‘Huge’ Flows Into ESG Unlikely to Abate, Norway Wealth Fund Says

(Bloomberg) -- The sovereign wealth fund of Norway, the world’s biggest, is expecting the breathless flow of money into environmental, social and governance strategies to continue as the ESG market hurtles toward $50 trillion.

“There’s huge money going into ESG funds,” Carine Smith Ihenacho, chief corporate governance officer at Norges Bank Investment Management, said in an interview with Bloomberg Television’s Francine Lacqua on Friday. “But I still think we’re in the early days of this and huge investment will be needed in the whole energy transition. I think we’ll continue to see a lot more investments.”

The dizzying ascent of ESG is fueling a growing debate around the strategy’s ability to live up to its label. Despite the vast size of the ESG market, greenhouse gas emissions have continued to soar, putting the planet on a trajectory toward catastrophic overheating. Unless the world comes up with more ambitious strategies to curb emissions, warming will reach 2.7 degrees Celsius by the end of the century, woefully far off the critical threshold of 1.5 degrees, according to the United Nations.

ESG Projected Global AUM

In response to the climate crisis, a growing number of asset managers, banks and pension funds have committed to net zero emissions goals. Norway’s wealth fund is set to join that club after a change in government following September elections. Christiana Figueres, who was executive secretary of the UN Framework Convention on Climate Change when the 2015 Paris climate accord was struck, characterized the Norwegian move as a milestone moment for the sovereign wealth fund industry.

Ihenacho said Norway’s $1.4 trillion sovereign investment vehicle plans to use its clout to force corporate decarbonization from the inside, instead of divesting. “It’s an important decision for an asset owner,” she said. Ihenacho also made clear there’s a lot of pressure on big emitters in the portfolio, such as ExxonMobil Corp. and Chevron Corp., to slash their CO2 footprint. 

“We’ll now step it up even further,” she said. “We may have a chance to actually influence these companies more than others. We expect these companies really to have a plan to get to net-zero by 2050.”

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