway exercises its influence on environmental decision making in three ways: In proxy voting on environmental proposals, engagement with firms that it holds, and through transparency in its decisions not to hold companies on environmental grounds.

Key findings:

• Norway’s sovereign wealth fund supports proposals to strengthen climate policy 70.3 per cent of the time, against just 12.6 per cent for the three largest U.S. asset managers over 2013-2020, and it never once backed a proposal that sought to weaken climate policy.
• Against all shareholders combined from 2013-2024, Norway supported pro-climate proposals 64 per cent of the time versus 26.4 per cent for other shareholders.
• The GPFG also pursues activism at firms it does not hold, by “naming and shaming” them through a public list of companies it has divested from and will not invest in going forward. The research shows that a firm’s emissions tend to fall after Norway excludes it on environmental grounds.
• Investment by the GPFG is associated with more ambitious emissions target setting: firms become about 9.7 percentage points more likely to reduce their absolute emissions target, and their per-unit of carbon target falls by about 8.7% of the firm’s emissions compared to investments by other SWFs.

“Norway’s sovereign wealth fund has used its financial heft to make real progress on corporate environmental performance,” said report co-author Evan Dudley. “Canadian firms seeking investment from Norway’s SWF should understand its engagement practices around sustainability.”

Paul Calluzzo is a Research Fellow with the Institute for Sustainable Finance and Associate Professor & Toller Family Fellow of Finance at Smith School of Business, Queen’s University.

Evan Dudley is Associate Professor and Distinguished Faculty Fellow of Finance, and Academic Director, Toronto Masters of Finance Degree, Smith School of Business, Queen’s University.

Download and read the discussion paper, “Owning the transition: How the world’s largest sovereign wealth fund engages companies on climate transition risk.”