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Norwegian Sovereign Wealth Fund: Link between climate and inflation

Nicolai Tangen, Director of the Norwegian fund, discusses the challenges of inflation and climate. It also highlights the effects on productivity, as well as the measures taken by the fund to promote climate-friendly practices within invested companies.

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The head of Norway’s colossal sovereign wealth fund said on Wednesday that it would be “quite difficult” to bring down global inflation due to stubborn upward pressures such as climate change.

World’s largest fund warns of inflation and climate challenges

“What we think about global inflation is that it can be quite difficult to bring it down,” explained Nicolai Tangen when presenting the half-year results of the fund, the world’s largest with 15,299 billion kroner (1,332 billion euros) in assets at the end of June.

Mr. Tangen began by referring to international trade trends, where “nearshoring” – bringing the production of goods closer to the markets where they are consumed – is taking precedence over globalization, resulting in higher manufacturing costs.

“But what’s new is the climatic effects, i.e. the link between climate and inflation,” he added.

“We see (…) this in food prices: higher prices for olive oil, potatoes, beef and all these things feed inflation, but what’s new is that (the climate) is also affecting productivity,” he said. Mr. Tangen spoke in particular of a summer “so hot in Europe this year that we can’t work in the middle of the day”, and of increasingly intense bad weather deterring tourism.

“As a result, stores are empty (…) Parts of the company are closed during certain periods because of the climate,” he added.

July 2023 was marked by heatwaves and fires around the world – it was the hottest month ever recorded on Earth, according to the European Copernicus service. Paradoxically fuelled by the Norwegian state’s oil and gas revenues, the sovereign wealth fund headed by Mr. Tangen has made climate change one of its key concerns, imposing climate requirements on the companies in which it invests. Invested mainly in equities, but also in bonds and real estate around the world, the fund gained 1,501 billion crowns (131 billion euros) in the first half of the year, boosted by the stock markets, particularly technology stocks buoyed by investor enthusiasm for artificial intelligence. With shares in over 9,000 companies, it controls around 1.5% of the world’s market capitalization.

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