The Sovereign Duty of Norway by Christiana Figueres, Håvard Halland and Knut Anton Mork
Having built its wealth by pumping oil from the seabed, Norway has an obligation to harness the power of its enormous sovereign wealth fund in the fight against climate change. As COP26 approaches, it should focus on building a new coalition of sovereign wealth funds committed to net zero emissions targets.
BRUSSELS – Recent developments in Norway could have important implications for climate-related commitments at the United Nations Climate Change Conference (COP26) in Glasgow in November.
In August, a government-appointed committee recommended that Norway put its sovereign wealth fund (SWF) on track to achieve zero net greenhouse gas (GHG) emissions by 2050, and that the activities of the funds are in line with Norway’s commitments under international climate agreements. . Shortly afterwards, Norwegian Labor Party candidate for prime minister Jonas Gahr Støre confirmed that, if elected, he would introduce a net zero target for the fund. Now that Støre has emerged victorious in this month’s parliamentary elections, his challenge is to form a coalition that will enable him to follow through on his conviction.
The $ 1.4 trillion Norwegian government pension fund Global is the world’s largest sovereign wealth fund. But the country has hesitated to put the weight of its fund behind its own international climate commitments. He is not alone.
Under existing international agreements, climate commitments are based on emissions from each country’s physical borders. Emissions resulting from the holding of foreign assets by countries are not counted in the national inventory. So while governments have scrutinized their economies for emission reductions, they have tended to leave their countries’ sovereign wealth funds on the sidelines. As a result, only one sovereign fund, Germany’s KENFO, has joined the United Nations’ Net-Zero Asset Owner Alliance, which represents some $ 6.7 trillion in assets under management and has 46 pension funds and companies. insurance among its members.
Given that the huge Norwegian sovereign wealth fund owns an average of 1.4% of all listed companies in the world, the country’s apparent turnaround is significant both symbolically and practically. The new Norwegian government is supported by the recent recommendation of Olivier Blanchard, former chief economist of the International Monetary Fund, and others recommending that it sign its SWF for the Net-Zero Alliance at COP26.
But Norway should not stop there. In total, sovereign wealth funds represent some $ 10 trillion in assets under management, about seven times that of Norway’s sovereign wealth fund alone. As the country with the world’s largest sovereign wealth fund, Norway is expected to spearhead a diplomatic effort for a global movement of sovereign wealth funds towards net zero liabilities at COP26.
Subscribe to Project Syndicate
Enjoy unlimited access to the ideas and opinions of the world’s greatest thinkers, including weekly readings, book reviews, thematic collections and interviews; The year to come annual print magazine; the entire PS archive; and more – for less than $ 9 per month.
Norway has a proud history of militant international diplomacy. Its highly competent foreign service has played a central role in mediating the end of armed conflicts around the world. In addition, its sovereign fund manager, Norges Bank Investment Management, is a knowledgeable and globally respected investor. Together, these attributes place Norway in a strong position to mobilize others within a coalition of sovereign wealth funds towards net zero goals.
Fortunately, some sovereign wealth funds have already demonstrated emerging climate ambitions. Norway can look to countries like France, Ireland, New Zealand, Singapore and the United Arab Emirates to find potential partners. Sovereign wealth funds in these countries have sophisticated investment teams that would be perfectly capable of implementing net-zero targets. And it is hoped that when they do, SWFs at an earlier stage of their climate commitments, or with more limited resources, will join the new global consensus.
As the most recent report of the Intergovernmental Panel on Climate Change reminds us, the window to avert catastrophic climate change is fast closing. And yet, many countries remain unable or unwilling to make the necessary emission reductions within their own borders.
In these difficult conditions, governments with large foreign assets should look for ways to mitigate climate change not only within their borders, but also in all the assets they own and are able to influence. For Norway and several Gulf countries whose assets held by SWFs represent multiples of their national economy’s GDP, the largest potential climate gains are found in SWF portfolios.
Countries with sovereign wealth funds should recognize that considering climate risk and climate-related investment opportunities is no longer enough. In fact, countries that do just that with their sovereign wealth funds are essentially profiting from the climate crisis without doing anything to prevent it.
Norway, star of international peace negotiations, should seize the opportunity to lead a global movement of sovereign wealth funds. This would establish him as a champion of international climate diplomacy and leadership. For a country that has built its wealth by pumping hydrocarbons from the seabed and exporting them with their inherent GHG emissions, this is the right thing to do.
The views expressed in this article do not necessarily represent those of the OECD.