Norway's Norges Bank Investment Management (NBIM), which is responsible for the investments of the Government Pension Fund Global, has published its response to the Organisation for Economic Co-operation and Development’s (OECD) consultation on revisions to the Principles of Corporate Governance.

The G20/OECD Principles for Corporate Governance outline global standards on governance matters, and NBIM broadly welcomed the revisions proposed by the OECD.

On shareholder rights and transparency, NBIM agreed with amendments seeking to increase transparency, including the recommendations of public disclosure of voting decisions and better shareholder identification.

Furthermore, while it agreed that impediments to cross-border voting and shareholders obtaining information needed to be eliminated, it called for the principles to be more specific on best practices to get rid of these impediments.

NBIM agreed with the emphasis on sustainability in the consultation and urged the OECD to integrate the new elements on sustainability into the existing sections of the principles, rather than in a separate chapter.

It noted that the consultation mentioned the importance for companies to manage climate-related risks and opportunities several times, but called for the wording of the revised guidelines to be amended to reflect that companies must address all material sustainability risks and opportunities, not just climate change.

“The principles could mention human capital management as an example,” stated NBIM chief governance and compliance officer, Carine Smith Ihenacho.

“It is a material topic, increasingly important for value creation and profitability. We expect companies to have a strategy signed off by the board for how they are going to invest in their employees to secure, growth, innovation, as well as good and safe workplaces.

“Another example of sustainability risk that we increasingly discuss with companies is how they take biodiversity and sustainable use of ecosystems into account in their business activities.”

The investment manager agreed that the executive remuneration should give CEOs the right incentives to focus on long-term value creation, noting that it believed share-based remuneration was an efficient mechanism to align the interests of management and shareholders.

It stated that it preferred simple and transparent remuneration plans that include a substantial equity component with a lengthy lock-in period, over complex long-term incentive plans.

NBIM welcomed the proposed clarifications on the role of the board, such as ensuring that material sustainability matters are considered and taking into account the interests of stakeholders, and proposed revisions that would see increased transparency around the nomination of board members and their independence.

It also welcomed the recommendations that shareholders and external auditors should have the possibility to communicate directly on the findings of the annual audit, on improvements auditor independence and audit quality, and that stakeholders can freely communicate their concerns about illegal or unethical practices to independent board members.

“Finally, we welcome the focus on better corporate sustainability reporting in the revised principles,” Ihenacho said.

“To inform our investment decisions, risk management processes and ownership activities, we need information on companies’ exposure to sustainability risks and opportunities, how these are managed, and relevant performance metrics.

“As a global investor, we need this information to be reported in a consistent and comparable manner across markets.

“That is why we are supportive of the International Sustainability Standards Board (ISSB)’s mission to develop a comprehensive global baseline of corporate sustainability disclosures.

“The OECD could refer directly to the upcoming IFRS Sustainability Standards in its principles.”

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