The biggest owner of stocks in the world tends not to look at the headline numbers provided by ESG ratings firms, and says only by digging into the underlying data does it find the information needed to guide portfolio decisions.
“We very rarely, if ever, use the ratings numbers,” said Patrick du Plessis, the global head of risk monitoring at Norges Bank Investment Management.
NBIM, whose $1.4 trillion portfolio makes it both the world’s biggest wealth fund and the No. 1 investor in publicly traded equities, this week unveiled a tougher stance on assessing environmental, social and governance risk. Using a pre-screening tool, the fund will exclude benchmark stocks that would otherwise have made it into its portfolio, based on a series of ESG tests.
The Norwegian wealth fund’s new approach to ESG investing, which is backed by Amnesty International, has already resulted in nine benchmark companies being identified as unfit for entry into its portfolio. That’s in addition to almost 370 ESG divestments since 2012. The fund doesn’t name stocks weeded out as a result of its screening process, but will provide regular updates on how many companies don’t make the cut.
When deciding which stocks to avoid the fund examines everything from water use, to biodiversity to children’s rights. ESG ratings only come into the equation in the form of the raw data behind the headline figures provided by companies.
“What we do is that we de-aggregate” the ESG ratings data, du Plessis said in an interview on Tuesday. He and his team “get underlying data points, see where the various signals are, and incorporate that into our analysis.”
