The “dual objective” of an OECD paper aimed at institutional investors on managing climate risks “creates confusion” and should focus singularly on responsible business conduct (RBC), according to Norges Bank Investment Management (NBIM).

In response to the OECD Draft Tool for Institutional Investors on Managing Climate Risks and Impacts Through Due Diligence for Responsible Business Conduct paper, NBIM, which is responsible for the investments of the country’s Government Pension Fund Global (GPFG), said the paper should be understood through the lens of RBC.

“Nevertheless, the paper seems to have a dual objective: the promotion of RBC on the one hand, and the shift of capital in a ‘green’ direction (‘green finance’) on the other hand. This dual objective creates confusion throughout the paper.

“With the current drafting, the paper might create the expectation that RBC due diligence should guide investment strategies and portfolio allocation decisions.

For most investors, this is not the case and might not be possible under their mandates. We would welcome a clear and single focus on RBC,” NBIM chief corporate governance officer, Carine Smith Ihenacho, and NBIM senior analyst, corporate governance, Séverine Neervoort, wrote.

However, NBIM welcomed the OECD’s continuous efforts in providing practical guidance on how to implement its RBC guidelines. Nevertheless, it raised concerns that the paper seems to rest on a more direct and general causal relationship between investors’ decisions and climate impact, than for other responsible business conduct risks.

“We believe the paper should be aligned with the Guidance for Institutional Investors and use the same understanding of ‘business relationships’… It would be useful for the paper to recognise that there are various types of investors, with different mandates and investments – which present different opportunities and tools in due diligence processes and the use of leverage.

“For instance, it is important to differentiate between investors that define themselves as impact investors versus responsible investors (they have different mandates), as well as minority shareholders versus controlling shareholders (they have a different level of influence on the investee company),” NBIM’s response stated.

As a result of its concerns, it suggested that the paper could identify climate change-related actions or omissions by investee companies deemed irresponsible under the RBC approach.

“This would help all investors in their due diligence. Investors would also benefit from further guidance on how high emitting companies can best remedy their adverse impacts – there is a need for more guidance on the responsible use of carbon offsets for instance.

“Finally, and most importantly, we believe the paper should further develop the engagement and stewardship section, when it comes to company dialogue, voting, shareholder proposals and other mechanisms investors may have to influence companies and hold company boards accountable for adverse impacts. Instead, the paper seems focussed on divestments to mitigate adverse impacts.”

Share Story: