E3 – Carine Smith Ihenacho

Carine Smith Ihenacho is Chief Governance and Compliance Officer at Norges Bank, the Norwegian Sovereign Wealth Fund. It’s the largest single owner of equities in the world and sets out to be the most transparent.


Carine Smith Ihenacho is likely the most powerful person in the world of ESG, given that Norges is the world’s largest single owner of equities. We discuss: how you can combine sustainablity with the pursuit of returns; the difference between the US and Europe when it comes to the energy transition; how Norges takes action to divest and exclude companies on climate, enviromental and even tax grounds; issues with ESG ratings and how they can be improved; and why, paradoxically, companies pushing back climate targets may actually be a sign of progress.

Some takeaways

Sustainability is a Return Criterion

Norges see sustainability as not simply about risk mitigation, but also value creation. It’s truly a long-term fund for future generations. They are thinking in centuries, not just decades. And therefore the value of the fund is dependent on the long-term value of the companies. And they think companies can only generate long-term values if they really think about the sustainability of their business model.

Within climate, they look at the value of the fund on a scenario basis to 2050 and they believe that an orderly transition to net zero 2050 will safeguard the value of the fund, with a loss of up to 2% of the fund due to climate risk. In any other transition, they will lose a lot more. Climate risk is a systematic risk which as a universal owner may affect almost all asset classes.

US vs Europe

Carine is spending a year in New York, looking at the world from a different vantage point. She sees differences between Europe and the US in how well the companies are preparing for a low carbon economy. Many more companies in their portfolio in Europe have set clear targets and have credible transition plans. But she says that it’s amazing to see some of the innovation taking place in US-based companies and their thinking through the value chain and decarbonizing and investing in climate solutions. From a portfolio perspective, Europe is ahead, but on the innovation side, the US is taking the lead, although ESG is more politicised there. That perhaps gives US corporates the ability to be less ambitious when it comes to setting emission reduction targets. But Carine exolains that when NBIM talk to US companies, it’s impressive.

Exclusion vs Divestment

The fund is mandated by the Norwegian Parliament and it is not allowed to invest in creatin sectors, for example the manufacture of certain weapons. This is non-discretionary and the fund reports on the cost each year – this has impaired performance, as defence stocks have obviously performed well, recently, particularly since the Russian invasion of Ukraine.

Carine’s team is involved in divestments or excluding permitted stocks from their investable universe, and this has actually benefited the fund to the tune of $6bn. Their starting point is that they want to be an owner, because that’s how they make money and also how they can influence the companies. When they decide to divest, it’s because they think the risk involved in being invested in this company in the longer term is risky because of its business model is risky. From a sustainability perspective, they decide that they don’t think they can influence this company through being an owner, so they might as well just sell out.

They term these risk-based divestments, and they are quite different from the ethical exclusions. They do these to reduce risk, and have divested from some 500 companies since they started this process. But they see this as their last resort, because it’s much better if they can be an investor, change the company, and make money.

Quarterly Reviews

They look at companies to follow up because of heightened risk by screening the portfolio quarterly for various indicators, according to different sustainability issues – on climate, on human rights, on tax, on water management etc. And they have certain criteria that together make a screen, and certain companies have red flags.

They then look more closely into their practices. For most companies, they do nothing, they decide that the risk is manageable and they want to continue to be invested. Some companies they decide to follow up from an ownership perspective. They have meetings with the company, may start to vote against the boards if they think that’s a good way of following up. Or Carine’s team can simply give the information to the portfolio managers who take active positions and let them decide on the appropriate action. There is quite a lot of work involved in companies coming into the index.

They do not report on any divestments because they are conscious that a lot of investors follow NBIM when it comes to ethical exclusions and they don’t think it’s fair on the company – for example, sometimes a decision to exclude a company can be made when it enters an index and there is limited time available and inadequate information.

Last year, NBIM reviewed and screened 1,048 companies entering the benchmark, and 317 were considered high ESG risk. 263 were put on an internal monitoring list while they decided to divest from or not invest in 54.


Carine is the vice chair of the investor advisory group for the International Standards Boards. The ISSB has developed a global baseline for company sustainability reporting in a very short time. And they’re now trying to implement the standard of development in various jurisdictions. Investors want a global framework – companies to report the same way, whether they’re incorporated in Indonesia or in the US or in Denmark. There continues to be debate about how detailed reporting should be and whether there is too great a reporting burden on companies, but within the investor group, there seems to be a lot of consensus around the global standard.

Ratings and Data

Ratings are a problem because there are so many different ratings. People hear that it’s an ESG fund, they think it’s doing some good and they invest in it. But because it can be rated in multiple ways, it’s not clear what it means to be an ESG fund.

Norges buy data from various data providers and value the data. They don’t put much value on the ESG ratings because they prefer to take the data and do their own evaluations. They feel the rating agencies should be more open about their methodology and the rationale behind the rating. Some base the rating on financial materiality for the company when it comes to sustainability issues, whereas other base the rating on how the company impacts their environment.

They would like the agencies to be open about why they rate, what’s their motivation for rating, how they rate and the data input they have. Then it’s much easier for investors to make their own evaluation of the ratings.
Norges have a team of 30 people in the active ownership department which also covers 100k votes p.a


Companies that didn’t have net zero targets saw a 7% rise in their emissions between 2015 and 2023. And companies which had set a net zero target saw a 2% reduction in their emissions. So obviously, when companies publish targets, they do a lot better. Although we have seen some companies revising their targets and pushing back dates, Carine isn’t overly concerned. Rather she sees this as companies generally becoming more realistic and paradoxically, the later dates may reflect a more granular assessment and this may reflect real progress.

“As a leading responsible investor in more than 9,000 companies across the globe, we relentlessly continue our work on climate. This includes the publication of a new and sharpened set of climate change expectations aimed at our portfolio companies. Central to the new expectations are transition plans. There is now a shift from talking about reporting and net-zero goals to discussing transition plans that spell out how these goals will be achieved. The expectations highlight what companies in various sectors should do step by step.”

About Carine Smith Ihenacho

Carine started out as a corporate lawyer doing M&A work, moved in-house to be a corporate lawyer, and then moved to Norges Bank Investment Management to be Global Head of Ownership Strategies. She is responsible for the governance and compliance area, which includes ownership and responsible investment activities, control and operational risk, compliance and legal services. Carine Smith Ihenacho was appointed Chief Governance and Compliance Officer 6 October 2020. She joined Norges Bank Investment Management in August 2017 as Global Head of Ownership Strategies and was promoted to Chief Corporate Governance Officer on 1 January 2018. Prior to joining Norges Bank Investment Management, Ms Ihenacho was Vice President Legal and Chief Compliance Officer in Statoil ASA. She has more than 20 years’ experience as a lawyer, working in both financials and the oil and gas industry, as well as in law firms. She also has extensive board experience. Ihenacho holds a law degree from the University of Oslo, a Master of Law from Harvard Law School and a Master of Economics from the Norwegian School of Economics (NHHS).


Huw van Steenis sits on NBIM’s  Climate Advisory Board and knows Carine well and persuaded her to tell her and the fund’s stories. 

Co-Host Huw Van Steenis

I am delighted to be teaming up with Huw van Steenis for this mini-series. Huw is a Vice-Chair and Partner at Oliver Wyman. He advises investors and helps them capture opportunities and mitigate risks posed by the transition to a lower carbon economy. Huw currently serves as a member of the Investment Committee at the Oxford University Endowment and co-chair of the World Economic Forum’s Global Future Council on Responsive Financial Systems. Previously he was Senior Advisor to the Chief Executive of UBS and Chair of the Sustainable Finance Committee. Before this, he was Senior Advisor to Mark Carney when he was Governor at the Bank of England. Huw worked at Morgan Stanley mostly as Global Head of Banks and Diversified Financials research. He and his teams won numerous awards , including being voted #1 in investor surveys 12 times. Before anyone asks, that's 12 more times than Steve.



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STEPHEN CLAPHAM: In this interview, Huw van Steenis and I talked to the Chief Governance and Compliance Officer at Norges Bank Investment Management. Carine is likely the most powerful person in the world of ESG given that Norges is the world’s single largest equities owner.

STEPHEN CLAPHAM: Now, you would not know it because she’s terribly nice with that permanent smile and a disarming manner underneath. I suspect she’s quite tough but she presents such polished arguments and is so reasonable that I suspect chief executives find it hard to resist her suggestions.

STEPHEN CLAPHAM: We discuss a wide range of topics, how you can combine sustainability with the pursuit of returns, the difference between the US and Europe when it comes to the energy transition, how Norges takes action to divest and exclude companies from the fund on climate, environmental and even tax grounds, how they conduct their ESG reviews, issues with ratings of ESG and how they can be improved and why companies pushing back their climate targets may actually be a sign of progress.

STEPHEN CLAPHAM: Carine is uniquely placed to comment on the energy transition and all things relating to governance. My thanks to Huw who organized this and knows Carine well, because he sits on the fund’s climate advisory board. This really is a fascinating conversation. I’m sure you’re gonna enjoy it.

STEPHEN CLAPHAM: So, Carine, welcome to the podcast. I’m really excited to talk to you. I’m really been looking forward to this. And normally when I do these interviews, I normally ask people, did you always want to be an investor? And I know you couldn’t have dreamed of being the Chief Governance and Compliance Officer at Norges Bank Investment Management. But you trained as a lawyer, I think, and is that what you wanted to be? And how did you end up in your current role?

CARINE SMITH IHENACHO: Well, first of all, Steve, very nice to be here and chat with you and you’re absolutely right. I didn’t dream of being chief governor, a officer. I probably did have idea what that meant. But yes, you’re right. I trained as a lawyer. But I also took a degree in finance and I think the reason I trained for a lawyer was I thought I could useful for many things.

CARINE SMITH IHENACHO: I didn’t really know what I wanted to do. And I was always interested in a bit of business and finance. I started out actually as a corporate lawyer doing m and a type of work. And then one thing led to another, we start to work in house for corporate because I thought it’s interesting to be more involved in this sort of business decisions and the, the sort of being more close to the business.

CARINE SMITH IHENACHO: And then I, after a while I got to view the board seats and then I got interested in more sort of thinking long, long, long term sustainability. And suddenly this, this job came up at that time, it had a different name. It was called Global Head on Ownership strategies.

CARINE SMITH IHENACHO: I didn’t even know what that meant when they contacted me, but then I realized it meant like it was following up, how a big fun exercise its ownership in many companies that I thought. Wow, that sounds exciting. So, well, then I got promoted to chief and a few other responsibilities and here I am. And what’s great about this job is it combines so many things I’ve been doing.

STEPHEN CLAPHAM: It’s a huge responsibility, isn’t it? You’re in charge of telling some of the world’s biggest companies to up their game in climate change. Now, I know you’ve got lots of help and there’s lots of processes, lots of procedures and everything else. I just wondered how does it feel to do this job. And how do you stop yourself being like the chief box ticker?

CARINE SMITH IHENACHO: It is a huge responsibility. It’s a bit so are many other jobs.

CARINE SMITH IHENACHO: And I have a wonderful team, really a lot of smart, dedicated, ambitious people working with me to do this job and fulfill their responsibilities we have. And it’s absolutely not a box ticking job. It’s a job thinking about how we can improve the long term value creation in the companies we have invested in.

CARINE SMITH IHENACHO: And that’s a lot more thinking around strategy thinking about value creation, thinking long term. So not at all. Box ticking. So it’s more than a job. Well, it’s a job that has a meaning for me. In many ways, it has a meaning for me because I like that the actual work we do is interesting. But also because it’s about generating returns for, to fund the Norwegian Welfare State for future generation of Norwegian.

CARINE SMITH IHENACHO: I like, I like that. And I also like it because it’s about thinking about sustainability of the planet because it’s we think about how the company, what the companies do affect the planet over the long term and also how that affects the profitability of the companies.

HUW VAN STEENIS: So a lot of investors started with things that sustainability was about a risk screen. But obviously, as you’re saying, it lends more into value creation. How do you weigh up the kind of the risk evaluation with the the returns in the portfolio.

CARINE SMITH IHENACHO: Yeah, and we think that it’s both both it’s about risk mitigation but also value creation. And I think where we coming from it, Hugh is that really we are a super long term fund, you know, we are a fund for future generations. We we may be here for the next couple of 100 years. And so how we think about this is then the value of the fund is very much dependent upon the long term value of the companies.

CARINE SMITH IHENACHO: And we think the companies can only generate long term values to really think about how sustainable the business model is. I mean, let’s take climate that you do, you know that well, but if you look at the value of the fund on a scenario basis to 2050 what’s clear is that an order early transition to next year? 2050 we really safeguard the value of the fund by any other way of transition.

CARINE SMITH IHENACHO: So in early transition, we may lose up to 2% of the fund due to climate risk any other way of, of the transition, we lose a lot more and also climate risk. You know, it’s a systematic risk when you’re in the university alone that may affect almost all asset classes. And so if we didn’t think about that, we wouldn’t do our job. So, so for us, it’s both.

HUW VAN STEENIS: We recently moved to New York and I, there’s, you know, there’s, there’s as many ways to do sustainability as there are investing groups. Have your what surprised you in moving to New York.

CARINE SMITH IHENACHO: First of all, it’s, it’s fantastic to live in New York for a year. It’s a lot of energy in the city. Lots of interesting people to meet and have a great team. I think what’s very interesting for me is to see how Americans view Europeans.

CARINE SMITH IHENACHO: And I, you know, coming from Europe where we talk, we talk much more about the stakeholder value sustainability. Whereas we are coming to America, it’s much more about shareholder value, capitalism making money. And look at Europe, I feel slightly like Europe is has lack innovation being a bit slow, too much regulations.

CARINE SMITH IHENACHO: Whereas maybe, well looking, you know, when you’re in Europe, you don’t really see it from that perspective. Of course, I’m simplifying it, but to sort of the drive to innovate making money, I feel it’s much more stronger here and the openness to sort of talk about it.

STEPHEN CLAPHAM: Is that at the expense of the climate aspect?

CARINE SMITH IHENACHO: Yes and no. I mean, when we, when we look at our portfolio and how well the companies are preparing for a low carbon economy, we see differences between Europe and the US and many more companies in our portfolio. With that space in Europe have set clear targets and have credible transition plan transition plans.

CARINE SMITH IHENACHO: Having said that it’s also amazing to see some of the innovation taking place in, in use based companies and really the forward leaning they are in thinking through the value chain and and decarbonizing and investing in transition solutions climate solutions. So it’s, you know, it’s a lot of innovation on that part taking place in the US.

CARINE SMITH IHENACHO: So from a portfolio perspective, yes, Europe is ahead but sort of on the innovation side and then really investing in, in technology solutions I or in climate solutions, I don’t have, you know, exact numbers. I’m sure you maybe is more updated on that than me. But it’s impressive to see a lot of what’s happening in, in, in the corporate in companies.

STEPHEN CLAPHAM: So I was expecting you to, to sort of say that you were a bit worried that America wasn’t taking, oh, this is serious, the American corporate sector wasn’t taking this as seriously. It wasn’t as high up on the board agendas in the US as it was in, in Europe. Is that an unfair conclusion?

CARINE SMITH IHENACHO: I mean, it varies. It’s hard to say it’s sort of us overall what they see, maybe certain sectors not as much.

CARINE SMITH IHENACHO: But, and, and of course, in the US where you have more of the ESG backlash, it’s more ESG is more politicized and making and because of that, maybe it’s a little bit more room for a US corporate to be less ambitious and forward leading when it comes to setting emission reduction targets.

CARINE SMITH IHENACHO: But as I said, what we see when we talk to companies, you know, every we have lots of company meetings and dialogue is still in many, many companies. It’s impressive what they do when it comes to innovation for emission reduction.

HUW VAN STEENIS: It may be actually, and it’s fascinating in the political environment we were in, it may be a lot more is going on below the surface and maybe not being publicized. So actually your meetings give you an information on that.

STEPHEN CLAPHAM: So, you know, we sort of think about investment. So you’re the world’s largest investors, national investor, the fund’s got a mandate to maximize returns. It is a bit awkward for you to exclude lots of companies or industries or sectors.

STEPHEN CLAPHAM: I know you don’t want to be investing in companies producing weapons. One example, but we also know you want to be engaged rather than run away from the debate. Can you talk a bit about how you sort of resolve this tension between engagement and exclusion and you know, where’s the balance? What tips a company from? Yeah, we want to engage with it are into the, well, actually, we just don’t want want to own it.

CARINE SMITH IHENACHO: I think when you’re large investor, like we are, you know, allocation decisions are the most important decisions. At least 70% have a 70% allocation to listed companies makes us the world’s largest single owner of listed companies.

CARINE SMITH IHENACHO: So, and that is set by the Parliament a very Democratic fund. And we get a mandate from the ministry but, but when they gave us that mandate, the Parliament also said, you know, there are certain companies we don’t want to make money from, from an ethical perspective. It’s just not right that Norwegians should make money based on that.

CARINE SMITH IHENACHO: And they, we call them ethical guidelines and they say companies, but based on a certain, you know, all these certain products or certain conduct, you should not make money from and they should be excluded. And that’s and that’s not financial consideration involved. It’s just purely ethical.

CARINE SMITH IHENACHO: So you mentioned weapon companies. So we are not involved in companies that produce certain type of weapons. We have actually lost money from not being in involved in that and we report every year on how much we lost. But as I said, ethical consideration that decided by the Parliament and being followed up by an independent Council On Ethics.

CARINE SMITH IHENACHO: So that’s not our decisions. What we can do as a fund is that we can still decide to divest from companies based on more financial considerations. And we do that. But the starting point is really that we want to be an owner, that’s how we make money and that’s how we can influence the companies as simple as that.

CARINE SMITH IHENACHO: So when we decide to divest. It’s because we just think the risk involved in being invested in this company on the longer term is, is we just think that sort of business model is risky from a sort of more sustainability perspective that we decide, you know, what, we don’t think we can influence this company through being an owner.

CARINE SMITH IHENACHO: So you might as well just settle out and call those risk based divestments very different from the ethical exclusions. Yeah, we do that to take, take down risk and we probably, you know, divested from 500 companies plus since we started doing that. And the interesting thing with that is that we have made money on it.

CARINE SMITH IHENACHO: So we report every year on how much we have made from our risk based dives. And I think since it started with it, we made around $6 billion. So, but so that’s very different considerations, but that’s sort of our last resort because it’s much better if you can via the investor change company and make money.

STEPHEN CLAPHAM: Can you give us an example of the sort of, you know, one where you’ve had debate and the management have said, oh, we’re going to, we understand what you’re saying. We hadn’t thought of that. We’re going to change our ways or one where you’ve disagreed and divested.

STEPHEN CLAPHAM: I don’t know, you might not want to name the companies if it’s not public information. But I mean, give us some examples of how it works in practice because I imagine when the phone goes and they say, you know, the secretary says to the CEO Carine’s on the phone, there’s a bit trembling, you know.

CARINE SMITH IHENACHO: Ok, I, we, we, we don’t give names of the companies where we do risk based investment. We, we give a reason for doing it, but we say it’s a financial decision, investment decisions. We don’t give names. But as an example, you have a company, maybe that’s involved in palmo production. And with that, it’s a lot of, they need to be also involved in heavy deforestation.

CARINE SMITH IHENACHO: And they do that in a way that’s obviously not sustainable. And that’s sort of their business model, everything, you know, I can call them doesn’t matter, that’s their business model. They’re not going to change that if we start to engage with them. So then we say, ok, we, we, we think it’s too much risk and all we’re going to divest from that. We do that for just I said that for smaller companies and we do that.

CARINE SMITH IHENACHO: So I was thinking about forward looking risk without necessarily having 100% correct information. So that’s also why we don’t give names of the companies because we think, well, you know, it’s in the end, maybe we didn’t have total information here. But when you have a portfolio in 9000 companies, you have to sort of make decisions sometimes without, you know, 100% clarity.

STEPHEN CLAPHAM: Can I just ask you on that because I’ve invested in palm oil quite extensively in the past. And, well, there are some good palm oil producers. They’re very attractive investments because you, well, when I went to visit the plantation, I, there was a, a map and there was a big line running through the middle of the plantation.

STEPHEN CLAPHAM: And I said, what’s that? And the guy said, oh, that’s a new motorway. And so of course, the, it used to produce palm oil and then it, they converted the land into service station, you know, so it was a property company, very long term property company that was giving you a very attractive yield in the meantime, and it was a high quality, high quality business.

STEPHEN CLAPHAM: But when you go around talking to the palm oil companies and you say to them, is there any truth that you’re deforesting, engage in deforestation of Indonesia or Borneo or whatever it is? They, oh, no, that’s not Oz.

STEPHEN CLAPHAM: And I mean, how do you get around that because it’s very difficult to get, you know, get proper understanding of when people are engaged in malpractice like, yeah, first of all, it’s not all companies evolve the power production.

CARINE SMITH IHENACHO: That’s bad. I just took that as an example if they are very unsustainable deforestation practices. But in general, what we do is when we look at companies to follow up because of heightened risk in some way or the other is that we screen our portfolio, we do that on a quarterly basis for, for various indicators.

CARINE SMITH IHENACHO: We do that according to different you know, the sustainability issues, we can do it on, for instance, on climate, on human rights, we do it on tax, we can do it on water management. And then we have certain criteria that together make us some sort of screen and then we get some companies that being, let’s say red flagged.

CARINE SMITH IHENACHO: What we do then is then we start to look more into their practices. So it’s first, you know, running it through a screen based on some parameters that we have decided and that brings up a lot of companies to look at, but then we start looking at them all and more individual basis.

CARINE SMITH IHENACHO: And, and for most of these companies, you know, maybe we decide to do nothing that the risk is sort of manageable and it’s, we want to continue to be invested some companies, we decide to follow up from an ownership perspective.

CARINE SMITH IHENACHO: We have meetings with them, we can you know, start to vote against the boards. If we think that’s a good way of following up, we or we can just give the information, we sit on to our portfolio managers who take active position and say, hey, do you know this and this with the company?

CARINE SMITH IHENACHO: And they may then decide to go underweight, for instance, invest less in that company. And then, you know, in few instances, we may decide, you know, what you think we should just sell out divest from this company. But that’s sort of last resort and done when we have, you know, looked at all other alternatives.

STEPHEN CLAPHAM: If I were a Norwegian voter, I might say, oh, I think you should publicize the name of these companies that you’re selling out of. So the example of the palm oil company where you had sufficient comfort that you were right that they, they were engaged in unsustainable deforestation.

STEPHEN CLAPHAM: Shouldn’t the public know about that?

STEPHEN CLAPHAM: You’re not Blackrock trying to make extra bit of money, you’re trying to make money for the Norwegian State. You’re also trying to do good. I was just trying to understand how those balance are.

CARINE SMITH IHENACHO: Yeah, and that’s fair. And you know, first of all that I’ve asked about that. So I’ll, I’ll I’ll tell you what, what we say to that. First of all, let me say we are the world’s most transparent fund because we are actually number one on the least of that. When it comes to the companies, we exclude for ethical reasons.

CARINE SMITH IHENACHO: It’s very clear why we exclude them, which companies they are the reasoning behind it. The companies have a right to reply to to the Council Ethics and they ask for information, everything is open transparent when we make these risk based divestments, we do them in two ways we can do them. You know, we invest according to an index.

CARINE SMITH IHENACHO: Although we are not an index based fund, we index in the Airbase because we can take active positions quite, quite a big active positions outside of the index. But when the index we follow changes companies come into the index, we screen all those companies when they come into the index.

CARINE SMITH IHENACHO: But we have very little time from when the changes in the index are announced to when they actually come into the index. So we have a short window of time, we screen them, some flags may come up. We try to assess them as well as we can in the time with the information we have bearing in mind that there’s lots of companies we’re talking about.

CARINE SMITH IHENACHO: We feel when we decide to divest that we have less information than for instance, it’s the Council On Ethics because we don’t have the same thorough process around it. We base it on. Of course, we have all the information the company has reported. So if they, you know, if they reported more, we’ll have more information.

CARINE SMITH IHENACHO: And we as again, we feel this is a part of the investment decisions we are making this tourism. We think it’s not fair for the company because we know that a lot of investors follow us when it comes to the ethical exclusions, we don’t think fair that they necessarily should follow us in risk based investment because we have had less time to consider less interest for the companies.

CARINE SMITH IHENACHO: And finally, because it’s financial decisions, that’s the one type of decisions we not transparent about really is our sort of investment, you know, individual investment decisions.

STEPHEN CLAPHAM: Last year, you reviewed and screened 1000 and 48 companies entering the benchmark and 317 were considered high ESG risk. 263 were put on an internal monitoring list while you decided to divest from or not invest in 54. Is that typical proportions, like 5% of the companies coming in? You just say there’s an issue and I don’t want to touch that because I don’t know enough. I mean, is that the way we should think about it?

CARINE SMITH IHENACHO: I, I don’t have the total number but I think that’s pretty typical. Maybe it sounds slightly more than average and maybe that was a quarter is we felt there is more risk than risk than normal.

CARINE SMITH IHENACHO: But yeah, but yes, that’s how you should think about it in the way that at least we’re open about, you know, how many companies we looked at, how many there are issues with and how many in the end we decided not to invest in. But I think that sounds slightly more than the average and you know, over time, although I don’t have that figure just you know, I in my head.

HUW VAN STEENIS: Now you, you mentioned this obviously a lot of innovation in terms of carbon tech, but also a lot of innovation and how you measure emissions and, and what matters. And I’m struck that you’ve chain recently updated your expectations to away from scope one and two and three to material emissions. What, what, what, why the change and what, what, what’s the implication for the portfolio?

CARINE SMITH IHENACHO: You know, they still have, you know, take a step back. You mentioned our expectations to companies when it comes to climate. So we, we have published clear expectations to the companies part of our climate action plan that we actually opted recently.

CARINE SMITH IHENACHO: And in those expectations, we still state specifically that companies need to targets when it comes to scope one, scope two and material scope three emissions. So that’s very much still and expectations to the companies we have invested in and it’s sort of up to the companies to, to say whether or not their scope three emissions are material or not and explain if, if they don’t think it is explain why it isn’t.

CARINE SMITH IHENACHO: So, so yes, scope three is very much part of our expectations. And then of course, you also now have clear and detailed expectations around, you know, credible transition plans, so very much going, you know, from targets to actions in what we ask from the companies.

STEPHEN CLAPHAM: I I was wondering, you know, when you sort of feel uncomfortable about a company and Nikolai thinks it’s very cheap.

STEPHEN CLAPHAM: How does that conversation go?

CARINE SMITH IHENACHO: So in general, as I said, we don’t want to sell out to companies, we want to change companies where we see material risk in some sort of way.

CARINE SMITH IHENACHO: So that discussion probably goes quite well in saying, OK, if there are issues here, let’s see what we can do as an owner in this company, let’s contact the companies. Let’s talk this through, you know, the chair, board members management convey our concerns.

CARINE SMITH IHENACHO: You know, have, have a dialogue, that’s where we start with companies, have a dialogue with the companies and see if there’s anything we can, you know, we can convey our concerns, they can come back and explain why they’re doing what they’re doing. And then we can, if you want to see changes, you can also try to, to convey that.

STEPHEN CLAPHAM: And I mean, have you, do you, do you ever have disagreements? I mean, are there ever situations where Nicolai said?

STEPHEN CLAPHAM: Well, you know, that’s, it’s not really a threat and it’s so cheap and that, I mean, there must be, there’s always tensions in these sorts of situations because on the one hand, you’re both trying to make money in the long term, but there can be quite, you know, quite nuanced, quite a lot of difference, quite a lot of difference in an organization.

CARINE SMITH IHENACHO: There’s always tension and always disagreement and also healthy discussions, right? And I think you’re absolutely right. Quite often.

CARINE SMITH IHENACHO: There are good discussions, not necessarily with Nicola always, but between us that have a certain view on how companies should manage sustainability risk and opportunities and the portfolio managers to invest in these companies, they can be good discussion around what should we talk to the companies about what’s material for the company? You know, what’s the issues to raise?

CARINE SMITH IHENACHO: And I tell you when we probably have the most discussions is happening just in this period we’re in now. That’s called the voting season. And that’s you know, where we have big discussions around. Should we support the board? Should we not support the board?

CARINE SMITH IHENACHO: Should we vote? Yes or no for share the resolution? And we have very engaged discussions around that. Absolutely. But that’s good. It’s good to have different opinions and good to sort of discuss them before you come to a conclusion.

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HUW VAN STEENIS: Talking about disagreement. You’ve been the, the vice chair of the investor Advisory Group for the international standards boards. Are, are we seeing more divergence or convergence between what investors think could be useful? And how are the, how do you see the standards that are evolving?

CARINE SMITH IHENACHO: First of all, I must say it’s fantastic what the national system is that, that’s what, that’s a mouthful. That’s why we call it ISSB have been doing because they really managed to develop a what we call a global baseline for the company sustainability reporting in a very short time.

CARINE SMITH IHENACHO: And, you know, there’s been a lot, a lot of debate about, you know, what should companies report, what’s good reporting, bad reporting, too much reporting, too little reporting around sustainability issues and investors are in general as for more companies think it’s being too much, too many frameworks to report against. And so this what ISP is trying to do is to make a global style that, that’s excellent, that’s perfect.

CARINE SMITH IHENACHO: So they now try to implement the style that they have developed in various jurisdictions.

CARINE SMITH IHENACHO: Investors I talked to and that’s almost 100% of them are, you know, very happy to have a, they want a global framework. It’s great. If companies can report, you know, the same way, whether they’re incorporated in Indonesia or in the US or in Denmark. Fantastic. So I think in the investor Advisory Group is generally investors that supportive to this framework.

CARINE SMITH IHENACHO: But of course, you know, there are still a lot of debate around how detailed their reporting should be. You know, is it too much reporting burden on companies? It’s still still somewhat fragmented with, you know, what’s happening in the eu now and the US. But I feel within the investor group, at least there seem to be a lot of consensus around that global standard, being great.

STEPHEN CLAPHAM: The whole sort of issue about data, I mean, how do you feel about that? You’re obviously a very large institution. I’d be interested to know, you know, how many people you’ve got in, in your area, but there’s all sorts of data providers and they all come up with different scores and, you know, to the sort of average layperson, you know, I mean, I, I’m, and I, you know, I, I think I’m a reasonable analyst but confronted with this array of different data, suggesting different conclusions is quite bewildering. I mean, how do you look at this and how do you resolve that problem?

CARINE SMITH IHENACHO: I agree. Steve, it’s very confusing. I’m a lot, I’m confused myself with all the different ESG ratings. Absolutely.

CARINE SMITH IHENACHO: And I, I mean, I think it’s a big, big problem that there’s so many different ratings because I think people, you know, you hear it’s an ESG fund, you think it’s doing some good, you invest in it and you don’t really know what it means to be AES G fund because it’s, it can be rated in so many different ways, you know, whether a company is as an AAA or CCC.

CARINE SMITH IHENACHO: It doesn’t really necessarily means the company is going to, you know, say what you say, it develops a technology that will save the planet. But anyway, so it is confusing how we go about it is that we think data to have the more data we can have is good, you know, so we buy data from various data providers, all sorts of data providers. We think it’s great to see the data.

CARINE SMITH IHENACHO: We don’t put much value on the ESG ratings because what we do is to take the data we have and do our own evaluations. It doesn’t mean we do internal ratings, but we do our own internal evaluation of the data. But because you know, it, it’s so many different history ratings. We actually even wrote a, a small piece on this. Not that long ago, we called it some something about R and B on EG ratings.

CARINE SMITH IHENACHO: And our point was that, you know, the rating agency should be more open about their methodology. And the rationale behind the rating because, you know, some based the rating on financial materiality for the company when it comes to sustainability issues. Whereas other based rating on how the company impact, you know, their their, their environment, etcetera.

CARINE SMITH IHENACHO: So it’s all different methodology. So we said just be open about, you know, why you rate, what’s your motivation for rating, how you rate and the data input you have then, you know, it’s much easier for people to sort of make their own evaluation of the rating. And so that’s sort of, but the data, we are very grateful for that, we get from many of the rating agencies.

STEPHEN CLAPHAM: How many people do you have doing this and.

CARINE SMITH IHENACHO: Depend on what the, what do you mean by doing this? We have a team that does what we call ESG analytics that just look on sort of number crunching 56 people. But then when you look at the whole ownership, what do you call the active ownership department that really did the totality of following up our ownership, ownership, maybe around 30 people plus minus.

STEPHEN CLAPHAM: It’s not hundreds of people. It’s, it’s something that any very large institution could accommodate. Whether you’re, you know, if you’re running several $100 billion you could afford to, to, to do that. Do you think those big institutions, do you think they’re placing enough emphasis on this analysis?

CARINE SMITH IHENACHO: You’re right. Not that we are as an organization. We are quite a small organization in totality. And I tell you 30 people, we are very busy now doing voting during what season because at the end of the season, we would have voted on more than 200,000 resolutions.

CARINE SMITH IHENACHO: So, so we are, we are kept busy. But you know, I don’t want to sort of, you know, criticize what other big institutions are, are doing. You know, they, if they have enough or not, I mean, there is many other big asset managers that’s, that’s doing a great job.

CARINE SMITH IHENACHO: And you know, taking, taking their management responsibilities seriously.

STEPHEN CLAPHAM: And do you think there, do you see any difference? So you’re sitting in New York, do you see any difference sitting in New York in people’s in investors? Attitudes in New York versus London versus Europe? I think it’s.

CARINE SMITH IHENACHO: Fair to say on a general basis, although they can be, of course, very much individual differences that the big institutional funds in Europe are maybe slightly more focused on the sustainability rather than in the US. But again, that’s a very sort of generalized statement.

STEPHEN CLAPHAM: And, I mean, there’s a lot of professional investors listen to this podcast. Well, is there one thing tomorrow that they could do to help us get a cleaner writer, faster, more stable transition?

CARINE SMITH IHENACHO: Yes, I don’t think it is really one answer to that. And one thing they can do, I think everybody need to find for themselves. You know, what is that they want to, where do they want to have an impact? What’s important to them? Is it important to lower emissions?

CARINE SMITH IHENACHO: Maybe invest in some of the supply chain, innovative companies that can sort out on both like in the supply chain or is it important to think more about nature? Then it’s other types of companies you, you should invest. I think we’re finding out, you know, where is it? You want to have an impact and then pick the best companies in that sphere.

STEPHEN CLAPHAM: One thing I was very struck from your report was that companies that didn’t have net zero targets saw a 7% rise in their emissions between 2015 and 2023. And companies which had set a net zero target saw a 2% reduction in their emissions. So obviously, when companies publish targets, they do a lot better. No surprise.

STEPHEN CLAPHAM: What can you do to push more companies to set targets?

CARINE SMITH IHENACHO: I think that data is so interesting. So I’m very glad you picked up on that. Still. It’s really interesting to see just setting targets, even though those targets are quite far ahead. Then companies do something about it. They start start to manage their emissions and get it down. You know, it’s really, and, and just to say the, these are companies that said what we call science based targets.

CARINE SMITH IHENACHO: So sort of credible targets. And that means again, as you say, you know, set, just setting a target, makes you sort of think about how we can manage your company to get there. And that’s why we for a long, long, well, not that long, but for quite a few years have again and I get set to companies start with target setting. You know, where do you want to be in 2030?

CARINE SMITH IHENACHO: Where do you want to be in 2040 2050? Start with targets. Then you make credible transition plans on how to get there. And it really, that the data you refer to really shows that it, it matters even if you and that was in the companies that transition plans, other companies that just set targets, just setting targets, changes practices and, and have have resulted in reduced emissions.

HUW VAN STEENIS: One thing I’m very struck by green is that some companies now revising their targets. And in a way, you can view that as a positive that they’re getting even more gritty and realistic as that as they understand them where we could be pessimistic saying they’re stepping away what, what’s your perspective as you, as you see the iteration?

CARINE SMITH IHENACHO: Yeah, it, it’s interesting that they do and I think in many ways we try to look at it in a positive way that yes, companies are realistic. It doesn’t go as fast as they thought it’s an and we very much appreciate that it is hard to reduce your emissions from many companies.

CARINE SMITH IHENACHO: I mean, the whole energy systems in the way to change and it’s not done overnight. So I think, I mean, what we want to do is understand why they’re doing it? You know, is it because they’re less ambitious or is it just because they’re more realistic but still have that overall target?

CARINE SMITH IHENACHO: You know, net 0 2050 trying to be aligned with the goals of the Paris Agreement. But so far when we talk to companies leave is what I think it’s more around, more realism and, and not so much being less ambitious.

STEPHEN CLAPHAM: In the same report, the share companies with net 0 2050 targets Europe, 49% America, 23% Pacific, 21%.

STEPHEN CLAPHAM: Is that why you’re in New York?

CARINE SMITH IHENACHO: What, what’s interesting with these numbers, they don’t show the dynamics. So maybe it, you know, if you read the report here before the, the, the era where it has increased the most in 2023 actually was Asia Pacific with the which is now still lowest but still having the highest increase.

CARINE SMITH IHENACHO: So this is, this is a dynamic field and it hopefully will you know, have an optic all over, but it was a little bit. But yes, it’s a little bit maybe. Well, I’m in New York. I mean the, well, I’m in New York, let’s see, for three reasons. First of all, you know, 50% of our equity investments are in the US markets. So it’s something. So I wanted to be closer to, to those companies.

CARINE SMITH IHENACHO: And secondly, yes, I mean, to be a clear voice there and say, you know, for us, how you manage the climate transition really matters because we think it’s matters for our long term returns. And the third reason is really New York is a fun place to be and, and it’s also to have some representation of the leader group in, in our national offices. So.

STEPHEN CLAPHAM: Well, listen, it’s been really fascinating, delightful talking to you.

STEPHEN CLAPHAM: New York’s probably a little bit colder than, than London, but thank you so much for taking the time. I don’t you, do you have any final things you wanted to leave us with?

HUW VAN STEENIS: I, I think I, I thought that was terrific and obviously I, I get the honor of speaking to Ken far more regularly, but I think it’s been fantastic for you to, to share publicly your, your your perspective. So I found it a really interesting conversation.

STEPHEN CLAPHAM: A massive thank you and congratulations to use as a group because you’re really leading from the front and it’s fantastic to, to watch and thank you so much for, it was.

CARINE SMITH IHENACHO: Great to talk to you both. And of course, we also had great people helping us in the work we do on not the least the climate like you see on our climate advice report. But thanks to both of you for taking the time to speak with me and actually sun is shining in New York for a change. Thank you.

STEPHEN CLAPHAM: You can probably now understand why I said Ken is a force and someone I think it would be hard to argue with.

STEPHEN CLAPHAM: I think it’s reassuring that Norges is taking such a forward stance on the transition and on governance and that they’ve got someone like Ken at the helm of all that, I would encourage you please to read the show notes. They have some links to some of the Norges publications and they’ve got some really helpful insights.

STEPHEN CLAPHAM: You can read all of that on the website behind the balance sheet.com/podcasts and you can sign up for my newsletter which goes with this mini at beyond the balance sheet.Substack.com. You and I are doing this show for fun.

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