‘$3tr Sovereign Wealth Funds Committed to Paris Goals’

• ‘$3tr Sovereign Wealth Funds Committed to Paris Goals’

Sovereign Wealth Funds (SWFs), which represent more than $3 trillion in assets, are to be invested in companies that only factor climate risks into their strategies, thereby helping to achieve the climate goals of the Paris Agreement.

The Oslo, Norway-based Norges Bank Investment Management is a part of the One Planet Sovereign Wealth Fund Working Group.

Given the size, long-term investment horizons of sovereign wealth funds (SWFs), and the financial risks posed to SWFs should warming exceed 1.5°C above pre-industrial levels, SWFs are in a unique position to both benefit from sustainable market outcomes and to accelerate the transition to a low carbon economy.

The six funds are organised in the “One Planet Sovereign Wealth Fund Working Group”, established last December at the One Planet Summit in Paris, France. The working group consists of the Abu Dhabi Investment Authority, Kuwait Investment Authority, the New Zealand Superannuation Fund, Norges Bank Investment Management of Norway, the Public Investment Fund of the Kingdom of Saudi Arabia, and the Qatar Investment Authority.

In a joint statement from all six SWFs, they said: “By using the Framework, SWFs can reinforce their long-term value creation, improve their risk-return profile, and increase long-term portfolio resilience by factoring and integrating climate issues into their decision-making.”

They added that they hope “other long-term institutional investors will be able to make use of this Framework in the execution of their mandates and investment objectives”.

The framework is based on three principals: alignment, ownership, and integration.

Alignment of investment decisions with climate change conscientiousness includes the recommendation of public reporting on the alignment and the consideration that the financial risks from climate change may prevent SWFs from delivering the same returns in the future.

The second principal of ownership encourages companies to take responsibility for climate change in their business strategy and planning, governance, and risk management.

Companies are expected to understand the implications of their greenhouse gas emissions and take responsibility for reducing the emissions to levels agreed upon in the Paris Climate Agreement.