Sovereign investors tweak portfolios for environmental risk

Some sovereign investors are reducing their exposure to fossil fuels or seeking clean alternatives to protect their portfolios from rising environmental risk.

Norway’s $ 900 billion sovereign wealth fund ( SWF) – itself financed by oil sales – and the New Zealand Super Fund ( NZSF) are among those adjusting investments in anticipation of tougher environmental rules or damage from the impact of global warming.

Rising temperatures could lead to more violent storms and flooding, posing a threat to infrastructure and prime real estate, both favored by sovereign investors.

UN scientists say greenhouse gases are the main cause of warming and while the current US administration has questioned the science, many countries are introducing rules to cut emissions.

Norway’s SWF, the world’s largest, is divesting from companies that derive more than 30 percent of their turnover or activity from coal, a major source of greenhouse gases. It is also investing in alternative fuel companies such as NextEra Energy, a US wind farm developer.

By July, the fund’s ethics watchdog is likely to recommend the fund excludes, or puts on a watch list, the first of several firms in the oil, cement and steel industries. The fund is also pushing companies to disclose carbon emissions and plans to handle climate change risk.

“In terms of greenhouse gas emissions, we are actually expecting companies to increase reporting on it,” the fund’s chief executive, Yngve Slyngstad, told Reuters.

“We want to have more transparency on investment plans and how they are affected.”

The NZSF said last year it would set a target by the end of June to reduce its carbon footprint.