To effect a meaningful expansion of their climate-risk analyses, investors generally require better information access, quality and standardisation. Key questions in this regard are whether aggregated company information accurately represents investors’ climate risk and whether ‘top-down’ analyses of investor climate risk should be developed. Taking Folketrygdfondet’s distinctive characteristics into account, it appears most sensible to start with a ‘bottom-up’ assessment of climate risk in the portfolio. This is why, in 2018, we collaborated with several other Norwegian investors to engage in active ownership with companies in industries identified by the TCFD as particularly exposed to climate-related risk. These included companies in the energy, oil service, consumer staples and materials industries in 2018.
Folketrygdfondet continued this dialogue with companies in the transport, building and construction, and real estate sectors in 2019. Further, climate risk is incorporated into Folketrygdfondet’s ongoing dialogue with portfolio company management in Norway and the other Nordic countries. The insights gained through this dialogue are used to further evaluate the portfolio under different climate scenarios. One example of this is that our portfolio managers present their climate risk assessments for each of the priority sectors to Folketrygdfondet’s investment committee. The purpose is to develop our own qualitative scenario analyses of potential developments by sector and company, to secure a more nuanced understanding of the portfolio’s climate risk.
As an active manager, Folketrygdfondet has the opportunity to adjust portfolio weightings in response to changes in the financial risk profile. Our strategy for achieving excess returns is further explained in Folketrygdfondet’s strategic plan (please see ftf.no, English pages), which identifies political developments, structural trends, sector dynamics and other material changes in framework conditions as some of the assessment factors included in our analyses. Our investment decisions are underpinned by broad-based information-gathering, analyses and contact with companies, including ESG analysis