Norges Bank is now reconsidering its previous choices to withdraw investments.
Norges Bank Investment Management (NBIM), the asset management arm of Norway's Government Pension Fund Global, manages a staggering $1.8 trillion in assets across nearly 9000 companies in 70 economies. One of the key aspects of NBIM's strategy is its approach to divestment, a topic that has been under scrutiny in recent years.
In 2024, NBIM made 49 risk-based divestments, motivated by factors including unsatisfactory climate risk management, high greenhouse gas (GHG) emissions, coal mining, coal-based electricity generation, biodiversity, water management, and significant sustainability risks. However, the fund has also shown a willingness to reassess its decisions, as evidenced by the reversal of divestment for 16 companies in the same year.
Three 'Asian industrial companies' that were divested from the fund in 2014 were brought back due to their adoption of net zero targets and disclosure of emissions. This move adds nuance to the debate over whether divestment works, suggesting that it could incentivize companies to improve, provided the divestment is up for reassessment.
Recent research suggests that divestment strategies alone may have limited impact on the long-term cost of capital or direct environmental improvements for companies. However, they can influence firms indirectly through capital reallocation and signaling effects. A 2025 New York Fed staff report shows that divestiture is unlikely to have a large impact on the long-term cost of capital for targeted "brown" (polluting) firms at current levels of investor participation.
However, the same report highlights that increasing financing costs for brown firms due to investor pressure can lead to significant reductions in firms’ environmental impact. There is also evidence of a cross-firm effect where capital reallocates from brown to green firms, which may induce broader adoption of greener capital within companies.
Large asset owners like Danske Bank have started divesting from fossil fuel companies based on rigorous transition plan assessments, focusing on management quality and carbon performance aligned with Paris Agreement goals. This suggests asset owners use divestment selectively to encourage credible environmental transition plans, linking divestment to engagement strategies as well.
Wilhelm Mohn, NBIM's global head of active ownership, stated that companies without net zero targets reduce emissions less than those with them. By 2024, 74% of the fund's portfolio emissions are covered by net zero targets. Improved climate risk management over several years was part of the rationale for NBIM's decision to reverse divestment.
NBIM's decisions to move a company out of the fund's investment universe can be financially motivated or ethically motivated, with the latter being known as 'exclusions'. Financial prudence is a key consideration in NBIM's divestment decisions. Ihenacho stated that divestments have increased the cumulative return from the fund's equity portfolio, and that climate change related divestments alone increased the fund's return on equity by 0.30 percentage points.
The latest responsible investment report from NBIM details how the fund approaches divestment decisions and why they are sometimes reversed. The adage "correlation is not causation" is relevant to the debate over whether divestment works. The report does not necessarily reflect causal links between divestment and altered corporate behavior, but it does offer evidence worth considering.
In sum, while divestment alone may not directly and comprehensively drive corporate environmental improvement, it often functions as part of a broader stewardship strategy alongside engagement. Asset owners like NBIM adjust divestment decisions based on companies’ demonstrated improvements or credible transition plans, implying that divestment can be an effective incentive when integrated with active dialogue and assessment. Thus, the evidence shows divestment works best not in isolation but as a signal combined with targeted engagement and capital reallocation strategies.
References:
[1] New York Fed staff report, 2025. [2] Commissioned research report for the Border to Coast Pensions Partnership, 2024.
- The Norges Bank Investment Management (NBIM) reversed divestment for 16 companies in 2024, indicating that divestment decisions can be reassessed if companies demonstrate improvement, such as the adoption of net zero targets and disclosure of emissions, as seen with some Asian industrial companies.
- In the realm of environmental-science and business, divestment serves not only as a potential means for finance to impact climate-change but also as a signal to encourage companies to adopt greener practices, when integrated with active dialogue and assessment, as observed by NBIM's strategy.
