Norway's sustainability paradox underscores the need for double materiality

The Norwegian Sovereign Wealth Fund — the world's largest fund — has assessed 96% of its portfolio for natural capital risk, marking a significant shift towards sustainability. 

This move raises the question: What's next? How does the fund impact natural capital? The answer is simple: Financial institutions must assess their environmental impact to transition to net zero rigorously.

An assessment with double materiality

The concept of double materiality requires that companies evaluate both sustainability impacts on financial performance and societal/environmental effects. It includes impact materiality (effects on society/environment) and financial materiality (sustainability-related financial risks/opportunities), ensuring comprehensive sustainability reporting.

Source: ESRS Double Materiality Assessment: Step-by-step guide by Bea Vanhala

Integrating double materiality with the EU’s Sustainability Directive 

The European Union’s new Corporate Sustainability Reporting Directive (CSRD), with its accompanying technical framework, the European Sustainability Reporting Standards (ESRS), is reshaping the corporate sustainability landscape by embedding the principles of double materiality. This directive affects over 50,000 companies, requiring detailed sustainability reporting that address both financial and environmental impacts.

The Norwegian fund acknowledges that its investments are exposed to significant financial risks due to environmental factors. According to Matthew Ross, the fund has recognised that nearly every dollar under its management is exposed to the single greatest repricing event in financial history. But can the Fund also set new standards in response?

Contradictions in Norway’s environmental policies

The Norwegian Sovereign Wealth Fund's origin goes back to 1969, when one of the world’s largest offshore oil fields was discovered off Norway. Suddenly, with a lot of oil to sell, the country’s economy grew dramatically. “It was decided early on that revenue from oil and gas should be used cautiously in order to avoid imbalances in the economy,” the fund explains. 

Despite this cautious approach, Norway recently awarded stakes in 53 offshore oil and gas exploration to 20 companies in its annual licensing. According to its energy ministry, the next round would focus on the Arctic region, by proposing to expand 76 blocks — of which 68 are in the Barents Sea and the remainder in the Norwegian Sea. 

This expansion raises concerns, particularly as Riordan Routh writes for ESG McGill: “Although Norway’s population lives to one of the greenest standards in Europe, it is increasing petroleum exports. This lack of reconciliation between the Sovereign Wealth Fund and the Norwegian Petroleum industry takes away from the pioneering in ESG investing done by Norges Bank.” 

ESG McGill, published by Students’ Society of McGill University (SSMU) — aims to create an inclusive environment that motivates young people to make positive social impacts through organizational activities via an informed understanding of Environmental, Social, and Governance (ESG) issues within the contemporary business world. 

Routh highlights the complexity of the situation: “In the intricate crossroad between economic prosperity, financial stewardship, and sustainable investments, we find the Norwegian Sovereign Wealth Fund… From all the good and innovation the fund has created, it is hard to turn a blind eye to the long-term financing it has received from the oil and gas industry”.

The International Energy Agency opposed Norway’s plans to expand its petroleum production, stating that “no new fossil fuel production projects are compatible with limiting global warming to 1.5C.” 

Whale hunting and biodiversity concerns 

Along with these environmental contradictions, the Norwegian government has also increased its whale hunting quota to 1,406 whales — an increase from 1,157 individuals in 2024 — despite the declining demand for whale meat in the country. How is Norway still getting away with hunting whales for profit, when a global ban on commercial whaling is in place? And what happens to all the surplus meat? 

Katie Hunter, supporter of WDC (Whale and Dolphin Conservation), the leading charity dedicated to the protection of whales and dolphins still seeks answers: “At the end of last year, Finnish customs authorities made a shocking discovery — 36 tonnes of whale meat, disguised as dog food, had been illegally imported from Norway and sold as sausages for sled dogs. Determined to keep Norway’s dodgy dealings firmly in the spotlight, and as part of our Norway For Whales campaign.”

The practice of whale hunting in Norway has been a contentious issue, both domestically and internationally. While the Norwegian government argues that whale hunting is a traditional practice and an important part of the country’s cultural heritage, critics point to the declining demand for whale meat and the ethical concerns surrounding the hunting of these intelligent and socially complex animals.

The disproportionate killing of pregnant female minke whales is particularly alarming. Research suggests that male and female minke whales separate at certain parts of the year. Females tend to migrate further north during the summer and stick closer to the shore, increasing their vulnerability.“ Over 80% of minke whales killed by Norway last year were female — 301 individuals to be exact. “What shocked me most was that more than half of these females were pregnant. A staggering 170 expectant mothers were slaughtered, and alongside them, their 170 unborn calves”, a practice not only raises ethical issues but also threatens the long-term survival of whale populations.

Ed Goodall, a renowned whale and dolphin conservationist, cites a new paper in Nature Communications which shows how crucial whales wellbeing is important for the health and resilience of oceanic ecosystems.

Ecosystems need their full range of wild animals at original baseline levels if they are to function at their maximum capacity. Ecosystems functioning at their maximum capacity is one of our best tools to tackle the climate crisis, explains Ed. Needless to mention, our oceans are the most critical climate regulators. Quoting Sir David Attenborough: "After almost 100 years on the planet, I now understand the most important place on land is not on Earth but at sea."

The need for comprehensive sustainability efforts

The whale hunting issues in Norway highlight the challenge of balancing economic activities with environmental care: Climate change, biodiversity loss and pollution must stay on the radar of financial institutions. Double materiality — considering both financial and environmental impacts — is essential for sustainable development. This includes understanding how financial activities may contribute to or mitigate these issues, as well as how they may be affected by them. Prioritising one over the other would be naïve; going forward, it is essential to address both simultaneously. 

Thereby the money pipelines — big or small — must deploy resources so as to ensure double materiality stays anchored.

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