Norway’s $1tn oil fund should sell out of more companies that perform badly on environmental, social and governance issues to try to boost its returns, according to its new chief executive.
Nicolai Tangen told the Financial Times that the world’s largest sovereign wealth fund should “use risk in a more clever way”, particularly by increasing the number of divestments for ESG reasons.
“That’s an area where we can take a bit more risk,” Mr Tangen said in his first interview as chief executive. “It’s been very profitable, very good for the fund in reducing risk.”
The 54-year-old former hedge fund manager is putting his stamp on a fund that on average owns 1.5 per cent of every listed company in the world. He went through a bruising recruitment process that led to him having to divest his controlling stake in AKO Capital, the $21bn London-based asset manager he set up 15 years ago.
Mr Tangen told the FT he would focus on three areas: boosting performance and excess returns; improving both external and internal communications; and improving talent development.
The fund sold out of 42 companies in 2019, mostly for using or producing coal but also for breaching its expectations on human rights, anti-corruption and other ESG standards. Mr Tangen said he wanted that number to increase as the fund prepares to hire more staff to deal with ESG matters.
His predecessor Yngve Slyngstad has said dealing with the growing size of the fund and how it handles responsible ownership and ESG was the biggest challenge he faced as chief executive, including market volatility during the financial crisis and coronavirus.
The impact of the oil fund’s risk-based divestments has increased substantially in recent years. They raised the fund’s return by about 0.1 percentage points in 2018 compared with its reference portfolio for equities, but by the end of 2019 that had risen to almost 0.3 percentage points. Selling out for climate change reasons, mostly coal, produced the biggest effect.
Mr Tangen said the overall aim was “not to increase the risk but use it better”, for example by embedding technology more into the investment process to help decisions.
He unveiled his new leadership group on Tuesday, finding no place for Mr Slyngstad, who remains with the fund. The new nine-strong leadership group is heading to the Norwegian mountains on Wednesday for three days of strategy discussions.
The new team consists of seven Norwegians and one Dutchman who already worked for the fund, while three of the nine are women.
“When you take over a knowledge-based company like the oil fund, in the beginning you just want to fine-tune the existing DNA,” said Mr Tangen.
But he added: “We clearly have to be better in developing female talent, and more international and racial diversity.”