The world’s largest sovereign wealth fund will become a more vocal shareholder and plans to vote against companies that fail to set a net zero target, overpay their top leaders, or do not have sufficiently diverse boards.
Nicolai Tangen, chief executive of the $1.3tn Norwegian oil fund, told the Financial Times’ Global Boardroom event that the fund would become more aggressive on environmental, social and governance (ESG) issues as well as aim to be a more contrarian and long-term investor.
“Yes, we can be [more vocal] and I think we will be . . . we can vote more against the companies where we have different expectations about how they behave,” Tangen said in London, a day before the fund unveils its new mid-term strategy.
Tangen’s words serve as a warning to corporates worldwide as the oil fund on average owns 1.5 per cent of every listed company.
The Norwegian fund, which is financed by the Scandinavian country’s oil and gas revenues and has increased in size sixfold since the 2008 financial crisis, has become more active in recent years by releasing its voting intentions five days ahead of annual meetings.
Tangen, a former hedge fund manager, warned the directors and boards of companies without a target to reach net zero emissions that the fund would “absolutely” vote against them.
“Only 10 per cent of companies have a clear [net] zero target already in place,” Tangen said, although he added that accounted for about a third of emissions from the 9,000 companies the fund owns shares in.
On executive pay, he warned that in the US the average top chief executive is paid close to $15mn at a time of the cost of living crisis.
“Executive pay and corporate greed has just reached a level that is really unhealthy,” Tangen said.
He added that US investors were unwilling to hold companies to account, in large part because their own top bosses were paid so much.
“That is why they are not so vocal. If you are in charge of an asset management organisation and you make an absolute killing yourself you are not going to criticise the other CEOs,” Tangen stressed.
The fund believes executive pay should be more long term and allied with shareholder interests rather than use incentive plans whose targets are often watered down such as during the Covid-19 pandemic.
The fund, which was set up to ensure Norway’s petroleum revenues are enjoyed by future generations, is also seeking to exploit its long-term nature more in an effort to boost returns even as Tangen warns the next few years will offer meagre gains for investors.
“We can be more contrarian, ie do the opposite of other people, because when other people sell we can buy and vice-versa. There is some scope to tweak that further,” he said.
“We can be even more long term in how we invest because we have a 30 to 100-year timeframe and I’m not sure we are using that to the full.”
Tangen said that he saw a “continuation of difficult markets” in 2023 and added there was a risk that central banks failed to temper the current high inflation. “Inflation feeds inflation. It is difficult to get it back down.”
Additional reporting by Akila Quinio