The Norwegian government plans to leverage its ownership in 70 companies to accelerate their green transition. This is another indicator of the growing importance of engagement rather than divestment in accelerating the transition.
- The Norwegian Government has proposed to set stricter sustainability standards for 70 state-owned companies.
- The value of the state’s direct ownership is estimated to be NOK 1,179 billion, including NOK 884 billion held in companies listed on the Oslo Stock Exchange.
- The proposal comes as the country steps up its sustainability efforts, although it still derives a fifth of its GDP from oil and gas.
Government states stewardship intentions
The Norwegian Government has stated its intention to be more active in determining the decarbonisation path taken by state-owned companies. In a white paper yet to be translated into English, it specified expectations relating to climate change, nature and ecosystems.
The Government previously said that climate change is affecting state-owned companies. It said that companies need to consider the UN Sustainable Development Goals (SDGs) and goals set in the Paris agreement to stay competitive.
The new white paper, however, seems to take another direction from a 2019 document that said that “companies must be given sufficient freedom of action to enable them to adapt to changed circumstances.” This suggests that the Government now intends to take a stronger position in terms of climate change strategies.
More active role reflects Norway’s climate ambitions
The Government has stated its intention to accelerate the pace of the green transition. It has strengthened its expectations of the companies it owns and aims to be a more active owner in driving corporate policy towards climate change and sustainability.
To this end it has specified the setting of targets for emissions reductions, set expectations on executive compensation, and called for an increase in the positive impact by the companies on nature and ecosystems as goals.
On emissions, the Government expects companies to set targets in line with the Paris Agreement. It said it expects science-based targets “when available”. Companies are also expected to set implementation measures and report periodically on their progress.
Governance expectations on executive pay
As for executive pay, companies are expected to observe a principle of moderation. The Government said senior executive compensation should consist largely of a fixed salary, which it says should be competitive, but not market-leading. It also requires companies to provide an explanation if executive salary increases exceed those of employees.
The Government classifies state-owned into two categories. The first category consists of companies where the Government’s goal is the highest possible return over time in a sustainable manner. The second is made up of companies where the goal is sustainability combined with the achieving of public policy goals.
In the latest white paper, the Norwegian Government called for a reduction in the maximum achievable bonus for companies in the first category to 25% of fixed salary, from 50% previously. The position is that companies in the second category do not use a separate bonus scheme for senior executives.
Tying executive bonuses to climate goals helps boost companies’ ESG scores, and in turn, shareholder returns, according to a 2022 report from Deloitte. Most of a senior executive’s total remuneration is tied to incentive pay or bonuses which is paid out over time.
Green transition in Norway includes policy goals and climate ambitions
Norway’s public policy goals are based on Agenda 2030, which established the UN SDGs. It also set climate targets in line with the EU, calling for a 50-55% reduction in greenhouse gas emissions by 2030, from 1990 levels. It is also looking to be nearly carbon neutral by 2050, with plans to reduce greenhouse gas levels by 90-95%, excluding sinks.
Norway’s efforts to combat climate change, however, must be set against its economic dependence on fossil fuels. In 2021, the country derived 21% of its GDP from oil and gas. The bulk of the wealth generated as a result is kept in its sovereign wealth fund, the largest in the world.
The IEA views Norway as a “pillar of energy security”, having made a lot of progress towards its climate goals by expanding the supply of electricity domestically, most of which is generated with hydropower. It still faces challenges, however, in electrifying its transport and industry. To that extent, the city of Oslo has set targets that are even more ambitious than the country overall.
The Government’s plan to be an active owner of 70 of these companies will help accelerate their, and its own, transition to a greener and more sustainable future.