Investment Strategy and Sustainability Information

Investment Management

Norges Bank Pension Fund (the “Pension Fund”) has been established by Norges Bank for the purpose of providing pensions to its members and their surviving dependents.

The Pension Fund must always hold sufficient capital to cover accrued pension rights. Adequate funds must always be available when a member retires, ensuring that accrued pension benefits can be paid.

The Board of Directors sets the strategy and guidelines for the management of the Pension Fund’s assets. The assets must be managed in accordance with applicable laws and regulations governing asset management at any given time. The Board ensures that there is an adequate system for control and reporting, and that the established guidelines are reviewed at least annually.

All asset management is outsourced to external managers.

The Pension Fund’s Chief Executive Officer is responsible for the day-to-day management of the investments in accordance with the Board’s guidelines and directives.

The Board has determined strategic allocations (the proportion of total assets) across different asset classes. These allocations are based on a balance between expected return, risk, and the Fund’s risk-bearing capacity.

The Pension Fund has established specific guidelines for managing financial risk. The purpose of actively managing risk is to maintain a strong risk-bearing capacity and to continuously align the level of financial risk with the Pension Fund’s solvency. Risk-bearing capacity is defined based on regulatory capital requirements, including solvency margin requirements and solvency capital coverage requirements.

If analyses indicate a risk of losses that could result in non-compliance with statutory minimum requirements, the Board shall consider measures to reduce risk or strengthen buffer capital. The Board has defined acceptable limits for solvency margin and solvency capital coverage and has established procedures for notification if these limits are breached.

The Board considers the Pension Fund’s financial position to be strong.

The table below shows the strategic target allocations for the asset composition over the past five years:

Asset Class	2021	2022	2023	2024	2025
Norwegian/Nordic equities	5.0%	5.0%	7.5%	10.0%	10.0%
Global equities	32.0%	32.0%	34.5%	32.0%	24.5%
– of which Global Small Cap				4.0%	4.0%
European equities					7.5%
Private equity (PE)*)	5.0%	5.0%	5.0%	5.0%	5.0%
Total equities *)	42.0%	42.0%	47.0%	47.0%	47.0%
Norwegian IG and government bonds	38.0%	38.0%	33.0%	26.5%	26.5%
Global bonds	7.5%	7.5%	7.5%	14.0%	14.0%
Total bonds	45.5%	45.5%	40.5%	40.5%	40.5%
Real estate	12.5%	12.5%	12.5%	12.5%	12.5%
Total	100.0%	100.0%	100.0%	100.0%	100.0%

The portfolio is rebalanced back to the strategic target allocations when deviations between actual and target weights exceed defined thresholds, provided the Pension Fund’s risk-bearing capacity is considered sufficient.

Individual members’ rights and benefits are not directly exposed to the Pension Fund’s investment performance. Norges Bank guarantees accrued rights, and ongoing benefit adjustments are included in the Bank’s premium payments to the Pension Fund.

For further details on the investment portfolio, please refer to the Pension Fund’s annual report.

Sustainability-Related Information

Integration of Sustainability Risk

In addition to assessing managers’ risk management and ability to generate returns, the Board evaluates managers’ frameworks for incorporating environmental, social, and governance (ESG) factors.

This is reflected in the Pension Fund’s guidelines for responsible investments:

The Pension Fund’s assets shall be managed in accordance with responsible investment practices. Investment mandates and funds shall adhere to principles based on sound corporate governance, environmental considerations, and social responsibility, in line with internationally recognized standards such as the UN Global Compact, the OECD Principles of Corporate Governance, and the OECD Guidelines for Multinational Enterprises. Investment mandates/funds shall exclude companies that have been excluded by Norges Bank’s Executive Board based on recommendations from the Council on Ethics and are therefore not eligible for the Norwegian Government Pension Fund Global.

When selecting new asset managers, their ability to comply with international principles and standards is assessed as part of the overall evaluation. Managers that cannot demonstrate a credible system for such compliance are not selected.

The Sustainable Finance Disclosure Regulation (SFDR) came into force in Norway on 1 January 2023. This requires all asset managers to classify each fund into one of three categories:

• Article 9 funds: have sustainable investment as their objective and are, in principle, required to invest only in sustainable investments
• Article 8 funds: promote environmental or social characteristics but do not have sustainable investment as their sole objective
• Article 6 funds: describe how sustainability risks are integrated into investment decisions

The Pension Fund seeks to invest in Article 8 and Article 9 funds where such products are available for the desired exposure. At the same time, ESG considerations should not come at the expense of expected returns or the overall risk profile of the portfolio.

The Pension Fund has engaged an external provider to conduct portfolio screening twice annually, and always prior to investments in new funds. The screening provides information on:

• The portfolio’s overall ESG rating (MSCI ESG)
• Compliance with exclusion criteria
• The portfolio’s carbon intensity

This screening provides the Board with assurance that exclusion criteria are followed and offers insight into developments in other ESG-related factors. The Pension Fund has not defined absolute targets for ESG ratings or carbon intensity at this time.

Remuneration Policy in Relation to Sustainability Risks

Employees of the Pension Fund receive fixed salaries, and outsourced key functions are compensated through fixed fees. Sustainability risk is not integrated into the Pension Fund’s remuneration arrangements.

Consideration of Adverse Sustainability Impacts

At present, the Pension Fund has chosen not to consider adverse impacts of investment decisions on sustainability factors, as defined in the Norwegian regulations implementing the disclosure requirements for sustainability information.

This is primarily due to limited availability of cost-effective data for monitoring such impacts. The Pension Fund continuously monitors developments in this area and intends to incorporate adverse impact considerations into its strategy once cost-effective market practices aligned with its investment approach are established.

External managers are free to consider, and are encouraged to consider, adverse sustainability impacts when making investment decisions on behalf of the Pension Fund.