Navigating the Future: Insights from Malin Norberg and Dan Yergin

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Joe Cass: (00:00:00) Hello and welcome. My name is Joe Cass, senior Director at S&P Global Ratings, and a host and the Creator of the Leaders Podcast. So on this episode we have at Malin Norberg, chief Investment Officer of Market Strategies at Norse Bank Investment Management, or NBIM. And Daniel Yergin, vice Chairman of S&P Global.

Quick reminder that the views of the external guests are their views alone and they do not rep represent the views of S&P Global. Okay, Malin and Dan, thank you so much for joining me today.

Dan Yergin: Thank you.

Malin Norberg: Thanks for having us,

Joe Cass: Malin, let's kick off with you. At a very high level, could you just give us an overview of the purpose of NBIM and what your role as Chief Investment Officer involves?

Malin Norberg: Of course. So NBIM managed Norway's Sovereign Wealth Funds, which (00:01:00) is one of the world's largest at about $1.8 trillion. So our purpose is to transform our oil wealth into financial wealth for the future generations and their visions. So the fund was established back in 1990 after we discovered massive offshore oil fields.

And the idea was very simple. save money today so that Norway can benefit tomorrow. And what makes us unique is that we invest exclusively outside of Norway. We own about 1.5% of all listed companies globally, and we also follow a very disciplined spending rule where only about 3% can be withdrawn annually.

So as for my role as Chief Investment Officer of Market Strategies, what I do is that. Well, what we do in, in my department is that we oversee our market exposure, so that involves everything from the inflows to the fund allocation into different regions and asset classes. (00:02:00) It's the portfolio management of our broad equity portfolios and the fixed income government bond portfolios.

So that's about 75% of the identity of the fund, and it also includes the implementation in the market, so all securities lending, cash management, as well as all the trading.

Joe Cass: Fantastic. Thanks Malin. Dan, welcome back to the show. Listen, Dan, you're a very well known guy, Pulitzer Prize winner, and I'm sure many people probably know who you are already, but just humor me.

 would you be able to let everyone know your background, your role at S&P Global and your real area of expertise and interest?

Dan Yergin: Well, I founded a company with one other person that eventually became part of, S&P and, I'm vice chairman and I think my roles in the company, are thought leadership, interacting with companies and governments around the world and working with the researchers on, on their own research.

But I guess I'm also, you know, as you, (00:03:00) what I'm known for, I think also are the books that I've written of which "The Prize" received the Pulitzer Prize and was a number one bestseller. And then the most recent book called, "The New Map: Energy, Climate, and the Clash of Nations." And these books have, been published in 20 countries around the world, different, lots of different languages.

And so there's kind of a strong interaction between what I do at S&P Global and and the work I do in terms of thought leadership and writing. My general area of focus is, kind of energy and, and, and geopolitics.

Joe Cass: Great. Thanks Dan. So Dan, given the rise in renewables over the past decades, potentially an upcoming rise in nuclear, what are your thoughts on the accuracy of net zero targets set by sovereign nations?

Dan Yergin: I think that it needs to be a rethink. I think the energy transition as an recent article we (00:04:00) had in foreign affairs is troubled and that there's a gap between the, the targets and actually what's going to happen. And there are about seven different reasons, but we've had a couple of years of experience now after, after COVID.

We've seen that wind and, and solar are growing, you know, very fast. But, but as we've seen, oil, gas, and coal are also growing. And so I think one needs to kind of step aside and rethink how this whole process is working, and what's realistic.

Joe Cass: Malin, can you talk to us about the net zero targets that you set for your companies and if you have one for NBIM?

Malin Norberg: So, first just to clarify, so we haven't pledged net zero by 2050, but we've set an expectations for the companies that we're invested in to set net zero targets in alignment with the Paris Agreement. And we've also not set (00:05:00) ambition for issuers to set climate target as I think that would move us more into political territory, which we is not our role as a financial investor.

But, Secondly, if I turn your question around the bit, I think the important thing to ask is what are the challenges if we don't pursue net zero? So I think scientists have been pretty clear on this, and that's a dramatic change to the physical climate and our own analysis also shows that even in the current policy scenario, physical climate change can have a significant effect on GDP and therefore our investments.

And that's as a long-term investor, of course, that's something that we care deeply about. and that's not to say that there aren't challenges for companies in achieving this. What we are seeing is that while climate change was probably in the top 3 in boardrooms a few years ago, now it's more like top five or top seven, and there's a lot of other stuff going on, and we get that there's geopolitical, (00:06:00) geopolitics, inflation, supply chains, but we're still encouraging companies to stay the course on their climate commitments.

I mean, in the long run this needs to be sold and companies that manage these risks well today will be better positioned for the future. So that's why we continue our engagement because climate risk, it remains financial risk. And that's regardless of where, where ranks on today's priority list.

Dan Yergin: Yeah, I mean clearly the transition is gonna happen.

The question is timing and you know, one of to look at is that 45% of the emissions in the world come from countries that don't have 2050 goals. So 2050 goals are primarily in Northwestern Europe. North American target, not an India target, which has 2070 as its goal. And one of the challenges to the energy transition, the reality is the growth is going to be in developing countries.

 to give you one example, electricity demand for, for two decades hasn't grown in Europe in the same period In (00:07:00) Southeast Asia, it's tripled. And so I think that the issues of the developing nations is, needs to be folded into the, into the thinking to achieve the kind of goals that Malin is, is pointing to.

So the goals are there, it's just a question of timing, the complexity and the cost.

Joe Cass: Hmm. Yeah, absolutely. Dan, another big topic, which is very much closely aligned with energy now is the rise of ai. So how do you think the rise of AI. Has changed the strategic importance of energy infrastructure or data centers more broadly?

Dan Yergin: Well, that's one of the seven big reasons that, you know, that just being realistic, the rethink. Two years ago, AI wasn't on the agenda when it came to energy. And then in March of 2024, we had our conference, our CERAWeek conference in Houston and it was like it exploded suddenly. And (00:08:00) and the now there's a real focus on how you're going to have the electricity supply to, to meet the needs of AI.

And, for instance, it's now about 4% of us electricity goes, for, data centers that could be 10% in our numbers. Within five decades. Other people have higher numbers and suddenly natural gas is back in the, in the game in a significant way in electric generation in which it wasn't two years ago. and these, so, and you, you see that there's this real competition.

We think of energy security in terms of oil and gas. Now it becomes electricity. So that's been a, a, a big, one of the factors there. And it's also one of the factors that's encouraging, this kind of rebirth of interest in nuclear power.

Joe Cass: And Dan, you mentioned it in your previous answer about kind of different regions and their energy needs.

What (00:09:00) region do you believe is, I guess, underappreciated by markets on the new energy map and why?

Dan Yergin: By what regions? well, I, I think I, I think it's basically the developing world, the emerging markets. There's 700 million people in Ozonia in Southeast Asia. you see their per capita incomes in countries are much lower. You, you take an African country where the per capita income is one 20th or one 30th of Northwest Europe and their energy needs, they, they need energy in order to develop. And, and I think another issue that's become clear on energy transition is this north south split between developed and developing country.

Who, developing countries climate is an issue? Well, the, the Prime Minister of Malaysia at our Energy Asia conference last time said, he said, we have our climate goals, but we have goals in terms of economic (00:10:00) development, reducing poverty, improving health. And he basically said, we're not gonna be told by other parts of the world what, what we need to do.

So I think the needs of the developing world where, you know, 7 billion people live roughly, is, is really gonna be the the big question for big energy question for the future.

Joe Cass: Thanks Dan. Malin, what's your kind of high level view of the US debt situation, and are you changing your approach to your own portfolio allocation to lean towards other regions outside of North America?

Malin Norberg: So our task is to be prepared for all significant changes that may affect the global financial markets, and we operate with a delegated, mandates. So all our, our different teams in the organization are experts on different, parts of the market and including the the (00:11:00) US government bond market.

So the allocation to these different regions and asset classes follow our benchmark, which is set by the Norwegian Ministry of Finance. And that is not something that we've changed recently or are planning to change. But the increase in government in indebtedness, it seems to be a global phenomenon, and we see it in Europe and other countries as well as the us and of course, we followed that development very closely.

And the fact that almost 20% of all tax revenue in the US is being used to pay for interest rate costs on government bonds, that's very high and it only seems to be trending higher. So what we do in the fund is that we run annual stress test just to calculate the portfolio impact and potential losses in different extreme scenarios.

This year, those three scenarios were in AI correction, debt crisis, and a fragmented world, referring to them to the, (00:12:00) trade situation. And out of those three, the debt crisis was the most impactful scenario, and that had a model drop of about 40% in the portfolio. So it's clearly something to be taken very seriously.

Joe Cass: Thanks, Malin And Malin, do you have any thoughts on the competitiveness of Europe at high level?

Malin Norberg: So it's something that we care a lot about. So we're, we're a large global investor, but we are a European investor. We're based in Europe. And what we, we have seen over the last, decade is that our share of,

the share that we hold in European equities has gone from 26% of the portfolio to about 15% in the past decade, and the number of companies, European companies in our portfolio has, fallen by about 25%. So. (00:13:00) Of course, it's in our interest to have a big and diversified portfolio. We own about two and a half percent of every European listed company.

So to have a well functioning and competitive market in Europe is, really important for us. And, I think there are some very good initiatives going on now, with the European Savings and Investment Union to channel, saving and investments into the capital markets to make the capital market a, an attractive alternative to just keeping your money in the bank.

And it seems to be a sense of urgency, right now that we at least have some hopes that this is gonna, this is gonna happen.

Joe Cass: Great. Dan, have you got any views, from maybe the US perspective?

Dan Yergin: I think two things. First, I listened very carefully to what Malin just said, and I think they're, both of those answers were actually, (00:14:00) very profound in, in the significance of our comments.

One, of course is the concern about the US debt and, that number she had Malin, that you had that 20% going to just pay for the debt. The US is now spending more money on debt service than it is on defense. And then, on Europe. Europe has been kind of single-minded on where it's focused, but now it has two new imperatives.

One is taking defense spending to 5%, and the other is the, is this focus as Malin said, over the last year or so, on the, on competitiveness. And there is a real structural problem that europe has, it seems, at least I hear from the private sector all the time, is two things. One is kind of what we might call political targeting of what they wanna achieve and secondly sort of regulation manufacture, that is somewhat, (00:15:00) is not really very connected with the marketplace.

And Malin's comment about how their share of European companies. Has gone down, of course probably reflects partly the tech companies in the US and the stock market, but it's also Europe's real issue about de-industrialization. And the Draghi report tried to address that about making Europe more competitive.

But that's a challenge for the way Europe operates now and the sort of gap between. The eu, the commission, and to a lesser degree, governments from, from the marketplace and, lack of connectiveness and realism and, a very heavy hand of regulation, which is what, what, what managers and companies talk about.

All the time, how much time they have to spend, how many people, how many pages of regulations. And so I think that challenge of competitiveness for Europe, addressing what mountain's talking about is (00:16:00) quite a big challenge. And just, you can't solve the problem just with rhetoric.

Malin Norberg: And, and in addition to the heavy regulation, it's also very fragmented regulation. It's of course, a single marketplace consists of multiple markets that have different, regulation with the withholding taxes to, post trade transactions. So it's, there are a lot of, different angles to, attack this.

Dan Yergin: Yeah. And you just think going, Norway has always had a, you know, commitment to, its, its defense structure, but for Europe, going from one, one and a half percent spending on GDP to 5%, that is a significant diversion shift in, in where resources are going.

And also, you need a, an industrial base that can respond to that.

Joe Cass: Yeah. Fantastic. Great comments, (00:17:00) Dan. Unusual question for you now. What is one truth the energy industry tells itself today that could age terribly?

Dan Yergin: Well, let me answer slightly differently. What I've noticed in all these, you know, years of the, of observing the energy industry is that a consensus develops about where things are going, and that consensus usually lasts about three years, and then something comes along. It could be economic, it could be technology like AI, it could be geopolitical, like the invasion of, Ukraine by Russia, which suddenly took energy security, which hadn't been on the agenda before for some years back on the agenda. It, can be, you know, a, a crisis. It could be COVID, but anyone. And so the challenge for the energy industry, it's long-term investment. It's one of the longest term investing (00:18:00) industries, but things change.

And we can look at some of the European companies, how, just in the last year or so, they've had to shift the balance of their investment. So I think it's, the challenge is how do you see beyond what the consensus is? And I think part of the answer is what Mallon says that you do use scenarios to try and create a framework.

So I think it's, I think, I think the, the one truth is that the truth doesn't last. I remember once talking with this fellow Armand Hammer, who created the original, Occidental Petroleum and he said, I've been in business for 56 years and the one thing I've learned is that things don't stay the same.

And I think that's a challenge for a long term industry.

Joe Cass: That's great. Fantastic. Thanks, Dan. Malin, you oversee one of the largest pools of capital. History. It's an enormous role. What's been a moment where (00:19:00) you've really felt the weight of that responsibility?

Malin Norberg: So this is of course, a huge responsibility all the time, and we don't manage money for a few rich individuals.

The money that we managed, it belongs to the people of Norway. And, the fund accounts for almost a quarter of the annual government budget. So that's massive. And this, well, this was really, really tangible during the early days of the COVID crisis. So, Oil prices went to zero. Just to, yeah, how unpredictable things are.

It even went negative for a short period of time. And this being the source of income for the fund, that's a dramatic development in itself. But, on top of that, the government needed money to fund all the COVID measures and, with the whole world is upside down, suddenly we're sitting in our bedrooms selling bonds.

I was (00:20:00) working in fixed income trading at a time. To, to fund the country. And that was a very special experience. And, it also shows the enormous importance of the fund to Norway.

Joe Cass: Great. Thanks Malin.

Dan, I want you to put yourself in the shoes of a leader of a sovereign wealth fund in 2025. What are you really betting on?

Hydrogen, nuclear, LNG or something else entirely?

Dan Yergin: Well, I suspect that a, leader of a sovereign wealth fund, perhaps such as the person sitting here in this interview with us, is not going to make a single bet. I think that that person is going to, diversify because you don't know and you're gonna see,

You know, what is actually gonna generate cash for you? And then where you want to, have a (00:21:00) diversified portfolio. I mean, I would say two years ago, the hopes for hydrogen were very high. I think they've somewhat receded over the two years. Nuclear has sort of moved more to the fore, but nuclear is not gonna turn on tomorrow.

So, I think the answer is, you know, and, and I think then it depends. As the fund, I think, I think as I understand, the Norwegian fund doesn't do venture capital doesn't do private investments. But, if you do have the flexibility to make a series of bets along those chains, would be the, the prudent way to do it.

The rebirth of nuclear is very interesting. The number of reasons for that. I think, one is the concern about the electricity security. I think the other is that the hyperscalers, are, who do have the net 50 goals are looking for, non-carbon, (00:22:00) carbon free electricity, and, you can see the investments that they're making in, in developing companies, nascent companies in nuclear and also in the United States, the deals that they're, that they're making with existing nuclear power plants to take, to take their power.

Malin Norberg: So just, just to comment on that, so we are mainly an investor in the public markets, but we also have some investments in unlisted real estate and, infrastructure for renewable energy. So we got the mandate for renewable infrastructure in 2020 and, we have the potential to allocate up to 2% of the fund, in this space and 2%, it may not sound like that much, but we're talking about approximately $40 billion in potential investment capacity.

So when we got the mandate and we started looking for investments in 2020, it was very high demand, elevated prices (00:23:00) in, in that renewable infrastructure space. But we've seen it come down significantly, over the last few years, and we've deployed a lot. More capital in that market. We're still far from that 2% target, but, as of year end we had roughly $2.2 billion invested.

And that's primarily in solar and wind.

Dan Yergin: And, and, and, and of course, I mean it's very interesting what you said about the, the cost of, how prices were very high. But what has been striking is to see the, how the costs have come down. Not, not for offshore wind necessarily. Oh, it's come down, but then inflation.

But for solar, it is interesting too that a lot of China's strong position in renewables, particularly its domination of solar, is very interesting and that's another area where you see energy transition now, colliding with, geopolitical rivalry.

Joe Cass: (00:24:00) Yeah. Fantastic. Thank you both, Malin. Just switching gears, what's one chart or data point that haunts you?

Malin Norberg: So, I mentioned our, stress test before, and, one of the scenarios that we looked at is an AI correction. So that would mean a significant correction in the technology sector that's triggered by investments in AI, failing to generate expected earnings and value creation. And that may be multiple reasons for that.

Strict regulation, technological challenges, lack of necessary resources, but such a correction would've a particular impact on the US tech sector, but of course also spread to other sectors and regions. So, to answer your question, the chart that haunts me is a market concentration in these big tech names and the weight that these companies have in the index now.

So that's around 30% of the S&P and of course, also in the (00:25:00) benchmark that we, that we have. So since we follow our benchmark fairly closely, that also means we have an enormous amount invested in very few names. So in Apple we have about 50 billion US dollars. Same with Nvidia. And it, that's pretty mind blowing amounts.

Joe Cass: So are we talking about a kind of deep seek moment, but on like a, a larger scale?

Malin Norberg: I think there could be multiple reasons for a, a correction like that. So the, we, it's, it's named the AI correction, but, say we encounter technological challenges, we haven't, we haven't forseen it could be a, a deepseek or just, the AI leadership broadening out. The winner takes, doesn't take it all, but takes a bit less.

And, and the whole, AI leadership is gonna broaden out. (00:26:00) It could be multiple, potential reasons for such a scenario.

Joe Cass: Great. Thanks Malin. Dan, what's the one energy risk in today's world that markets are ignoring?

Dan Yergin: Well first, I think in a way partly ties back to what Malin just said and, you know, thinking about, there's no, the markets are not expecting or, signaling an AI correction, but we've always seen corrections even happen in other markets. I suppose it may be underestimating the challenge for electricity generation.

I, I think people are getting mobilized. On that now, but I think until very recently, and the inability to get things built, to get things permitted, to get things done, that you can see what the need is or the goal (00:27:00) is, but you can't actually get there.

Malin Norberg: I think that's a very good point.

Joe Cass: Yeah. Fantastic.

Malin, what's one book that shaped your thinking about markets?

Malin Norberg: So, of course there are many great books that it gives different perspectives on the market. But, one of the books that I read early on was, "Market Wizards" by Jack Schwager. So that's just a collection of interviews with some of the most, successful traders and investors of the 1980s.

And he talks to them about their trading strategies, mindset carriers, and. I think what's fascinating is how each different person, have a completely different approach. So some are technical analysts, some focus on fundamentals, some holds position for years, others for daily, and what the book really shows is that there's no magic formula on how to make money or how to beat the (00:28:00) market.

 but you do have some certain, things in common like discipline, risk management, and the ability to learn from, from losses and mistakes. And just to mention a, a more recent book that made an impression was, "Quit" by Annie Duke. So. As a former poker player, it, that really changed my thinking, how to think about, cutting losses and, I mean, she knows, like in poker, walking away isn't a failure.

But, knowing when to do that, it's really crucial for long-term success, both in poker and in the markets. Yeah. Every, every dollar you keep in a losing trade is a dollar. You don't put into a better opportunity.

Dan Yergin: I was gonna ask Malin, when you said a former poker player, are you talking about the author or yourself?

Malin Norberg: Oh, no. Annie Duke, I can't, yeah, not myself. (00:29:00)

Dan Yergin: Okay.

Joe Cass: Great. Actually, Dan, before we go to the last one. Obviously you're the author or a number of, you know, very well received books. What books really shaped your thinking about markets? What really made an impact on you?

Dan Yergin: Well, it would, I would be hard put to, to, point to one, but this may be an odd answer, writing this book called "The Commanding Heights, the Battle for the World Economy," the, the battle between state and market working on that book changed my thinking a lot. I learned a lot from writing. For me, writing a book is like solving an equation, solving a problem, and I came out with a much deeper understanding of the power of markets and in a sense, the morality of markets, which is.

Is not the language or the rhetoric, but what they deliver in terms of results. And I, and so I, I don't mean that in a funny way, but it was (00:30:00) the learning experience of writing that book was really quite profound.

Joe Cass: Great. And Dan, last question. It goes to you, what's the best piece of advice you've been given and who gave it to you?

Dan Yergin: Well, let me, let me give two examples. One, when I was starting off at my PhD at Trinity College, at Cambridge University, there was a very eminent economist there who's visiting named John Kenneth Galbraith. And I went and told him, I went to just see him not knowing him and told him what topic I was gonna write my PhD.

And he said, well, you can do that, but if you wanna be irrelevant for the rest of your life, you can go ahead and do that. So I, he suggested a different topic and I did that different topic and six years later I had a book that was a front page review in the New York Times. So that was really good advice.

The other piece of advice is when I did "The Prize," which is a Pulitzer book, to the CEO and the COO of what was then a prominent investment firm called Paine (00:31:00) Weber invited me to New York, and at the end of the lunch, they just wanna talk about the book. This, the president said, well, what do you wanna do?

I, I, I said, I want to actually, I'd like to do a. BBC-PBS series, on the book, a television series. And I, they said, oh, okay. They said We might be interested in that. that's interesting. And so then I went and talked to this guy who's volunteering to be the producer of it, and I told him about the conversation and he said, dummy, go back and ask them for the money.

So I went back and asked them for money, and they said, yeah, that's a good idea. And I, and I ended up with a PBS series that was watched by tens of millions of people around the world and taught them a lot about the energy industry. So those were two very practical pieces of advice, that I had that sort of turned corners in my life.

Joe Cass: That's fantastic. And anyone who's, who's watching or listening, definitely go out and, and look for that. PBS documentary series is excellent. I think some of it's actually on YouTube as well, and it has, you know, (00:32:00) tons and tons of bits.

Dan Yergin: Yeah, both of that, both that and the commanding heights are both, there now is is yeah. On YouTube.

Joe Cass: Fantastic. Well, listen. Malin and Dan, thank you so much for joining me today. Really interesting conversation for everyone watching everyone listening. See you next time on The Leaders Podcast.