Climate

Folketrygdfondet expects companies to align their business activities with a global net-zero pathway in line with the Paris Agreement. This requires a sustainable and future-oriented business model that reduces climate risk and supports long-term profitability.

There are different types of climate risk:

•  Physical risk refers to the effects of climate change that can cause financial loss or damage, such as extreme weather events, rising sea temperatures, and changing precipitation patterns. These can harm assets, disrupt supply chains, and reduce operational capacity.
   
• Transition risk arises from changes driven by climate policies, including new regulations, emerging technologies, and shifting market expectations that may affect operations and costs.
   
• Liability risk relates to potential financial claims resulting from insufficient action to prevent or mitigate climate-related harm.

We expect companies to be transparent about how they manage climate risk and how they plan to deliver on their climate ambitions.

Folketrygdfondet’s expectations apply to companies with material climate risk and are based on the OECD Guidelines for Multinational Enterprises, IFRS S2, and UN Global Compact.

• The board is responsible for ensuring that climate risk and opportunities are integrated into strategy, decision-making and incentive structures, and that this is reflected in reporting, risk management, and financial planning.

• Companies should conduct analyses that explore different outcomes and transition pathways. These should include a scenario that reflects rapid decarbonisation consistent with the Paris Agreement, and a scenario where such goals are not met and climate risk becomes a major threat.

• Companies should set interim and long-term emission-reduction targets. Targets should be realistic and science-based where relevant and applicable. Companies also have a responsibility to ensure that emissions associated with the use of their products and services align with overarching goals. Targets should cover both direct emissions and material indirect emissions (Scope 3).

• Targets should be supported by a transition plan outlining necessary investments, expected financial implications, and how the company will adapt to a low-emission economy.

• Companies should report on their management of climate risk in line with recognised frameworks and standards. If carbon offsets are used to meet climate targets, this should be clearly explained, including information on the origin and verification of the offsets.

• Companies should also disclose the carbon price they apply in their profitability assessments.

• We expect companies to report on any lobbying activities related to climate regulation, including influence exerted through third parties.