Norway’s US$1.7 trillion ($2.22 trillion) wealth fund is urging countries not to stray too far from global ESG reporting standards as it monitors progress across jurisdictions.
For Oslo-based Norges Bank Investment Management, guidelines set by the International Sustainability Standards Board (ISSB) last year marked a major step in helping investors build portfolios around comparable environmental, social and governance criteria. However, there’s now a concern that ISSB’s adoption across jurisdictions will be far from uniform, undermining its original purpose.
“There’s no point in having overcome a lot of this fragmentation with this beautiful architecture if it’s adopted very inconsistently,” Elisa Cencig, the wealth fund’s head of policy engagement, said in an interview.
The warning comes after the fund, which is the world’s largest stock owner, urged Japanese authorities to reconsider their plan for adopting ISSB. While largely adhering to basic templates, Japan’s version contained several deviations which NBIM wants the country to reconsider.
The goal is to limit modifications to the ISSB standards “as far as possible,” the wealth fund said in a written consultation response. A more acceptable route would be to address the specific needs of certain jurisdictions through “additions instead of deviations” from ISSB; not only would that make it easier for investors to compare companies across countries, but it would also have the added bonus of “alleviating the reporting burden for multinational companies”, it said.
ISSB has now finalised the first two of several planned sets of ESG disclosure standards, namely information relating to general sustainability and the climate. It’s now working on standards for biodiversity, ecosystems and human capital.
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“What’s important is that you don’t have a great global standard that is actually chipped away once it’s implemented in different countries,” Cencig said.
NBIM has been stepping up efforts to influence companies on issues ranging from climate change to gender diversity. Those efforts have included disclosing voting intentions for annual general meetings ahead of time, becoming the co-lead on a class action lawsuit against Silicon Valley Bank and sitting on advisory boards for international standard setting bodies like the IFRS Foundation. NBIM’s head of governance, Carine Smith Ihenacho, became chair of the ISSB investor advisory group in July.
“We’ve been thinking for a while that ISSB would have the best chances of providing a global baseline,” Cencig said. “But it’s not yet a given.”
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National standard setters “are looking, they’re signalling its adoption, but some are considering climate disclosures first”, she said. Europe has “taken the most ambitious approach” in terms of what is material information for investors, while the US Securities and Exchange Commission “climate disclosures rule is currently being challenged in the courts”.
A clear and consistent disclosure regime serves investors and companies alike, Cencig said. “The more standardised they are, the better companies will be able to reach global capital, to communicate consistently to their investors, and it should ultimately save them costs.”
Governance is a key issue for the fund, which owns on average 1.5% of all the world’s listed companies. Cencig reiterated concerns over plans by the UK’s financial regulator to replace the standard and premium listings rules, which is a step it’s taking in order to garner interest in London’s stock markets after IPOs stalled last year.
The proposal is part of a “regulatory wave, so to speak, toward a more generous or a more permissive approach and relaxing of some corporate governance requirements”, she said.
“One share, one vote is the key,” Cencig said. “It is the better way to protect minority shareholders and particularly important for exercising voting as a fundamental stewardship tool.”
