Norges Bank Investment CEO Nicolai Tangen Talks Going Green

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The journey to net zero is one of the biggest challenges humanity has ever faced. As temperatures keep rising, the devastating effects of climate change are becoming more severe. In this new series of Leaders with Lacwago's Green, we go beyond the headlines and speak to the people who are confronting the climate crisis through their work to learn how they're positioning.

For the future.

I begin with the man in charge of the world's largest sovereign wealth fund, valued at almost one point six trillion dollars. Norges Bank Investment Management is the biggest owner of stocks globally, with stakes in almost nine thousand companies. It was established to invest Norway's vast fossil fuel riches, but as the energy transition gains momentum, it's sought to reduce exposure to oil and gas. Instead of divesting, its

I think what it takes is more emphasis on empathy and in a world which is leading towards whether it's more machines, more AI, we need to lean more towards what is it that makes us human?

So that whole thing is more important than ever before. But the world is so complex at the moment. How do you distinguish the noise from the facts. Well, that is also more important than ever before.

It's to make that distinction and to just establish the facts, talk to people and just exclude all the noise, all the social media, all these.

Kind of things.

You're a leader almost like no other because you lead the largest sovereign wealth one in the world. You want to explain to everyone that's interested in what the Fund does, and you also have a podcast, you do investments.

Like what kind of leader do you think you are?

I think I am a very including leader. And the good thing by leading the people in the Fund is that they are just so smart and so clever, and so they don't need much leadership. They just need a bit of direction and then they figure it out themselves.

But you've done quite a lot since since joining the Fund, and that was during the pandemic, how do you see the fund changing?

It's interesting, but in some ways it's easier to make changes during a period like the pandemic, because people are at home and they are spread out, and so when you suggest some things, it's perhaps easier to get them to.

Do the new thing.

I don't believe that for one second. It's always hard.

I mean, if it's hard to change culture, it's hard to change people.

Well, you have to explain why you do it, and I think make even more sure than before that people have a true purpose.

And so you have to distill down what is.

The purpose of what you do, what is the purpose of your company, and make that very clear and repeat it and repeat it and repeat it. And it's very clear what all purposes is to make money for the Norwegian population.

So why do you accept the job you were You had a great life, I mean, you had a.

Hedge fund that was doing very well, you were earning lots of money. Well, I had a great love, I had a great life.

But I still have a great life and you know, really good life.

Now. I was very keen on that job because one I think it's one of the most important positions in as at management, Right, I love as at management in terms of the opportunity to develop that organization further. There was there were great opportunities, and I love organizational development. And then to do something nice for the country. I mean, these three things came together in the same job.

Why do you love asset management because you can influence and change the future? Or is it being clever than anyone else?

Asset management is the most interesting job in the world, perhaps after being at journalists.

Why is that?

Well, everything you eat, drink, drive, all these kind of things is made by a company. You have you need to understand psychology in terms of the companies. You need to understand the corporate culture of companies. And then these things change all the time. Right, you have the macroeconomies changing, interest is changing, currencies are changing, and you know, the data points are just changing all the time. You just couldn't invent a more fascinating game even if you try it.

But it's harder now, I think, I feel it feels like things are changing faster. Right, Inflation forecasts straight forecasts are changing.

Is changing very fast.

So on the one hand, that means that you need to be very observant and agile At the same time, I think there is even more scope if you managed to be contrarian in what you do, and if you managed to be long term. I think that's where the money is. The big arbitrage now is to be contrariant and long term.

What do you think markets are getting wrong right now?

Well, it's a bit kind of arrogant to say that the market is wrong, because what is the market. The market is the total IQ of all the people in the world, right, So that's a tough one.

I do.

I do think that inflation will be tough to get done. There is more near shoring. We are seeing some well, we have recently seen some more pressure on raw materials.

Way increases are quite high.

So I suspect that we won't see the type of breakouts that many people expect.

What do you see?

I mean, there's this US exceptionalism, which is what we're seeing in the US economy, the inflation data, what the FED does. What have we gotten wrong on the US economy?

Well, the US economy is actually pretty good, certainly relative to Europe, right and we see it as well when I have when I see US CEOs, they are just seeing the backjob for doing business in America is so much better than doing business in Europe. So a lot of things are going right in America.

How much time do you spend looking at what the Fed does or what the economy does? And how much time do you spend understanding your companies and thinking about what themes you need to be invested in.

No, I think they go They kind of go together. I think you understand the economy through the companies. So my job, in a way is to speak to companies and try to create this kind of mosaic of information.

What do you see as the biggest change for our economies? Is it AI which is being priced in? Or is it geopolitics.

I don't think you can differentiate AI from geopolitics anymore. They are so deeply intertwined because AI is now an important part of weapons, systems, of healthcare, research, of car technology, EV technology, So they just go together.

So it's a new thing now. Micro chips is also.

An important part of the geopolitics wasn't to the same extent before. So all these things are just much more complicated than they have been.

You're tantalized right by this exciting change, when many people are actually really worried about what's coming.

Well, I think the world has never been more has never been more exciting. Right, what's happening in AI is leading to some tremendous change, leading to some huge progress, for instance, in in the way we do research in an R and D, in the farmer industry. It's improving the you know, the weather forecast, It's improving a lot of things. Right, It's just a tremendous increase in compute power. So generally it's a positive thing.

Are you mainly positive or do you also worry about you know, it's.

Mainly I think it's mainly positive. And then the question, of course is how do you regulate this? I think it's going to be very tough to regulate because it's so embedded into kind of the competitive landscape between the superpowers.

What's it mean for your investments in AI? You don't, of course, you don't choose one hundred percent? Will you invest because you have you know, a framework, but by the government. But how do you see the adoption of AI going forward?

We are seeing the adoption we say fast adoption.

And it's also interesting what are the applications for productivity?

So on the podcast we have.

I asked Samult, and you know, what kind of productivity growth should we see in our company over the next felve months, and he thought we should see twenty percent.

Right, So I will.

Around in the office and say, hey, how are you going to become twenty percent more efficient?

What exactly are you doing? And I think we all need to ask ourselves about that.

How are you?

How are you doing?

How?

I was just asking you first?

So for me maybe I can have multiple language.

Skills exactly, which is something that actually you were mentioning. You have this podcast, which I know you enjoy doing. Why do you enjoy it so much?

Oh? Why? I mean?

So we started the podcast in order to give the Norwegian population insight into the type of companies they own, right, And it's basically we just learn a lot. We learn a lot which is relevant for students to listen to the podcast business leaders, we ourselves. It's important and you have the ability to talk to the people who actually kind of leave the world.

It's fascinating, right.

And also I need to read up on all these industries, so that's what I do during the weekends.

Many of them have written books.

I have to read the books, you know, you have to the insight into various industries.

It's it's fantastic for learning.

Who's the toughest interview you've done? Well?

We had a pretty tough one with with Elon Musk because we had some technical issues, and of course that you need to kind of keep concentration whilst you have some technical issues. That's not so that's not so easy. But I think they're all they're all very good. I mean, these are great people and it's fascinating to talk to talk to them.

You're a big investor in test, do you do you get into the nitty gritty of actually what a company does, what they're promising, to see whether your investment continues.

Well, we don't. We don't really, I don't really do that kind.

Of nitty gritty, like how many cars are you going to tell? How many of them are red, how many of them are blue? You know, all that kind of stuff.

I don't.

I just don't think that's necessarily important for the long term success of the company. But so why what where I spend time is on the business model to try to understand where where they make money and why they should continue to do well in the future.

And a lot of time on corporate culture leadership.

I think corporate culture is is completely underrat you know, it's just underestimated because you can have two companies which do exactly the same, or at least that's what looks like on the surface.

One is hugely successful, one is a complete failure. What is it?

You know, there is just something in the company and the way they conduct business which is so important.

Coming up Nikolay Tangen on why the world has stumbled on the path to a greener future. The commitment of oil and gas companies is crucial to achieving net zero. The industry supplies more than half of the world's energy and is one of the planet's biggest polluters. Oil majors have vowed to cut production and slash emissions, but recently, after record breaking profits, some have walked back on those pledges, despite pressure from institutional investors like Norway Sovereign Wealth Fund.

Are we taking a backstep as a world?

Yes, we have done unfortunately, very unfortunate, but yes, the world has taken a step back and I guess we are one of the few big investors out there now who continue to be consistent and who continued to talk about these things the way we have done all the time. But many people have kind of turned on the volume on that messaging.

Why have we taken a step back?

Well, I think on the back of higher energy prices, the energy sector got more confidence, there was more focus on energy security, and that's kind of what started it, right, And then you have had some political movements as well which have moved in the same direction.

Nicolete, when you look on on some of your investments, how difficult is it to take a company, a big company, an oil major and change it from within as an investor, and therefore how difficult is it to decide to stay invested in that company?

Well, it's an important question because you can do two things. If a company doesn't quite do what you think they should be doing, you can sell it, or you can continue to have a dialogue with them and try to get them to change tech.

Right now, what do you achieve if you sell it?

You basically end up with a company which is owned by investors who don't care. That doesn't make a lot of sense. So therefore, we continue to have a dialogue with these company's, show understanding and remain invested whilst they are in that transition period.

Where do you feel you've made a difference and where have you been disappointed?

I think we made a difference many places. Now I wouldn't say we have revolutionized the oil and gas industry, but we have been been supportive and helpful in many cases. And that's also what we hear back from the companies.

When you look at I think you have a commitment to make all your portfolio and at zero by twenty fifty.

Is that achievable? Certainly a goal we have.

Why are you so committed to climate change in twenty twenty.

Four because there are There are two things which is important. One is to not let small problems become big. But it's also important not to let big problems become small. Now, the climate situation we're in, it's clearly a very, very big problem. We had the hottest year on record last year. It started to have impact in many, many different ways. You see it in the reinsurance prices, you see it

Do you worry that actually, you know, investors don't engage with some of these companies. And I know you also have an ethics basically committee, the ethics Council whether you can invest, which is independent but gives you advice or actually forces you to either sell investments or not invest in companies that are not ethical. How does that relationship work?

No, it works really well. So this is a separate counsel of ethics. They have various criteria they look at for instance, human the human rights criteria, the cold criteria, Uklear weapon criteria, and then they would go into deep research with various companies to see what do they whether they breach their criteria and if they do, they would advise us to exit.

And has that happened? Yeah, sure on climate change.

On climate change, we do exclude some companies over selves, and it can be various parts of that they can be.

That could be, for instance, people use water resources and so on.

I think you're also invested in like physical assets like not went sure, but renewables. What makes more sense for an investor like yourselves being a shareholder actually.

Owning the parks. I think you can do both.

You know, we do both.

We own some of the companies who are involved in these projects, but we also own particular projections, not that many because it recently came into our mandate, so we have we've done it. And then also in the beginning the returns weren't that's attractive. We think the returns are better now and so we have accelerated that activity.

And this is better returns better in Europe because there's more regulation to push towards green energy or actually does the Inflation Production Act means that there's going to be more on shore and more appeal for green technology in the UN.

I think what we've seen is that the Inflation Reduction Act has made the many of the investments in the US more attractive than what the score is in Europe.

Yeah, and will that change with the mean China is also doing a lot of evs. So when you look at all of all of this competition across the energy sectors, where do you think you will be invested in five six years from now?

Well, it's difficult to say.

And also we don't know whether the inflation reduction will remain or whether it's going to be renewed, or whether it's going to be you know, changed, So I don't I don't think. I don't think we really know that. But for the time being in the US looks looks pretty good. How do you see the US political cycle and the rest.

So we have no view on that.

We are a very long term investor and we remain invested throughout political cycles.

But does this year, I think four and a half billion people go to vote, does that test AI or does that test your investment strategy?

I don't think you test our investment strategy because we generally are invested over these type of cycles. I don't think you can kind of change your portfolio according to where the election is. And also markets are pretty sophisticated, right, so they are their account they are basically discounting, you know, the current probability of the various elections we are seeing. It is questioning the use of AI in social media, for sure, we are seeing that in many places.

Does it matter to you know, to you being the largest sovereign wealth fund in the world, does it gives you more access, for example, and political cloud to invest in places?

No, we would not have political cloud.

It's very important that the fund remains not political and so we are very very careful staring that balance.

But do you see it as a force for good?

I wouldn't say the fund is a force for good, but we are trying to care about the important things when it comes to future returns for the fund.

Coming up, Nikolay Tangen on his love for learning and why combining knowledge is key to innovation. Nikolai tang Again has been in charge of Norway's sovereign wealth fund since twenty twenty, but the former hedge fund manager turned podcast host and philanthropist has other passions. Tangan owns the biggest private collection of Nordic Modernist.

Art and even took.

A career break to study art history. I continue the conversation. You love also going back to school and you know, learning about leadership, what drives you.

I just love learning, right, I think we just need to learn otherwise, what's the point. So you'd go back to school. I've been back to school a few times. I did a degree when I was thirty six in art history. I did one in social psychology when I was you know, fifty.

I'd love to go back to school. What would you study this time?

So many cool things. I think anthropology will be quite fun. We're fun to study music looked so many things worry about though. I mean, you seem very optimistic by nature. You love your job, but it also feels like the world is being tested. What do people need to study today to make sure that whatever comes our way, we take the right decision. I think the more, in my mind, the more different type of things you know, the better it is.

I personally value.

I'd rather have several miles degrees than want pH D, for instance, because I think the way you combine knowledge, that's how you create innovation, That's how you create new solutions. I think that's really interesting. It the more different type of these type of languages you know, the more you can communicate with various types of people in the organization.

And I think it's really valuable.

Because of what that makes you understand investment better because everything's connected, or it's just enriching your mind.

No, you just I think you understand the world much better.

Is there an investor you admire?

There are many good investors out there. There are many good investors out there.

I think the more low term you are and the more your ability to take contra and investments, the better you the better you are, and the better returns you'll have.

Is it more difficult now to make long term investments just because of everything that's been thrown at us? I mean, do you know, can you say with certainty that you know what our world looks like in ten years?

Of course not. I haven't got a cure. I don't even know what the world is going to look like tomorrow. So it is sunny, So it is. It is.

It is difficult to be a long term investor. It's it's difficult because for two reasons, everything moves faster. Right, So we we basically talk and walk ten percent faster than we did thirty years ago. It's incredible, right, So the whole everything we do is moving faster, and sometimes it's the most difficult thing is not to do anything okay. So to be long term means that there are periods where you don't do anything. So you come home from work and it's just like, hey, what do you do today?

Right?

So it's very complicated not to do something. And also incentive structures also is they are also often encouraging people to do something.

So but the more you can, the more you can live in your old world.

Do you make your own decisions independent of what other people think, the better they will be.

I think I think everyone's talking about real estate at the moment, how it's going to crash again. How do you deal with if not the historia, certainly a lot of market whispers about things going wrong.

Yeah, it's a complicated issue. You know, we have we have big real estate holdings in many of the main cities in the world. We've got nearly a thousand, you know, investments in places like New York and you know, Washington and Boston and so on, London, Paris that we probably adjusted the values down by a quarter at least, and whether they will continue down it is difficult to say. It depends on interest rates, It depends on it depends on various factors.

So you get interest.

Rates right, longer term and your portfolio, of course, isn't a much better place.

Is that what you try and understand and focus on every day?

I think I think where rates are going is it's it's very important. I'm so understanding whether returns will come.

I think one of the questions you probably get asked the most is how you build a good team around you?

Is that also the most difficult question to answer?

No, I think that's that's pretty straightforward. You you hire them. You hire the best people you can get. You hire people who are better than yourself.

You hire people who have integrity and who are long term figures, who don't jump jobs, but who've shown that they are loyal and can stay.

In a job for you know, at least five years.

And then you when you have clever people, you don't need to particularly manage them.

You just figure out where you're going and you and you go there together. Do you make sure you have some fun?

But so, what's your so if you don't have to manage them.

What's your what's your kind of resondet you're there to steer.

Can figure out you to kind of figure out well the direction you should go in right and encourage, encourage them, give them praise when they do good things, and make sure they thrive, make sure they are in the right position. I have seen people who have been miserable and then you you change their their job, and then they flourish and they thrive and they love it. And that's in a way one of the most fulfilling things you can do as as a manager.

I think, Okay, where will you being in three years? I don't all where would you like to be in three years?

So my my current job, you know, has a has a time limit. And to extend beyond that, they would I would do They would need to ask me right, and then I saw that would need to be an agreement that we.

Get to together, but you'd like to stay.

I have no officially on this.

Thank you so much for joining us. I like that. It's very c I A I can either deny, no, confirm. Thank you you beques. Thank you so much. M HM