Inside the World's Biggest Investor - Ep138: Carine Smith Ihenacho

Michael Liebreich So, Carine, thank you for joining us here on Cleaning Up today.

Carine Smith-Ihenacho Very nice to be here, Michael.

ML Could we start by you describing your role? The short version, because I've done a little introduction, but it's great to hear it from your own mouth, in your own words.

CS-I Okay, so I'm what is called Chief Governance and Compliance Officer of Norges Bank Investment Management, which is the Norwegian sovereign wealth fund. And among some of the things I look after is how the fund works with responsible investment. And of course, climate is a big part of that.

ML Very good. So we're going to get into some of the kinds of metrics and the role of Norges Bank Investment Management, and the big pension fund, the sovereign fund that you run. But I think we've just got to give a little bit of context also for the audience. Because you and I, actually, we met through your husband, who was at McKinsey; so, I was at McKinsey with Philip, so that's how we met. But then we actually spent a lot of time skiing. We had this big group that would do the Engadin Ski Marathon. So, I'm going to give you a bit of a hard time, obviously, as I always do on these episodes. But I think people need to know the context is we kind of know each other quite well, and go quite far back, right?

CS-I Yes, Michael, and what was quite interesting, it took a guy from the UK to teach me about the Engadin ski marathon, I actually hadn't heard about it. And as a Norwegian, it was quite interesting to join with a group of English people and ski with them. And I think we did that Engadin ski marathon for probably six years or so? Actually, before I started the Engadin ski marathon, I'd never done the skating before, so you were the one that got me into that, that technique.

ML Yeah, that's right. So, I took this big group, and we raised money for various charities, and I actually did it for seven or eight years. We raised quite a lot of money, many hundreds of thousands of pounds. But my main claim to fame was to introduce a Norwegian contingent to skating - cross country skating - which is of course kind of heresy in Norway, I understand. But I'm very proud of that.

CS-I Yeah, and we were thankful because it was really fun. So, we are a group of Norwegian women actually, who did it for the first time when we went with you. And we did it I think yeah, quite a few years after, and we recently talked about, maybe we should try to do it again....

ML I hate to think how slow I would be. What was interesting was that we were doing that, skiing and doing those marathons, but that was really before I had started New Energy Finance, and before you had become responsible for, among other things, the climate strategy or climate governance at an incredibly major financial institution, right?

CS-I Yeah. So, it's very nice to now connect again, after all these years, Michael,

ML Indeed. Now, let's get on to those metrics. So, how significant is Norges Bank, and what are you...? Because, you know, everybody hears rumours about this tremendous Norwegian sovereign wealth and what happens to it, so give us some metrics.

CS-I Okay. Yes, it's true, we are quite a large fund. So we are around almost 15,000 billion, which in kroner, if we take it into dollars, we're around a one and a half trillion-dollar fund. So, it's quite big. And 70% of the fund is invested in listed equities. So, that means such a large part of the fund is invested in companies on various stock exchanges around the world. That means we're probably the largest single owner of listed companies. So, we own around one and a half percent of every listed company in the world. So, a small part in around 9000 companies in more than 70 countries. In addition, we have around 27, 28% in bonds, a few percentages in real estate - actually, we have quite a few buildings in London. And then a small, small part in unlisted renewable infrastructure.

ML Okay, so broadly speaking, you own about one and a half percent of all quoted companies in... And now, what index, what do you track? Because that's not across the world; it's quite focused, or it's quite concentrated in, the developed world - because of the index that you track, correct?

CS-I That's correct. So, we say we're not an index fund, but an index-near fund. That means we start with following an index - and it's the FTSE Global All Cap Index - and then we have a margin of where we can go outside that index, [inaudible] tracking error of 125 basis points. So, that means we have some investment managers that just focus on following the index, but then we have large active investment arm that also take positions in companies; we call it taking it overweight or underweight compared to the index. So, we have sort of 50, 60 portfolio managers that take active investment decisions every day. So, not just following the index, but also being index-near.

ML And this is all really important context as we get on to some of the kind of the governance and the climate investment strategy and so on. Because the message here is that you are so big, that you can't really depart very much from owning a bit of everything. And so therefore, the task that you have is to track this FTSE All Cap Index, but to within plus or minus 125 basis points. So, it's not an index, it's not a pure index, but it's almost by definition, going to be nearly an index, correct? Have I paraphrased correctly?

CS-I You have, that's absolutely correct. But it means, because we're so large, that tracking we do, or investment decisions we do outside of just pure index tracking are quite large. So you know, we have investment managers that sit with mandates for you know... it can be billions of dollars.

ML Yes. And as they say, a billion here, a billion there, and pretty soon you're talking real money.

CS-I Exactly, yeah. And that's important, when you think about how the firm operates. We're not just a passive fund, we are an index fund with active management.

ML And let's come back to some of the allocations that you have made within that kind of parameter set. Let's establish some basics: where does the money come from, and what is it used for?

CS-I Yeah. So, the fund was set up to really transform the wealth that Norwegians have from oil and gas resources in the North Sea, and transform those revenues into financial assets abroad. And the whole point was that when the fund was set up, some very clever politicians thought that we should not just spend all the money that's derived from our oil and gas resources, by the generation that found it, but we should put it into financial assets, and also save for future generations. So, the whole point of the fund is really to be a generational fund, that supports the Norwegian welfare state, because we take the proceeds from the oil and gas production, put it into financial assets abroad, and spend a little bit of the fund every year - but just a little bit. So, there is a rule that says we should only spend every year the expected real return of the fund. So, it's said that the expected return of the fund is 3%, so the politicians can take up to 3% of the fund every year, to top up their state budget.

ML And the fund is so big that that ends up being about 20% of the state budgets, correct? Just that 3%, just that real return, is paying for sort of 20% of everything?

CS-I That's right. So, if you think about it in Norway, every fifth teacher, every fifth nurse, every fifth doctor, is really paid for by the proceeds from the fund. And in that way, you can really truly say that the fund supports the Norwegian welfare state, and has done it for many years. And the point is that we continue to do it for also many, many further years.

ML I understand that one of the key drivers, one of the people who set this up, was Jens Stoltenberg, who's now head of NATO and very involved, obviously, in the response to Russia's aggression on Ukraine. But there's a fantastic - for those who are interested in how to set up a sovereign wealth fund - there's a fantastic set of speeches that he gave, which talks about... One of the reasons was, it's simple to think of it as saving for the future, but it was also very important not to splurge this oil income and just drive an enormous wave of inflation in what's really quite a small economy. And if all this money came in, because of oil and gas, and people started spending it immediately, you would have had just huge inflation and no savings.

CS-I That's correct, and Jens Stoltenberg [inaudible] education and economies, and he had thought deeply about it, because he was in the government when really the proceeds from the oil and gas came into the country. And I think it was two ways of looking at it, as you say: first of all, to save it for future generations, but also to protect the Norwegian mainland economy. Because I think there's a lot of examples out there of economies that have not fared well when you get a huge inflow from natural resources, in very short space into the economy. I think it's a well-known term called the Dutch disease, for instance.

ML And you are not allowed to invest domestically, your mandate is not to invest domestically. Everything is overseas, so if you're going to drive that splurge, it cannot be within Norway for those reasons, correct?

CS-I Exactly. So, the whole point is to de-risk it also, and protect the Norwegian economy. So, that's why we invest in the rest of the world, but not in Norway at all.

ML Now, can you... Talk to us about how is that mandate created? Right, so who do you report to? Who sets those rules?

CS-I So, one important element of the fund is that it's a truly democratic governance structure around it. So, the main decisions when it comes to the fund, is decided by the parliament, decided by the people. This is a fund, in the end, owned by the people of Norway - the 5 million plus Norwegians - so big decisions are anchored in the parliament. Then we get a more detailed mandate, we get from the Ministry of Finance. So, they give us quite a detailed mandate, including allocation decisions. The big allocation decisions come from the parliament, down to the ministry, and down to us. And that's how the reporting lines go back: you report up to the ministry, and they report up then to the parliament. Every year, there's a white paper that discusses the results of the fund, how the fund has been managed, and based on that white paper, then there's decisions in the finance committee, in the parliament, and then changes may or may not happen. So, it's a good parliamentary discussion every year about the big decisions regarding the fund.

ML Okay, so we're sort of homing in now on that allocation question. Because there's already one oddity, in a sense, which is that you've got 70% in public equities, then you've got a big chunk in public debt; you've got some real estate and you've got some renewable infrastructure - but very small; but you don't have... The huge swath of companies that are privately held, you are not... So, if you look at a lot of, let's say, university endowments, and then also pension funds, insurance companies, with very long term horizons that can afford illiquid investments, they would have quite a big allocation to alternatives, including private equity, but you have none?

CS-I That's correct. And many of the sovereign wealth funds like us also have allocation to private equity, private companies. And there have been discussions previously on whether or not we should open up a new asset class for private equity. And, indeed, this will probably be discussed also in the future. And one of our roles as a fund is that we advise the ministry on the various strategies around the fund management. And the ministry has recently written to us and asked some questions around private equity or private companies, whether we should invest in that. So, that's the start of a discussion. What the outcome will be, it's unclear, right? In the end, it will be up to the politicians to decide whether or not they will open up for that asset class.

ML Right. But that process has also got its critics, right? Because you've got all the investment knowledge - the investment managers all sit within Norges Bank. And then you advise the Ministry of Finance, and you tell them all about how to invest. But do they really have the capability to say, actually, your advice is poor, your allocation should be different, the way you take into account megatrends - whatever they are, and we'll get on to climate - should be completely different, and here's how to do it? Do they have the skills? Because they're giving you a mandate, but aren't you really kind of writing your own homework questions?

CS-I I'll tell you Michael, there are extremely smart people sitting in the Minister of Finance. They have absolutely the capability to scrutinize, in detail, every advice they get from us. And they also have access to experts. So, absolutely, they can really make their own decisions based upon the input from us. And of course, it's many consideration: considerations around what gives the most return over the longer term; but there are also issues around transparency, about costs, and about risk. So, many issues to take into consideration, and they absolutely have very smart people that are able to take the right decision on this.

ML Let's come on to, then, the question of climate, right. Because there's been a number of iterations. That mandate gets updated from time to time, and there were big discussions, which I remember very well, around 2013, 2014, about divestment; and then there's been some more updates, I think, around 2021, that refine the response, particularly around coal and oil; and then there's a lot of activity around climate that's kind of going to and fro between yourself and the ministry at the moment. So, talk us through from that 2014 intense discussion about divestment.

CS-I Yeah, so there was, quite a few years ago, as you say, there was a discussion of whether or not we should be invested in oil and gas companies. And the driver, really, for that discussion was more from a financial risk perspective; whether it made sense or not, that if we were to de-risk all the revenues, all the money coming from the North Sea, from oil and gas production, if that were to be de-risked in financial assets abroad, did it really makes sense to put that money into oil and gas companies? And what was decided in the end was that we should continue to be invested in the more, let's say, integrated oil and gas companies, that have processes both upstream, midstream, downstream. But that we should sell out of the companies that are purely exploration and upstream production companies, to sort of exclude that. But that was from, as I said, more a financial risk perspective. Then there was a big discussion around coal, and we have something called ethical exclusions, where the parliament has decided that there are just certain products we should not make money from; companies that make money from certain products, we should not invest in those. But that's more from an ethical perspective, rather than from a financial risk perspective. And one other which was decided, we're not to be invested in tobacco and also coal. So, we've now excluded companies either basing their production on coal or being involved in coal production, coal mining. Other products, also certain weapons and cannabis for recreational purposes.

ML Okay. So, on coal, you've divested. And I think it's any company that's more than 30% of its business, so it's pretty much... But coal is very small, in terms of market cap. Of course, it's enormously damaging to the environment, so it's kind of the easy one; you don't have a big financial penalty for exiting, and it makes a huge impact on the climate. But the oil and gas one is very interesting... You know, you've divested from upstream specialist companies. But can you give examples of the names of such companies?

CS-I Erm... Yes, so, the companies we have divested from, they're a certain sort of subcategory of the FTSE index. Erm, and...

ML I'm being a bit unfair, right? I'm asking you for the names of companies, and the reason I did that is because these are basically small companies. The big oil companies - Chevron, Exxon, Shell, BP, and then Eni and Total etc., etc., - they are not upstream only. The upstream only, they're the wildcatters, they're small companies; they're kind of easy to divest from. Financially, they don't really cause much pain.

CS-I Yeah, you caught me out there, Michael, I should have known at least some of the companies. But you're right, we are still invested in the large oil and gas companies, and that's very much in line with the thinking around us being a broad-based investor, really being invested in the whole economy, except certain products, as I mentioned, excluded for ethical reasons, and some far more de-risking for financial reasons. So, we're absolutely still invested in the large oil and gas companies that most people have heard about.

ML Now, the context within the financial sector is also, there's been an increasing intensity of discussion from when I first got involved in it, which would have been 12, 15 years ago; but an intensive discussion about the role of finance in either financing climate change, or not financing climate change, and steering the world away from climate change. And, when I say it was a sort of crescendo, probably the high point would have been perhaps, the Glasgow, COP 2026 in Glasgow, 2021, with this thing called GFANZ, the Global Financial Alliance for Net Zero, and all of its little baby acronym offspring, or in fact, perhaps progenitors - TCFD, Net Zero Asset Owners Alliance, etc., etc. I mean, I counted 60 of these organizations... All of which are sort of trying to encourage compliance with Paris, which is below two degrees of warming - well below two degrees - and aiming for one and a half degrees. What has been Norges bank's response to all of that? What has been your involvement in all of that?

CS-I Yes, it's true, it's been a huge discussion in Norway, too. And in particular, in relation to the fund: what is our role in all of this; how should we work with climate change? And the government sat down an expert group not too long ago to really look at: how should we best position ourselves - a huge fund, invested in a small part in the whole world economy, how best to do work with climate change? And the conclusion of the expert group - which, again, resulted in a change in our mandate, and it also in the end resulted in us coming out with a climate action plan. But the gist, the result there, was that it's really in the funds long-term interests, as a financial investor, that there is, in the world, and orderly transition in line with the goals of the Paris agreements. It's better for the world economy, it's better for us - only a small part of the of the world economy - that there is an orderly transition. That means for us, as a global fund, we really, where we want to go, is for the companies we have invested in to really follow the goals of the Paris Agreement, and set net zero targets for 2050. And as a large fund, our role in this is really to push the companies to get to net zero 2050, though support, being an active investor. And that was the sort of background from our climate action plan, is really to explain how we, as a large investor, in all these 9000 companies, how we can work to support them push for the companies to reach net zero.

ML But let me contrast that though with the investment strategy, right? Because the investment strategy that we've laid out, that you've described, that we've discussed, is, you own kind of a bit of everything - with a few exclusions. And the few exclusions, the reason I kind of pushed you on it, it's coal, and it's a bit of upstream oil and gas, but fundamentally, you own, and you said it yourself, the near-index. So, in a world that is... the policy at the moment is sort of headed towards two and a half degrees, but corporates have not yet reflected that. So, their actions are probably on track for, let's say, three degrees. And that's what you own: you own a bunch of companies that are probably aiming for three degrees of warming. And, you know, that's not exactly leadership, is it?

CS-I Yeah, I mean, there are many ways you can think about it, as a global, large, long term investor. You can take the choice and say, we don't want to be invested in some of these large, emitting companies. We're saying, to just sell out is not going to reduce emissions, is not going to change the world. What we are you saying is that we want to be an owner in the large emitter, and try to use our leverage as an investor to reduce the emissions of these companies; and being a support and a challenge in the transition that companies need to go through. And also for us, we said, we don't have an absolute goal for our own portfolio. And that's because, as you say, we own a small part of the whole world, and we can't say that we want to be a one-and-a-half-degree fund in a two or two-and-a-half-degree world. Rather, we want to be an owner in the economy and push for a change. But other funds may think differently, and think we don't want to be an owner in the larger emitter, and just allocate the funds to the green companies. For us it doesn't really make sense; it's not going to change the world.

ML Okay. What you said is a very interesting phrase, a very pithy phrase: you said you can't be - the size you are as investors - you can't be a one-and-a-half-degree fund in a two, or two-and-a-half-degree world. So, does that mean that you're not members of GFANZ, Net Zero Asset Owners Alliance, the Climate Pathways Initiative? All of these different... sort of alphabet soup, are you not members of any of them?

CS-I So, we are not members in those you mentioned, and we're not members in organizations that have a clear net-zero targets for their funds in the organization. But we are a member of many other investor collaborations. But again, we don't think the climate will be solved by big allocation decisions; we think the climate will be solved by companies changing their investment, and basically getting their emissions down.

ML Okay. So now, this is the articulation of the strategy that says, don't divest, but engage. Engage, and use your influence to change the companies from within, or from within the shareholder base. Is that fair?

CS-I That's fair. Yep. We call it engage to change.

ML Engage to change, okay. Now, there was another organization that was very committed to engage to change, and that was the Church of England Pensions Board. And the Church of England pensions board articulated very clearly that they continue to own even oil and gas companies - I think maybe like yourselves were not in coal anymore, but they were definitely in oil and gas. And then, just recently, a few weeks ago, they actually, as we saw Shell and BP dialing back their commitments to a transition to clean energy, the Church of England's Pension Board announced that they were disinvest from Shell and other oil and gas companies, which they called "failing to show sufficient ambition to decarbonize in line with the aims of the Paris agreement." And the CEO John Ball said something very interesting: he said "there is a significant misalignment between the long-term interests of our pension fund and continued investment in companies seeking short-term profit maximization at the expense of the ambition needed to achieve the goals of the Paris agreement." And he specifically names BP and Shell. So, is he wrong? Is it possible to engage, are they responding to engagement?

CS-I Our view is different than the Church of England here; we want to continue to be an owner still in some of the companies they've sold out of. And what we're saying is that we may divest from companies where we absolutely think the business model is just not compatible, where we want to go and it may be at the point where we decide, okay, we are going to divest, and we have divested from many companies due to climate risk; climate risk is financial risk. And there are many smaller companies we have divested from, because we think their model is such that, you know, it's too much risk in that model.

ML But meanwhile, your seven figures holding is Shell. And you own... you're amongst the biggest shareholders amongst the top five shareholders of - I don't want to say many, but numerous, Shell, BP, and across the board with these large oil and gas companies - you're amongst the very biggest shareholders. So, I guess the question would be, how do you know if your strategy is working? How do you measure? So, you've got a strategy that says, we want to get to one and a half degrees, or certainly well below two degrees, because that's better for the outcomes... that's what our mandate requires. But you've decided that you're going to engage, but how do you know if it's working? I mean, at what point do you say, actually, you know what, it's not working?

CS-I Yeah, it's right. We are invested in many of the large emitting companies in the world. And if you look at our portfolio, what's interesting, 70% of our financed emissions are actually contributed by only 170 companies. So, there are some large companies out there that really have most of the emissions. And are the companies we really engage in that. And so, of course, it's quite a way until 2050. But what we say they not only need to have net 2050, zero goals, you need to have short, medium and long term targets. In addition to that, we need to have a transition plan, you need to have a credible plan or how are you going to get to net zero? If you look at our portfolio, it's around 20% of the companies that have set credible net-zero targets, and many of those don't even have a transition plan. So, there is a long, long way to go until all the companies in our portfolio... we probably will not get there. But a majority will have credible targets, credible transition. But, it's still some years to 2050 will still push the companies. For those companies that don't have targets we will start by asking for targets; companies that have targets we'll go into transition plan; for those that have a transition plan, we will follow up the transition plan. So, there are many steps here we want to take before we consider selling out of the larger companies.

ML I guess... the problem is it sounds very sensible, but it's dramatically not working. I mean meanwhile, your investments in - and this is your annual report - your investments in energy companies Exxon Mobil Corp, Shell PLC, and Chevron Corp, made the biggest contributions to the return for the year. You understand where I'm going... The criticism is, you're taking oil money, and you're putting it into oil companies. And then there's all this, oh, we'll engage, engage for change etc. etc., but actually, you're not using...  I suppose it's not only not using the soapbox, or the power that you have, but also, that it's very risky for what you're doing. Because you are going to end up in a two and a half or three-degree world, according to this current pathway, are you not?

CS-I So let me start by one. Absolutely right, that there is a financial risk being invested in companies that does not adapt to a low carbon world, absolutely. And also, I should say, when we look at climate risk, we look at it from a financial risk perspective. And we're not a policy tool for the government; the government have other funds, specifically related to sort of impact investment. But you're also right: does it work our engage to change approach? Clearly, it's not going in the right direction. I think just the whether we had this summer... I think if you haven't awoken earlier to physical risk of climate change, you certainly should have done it now, right? But then you have to think about, what can we do as a financial investor, invested in most of the world? We can concentrate the portfolio more, just on the lower emitters, or we can use the toolbox we have as an investor, which is influence things through dialogues. Last year, we had 3000 company meetings. Through voting, we have voted against many boards, lack of tackling climate. But as a small investor, a minority investor in these 9000 companies, we cannot dictate them. In the end, climate has to be... we can't solve the whole climate risk issue on our own; it has to be policy. But we can do our bit.

ML But let me let me come back to the earlier conversation about allocation, and I want to drill into two aspects of it. One is the very small allocation to infrastructure, and the other is the allocation to the developing world. And so if we can take those two: on infrastructure, essentially climate action, what does it consist of? It consists of pulling forwards by 2, 3, 4 decades, investment in zero carbon infrastructure, in new infrastructure; whether it's wind farms, solar, nuclear energy efficiency, public transport, seawall protection, it's a huge amount of infrastructure that we need to invest in early. And I suppose the question on the allocation... if that's what the world needs to do, and you're sitting on this huge pile of money, right? One and a half percent of everything, and you've got this tiny allocation to infrastructure... isn't that kind of at the heart of the problem of the response to climate change?

CS-I Yeah, you're right. We have around... we have 2% actually allocated to unlisted renewable energy infrastructure, although we haven't used all that. But I think when you when you look at that, what you don't take into account, is all the investment that's going to take place in the companies that we already invested in. Even in some of the oil and gas companies that have set out larger investments in renewable infrastructure than that even the renewable infrastructure, pure renewable infrastructure companies. So, we will still be investing much more in, let's say, opportunities and renewable infrastructure, then our allocation. But going back to allocation decisions, those are not made by the fund, but made by the parliament. But still two percent of a large fund, it's a lot of money.

ML Of course, it's a large amount, but the point is surely, that it's just not enough? So I agree it's more than 2%, because there's the 2%, and then there's part of your bond portfolio, part of your equity portfolio as well. But let me come to the other one, which in a way is more structural, and certainly, I mean, these are definitely within the remit of the Ministry of Finance and the mandate that it gives to you: what is your allocation to the developing world? How much does that end up being?

CS-I Yes, there's no specific allocation to the developing world. So, as you said earlier, it's the FTSE Global, All Cap is the basis for tracking. So, no specific allocation to developing markets, although we can also invest outside of the index. So, we do have investments in some emerging markets.

ML But it's going to be tiny, it's of the order of a percent? It's something... I mean, just because that's where capital markets are in the developed world; they're not in Malaysia, Indonesia, South Africa... I mean, they have capital markets, but they're tiny compared to New York, London, Tokyo, and of course, China, which I kind of class with the developed world in many ways. So, the allocation to, for instance, Africa, I suspect is almost nothing?

CS-I So, that's correct. So, I think you have to think about, again, the purpose of the fund is really to create wealth for future generations. It's not a climate policy tool. But within that, we work with climate, within the allocation set out for where we invest.

ML I understand that, but here's the thing. So, we had a conversation on Cleaning Up, I spoke to Fatih Birol. And, actually, I've spoken to him twice on Cleaning Up and many times outside that. But the point that he made was that the question of whether we deal with climate change is all about how much money is invested in the fast developing countries of the world. It's not what we do in Europe, it's not what we do, even in the US; even China is now pretty close to peak emissions, will peak before 2030. It's really about Southeast Asia, it's about India, Malaysia, Indonesia, these huge countries, Bangladesh, Vietnam, Thailand, and all of Africa, which is going to be a billion people. And so, if your success depends on dealing with climate change, number one. Number two, dealing with climate change involves trillions of dollars being invested in Asia, fast-growing countries, and Africa -  and you are investing almost nothing in those geographies - isn't that just a huge structural problem?

CS-I Just to say, we are invested quite a bit in India actually, it's quite a big market for us. But you know, you go to the sort of structure of the fund, which really, it's hard for me to have a strong comment on, because really, we work within the mandate given by the ministry, and work as well as we can, first of all, to generate as much as we can, of returns, and also we do it in a responsible manner, not the least taking account climate. We think it will impact our long term returns, but we don't make the allocation decisions.

ML No, but could you not go, in your annual sort of report, the annual presentation by your CEO to the Minister of Finance, this mechanism that exists, and say, look, if you want this fund to be worth the same or more in 2050, climate change has to be addressed. Let's be absolutely clear, we can optimize within the parameters you've given us, but if we just do that, we will end up in a two and a half, possibly a three-degree world, and this fund will be worth dramatically less. Doesn't matter how clever we are, we cannot maintain and generate value in that world. Isn't that something that you should be saying to the ministry?

CS-I Yeah, you're right. We can give advice on allocation decisions, we can give advice. It's then up to the ministry and the parliament to decide on the final sort of main allocation decisions. It is important to remember, that the main purpose of the fund is to fund the Norwegian welfare state for many, many generations to come.

ML And I think... I'm giving you a hard time, I promised I would, and I'm giving you a hard time, partly to demonstrate actually how complicated it is. Because I go back to the, one in every five teachers, one in every five doctors, one in every five nurses funded by this, and it's very difficult to take a big chunk of money and go and do something that may jeopardize the ability to do that in the near term. But there is this conflict between the sort of near-term, immediate close to home, and still the global requirement to deal with climate change. I mean, I think it's just a fascinating kind of case study, perhaps for the audience, why this stuff is difficult; why people who would like to deal with climate change sometimes can't...

CS-I Yeah, I mean, you're right, Michael, either way, you give me a hard time, but it's something that's totally outside my scope to do anything about. But it's truly right. I mean, if you look at climate change, and how to address it, it's not going to be solved by investors like us. In the end, it's going to be solved by much larger groups, and politicians in the end. And you say, of course, in a way, allocating huge amounts of money to the developed world will help, but that's not the purpose of the fund.

ML Let me say this, let me just conclude by saying this: if your finance minister or even your Prime Minister wanted to come on Cleaning Up and say, okay, now I'm gonna give you the big picture, I'm going to click it up one level, and talk about Norway's strategy more broadly with respect to climate change, I would, of course, be more than delighted to extend an invitation to them to do so. Because, you know, it's been a fascinating conversation, and you're quite right, we've reached the point where, you know, these are the limitations within which you operate.

CS-I Yeah, if I see the Minister of Finance, I'll pass that on, Michael. Maybe he'd like to come and take this discussion further.

ML Very good. And I very much look forward... whether we do another Engadin Ski Marathon, or whether we just go for a ski, I would very much like for that to happen at some point in the not too distant future.

ML Likewise, Michael, it's been very nice to connect with you again, and I hope we can continue the discussion either skating or skiing or skidding one day.

ML Absolutely. And if there's anything I can do to help having given you a hard time, if I can help to solve or to provide insight into... I know you've got a new climate board that is being assembled and all sorts of things. There's all sorts of ways that potentially I could try and help, rather than just being difficult. It's been great having you on here today.