Norway’s $1.4 trillion sovereign wealth fund, the world’s largest, has tightened its climate risk demands on companies it invests in. The fund, which pools the Norwegian state’s revenues from oil and gas production, now requires companies to move from target setting to transition planning.

“With the effects of climate change becoming more evident, we really saw the need to sharpen our expectations,” said the fund’s Chief Governance and Compliance Officer Carine Smith Ihenacho in a statement.

Among the sharpened criteria, companies must establish key performance indicators (KPIs) to measure the delivery of their climate transition plan on a consistent annual basis. They must also disclose their progress on delivery of their net zero strategy annually and show how executive pay aligns with the delivery of interim targets and transition plans.

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The fund also published a policy concerning the use of voluntary carbon credits, which it said companies could use in certain cases. However, the fund emphasized that companies should prioritize reducing their own emissions and that carbon credits should not be counted towards science-based interim emission reduction targets.

“We believe companies should prioritise reducing (their) own emissions but can use additional and verified credits as a supplement to signal high climate ambitions,” the fund said in its policy on carbon credits.

The fund’s new climate risk demands are significant, given its size and influence. The fund holds stakes in around 9,200 companies globally, equivalent to 1.5% of all listed stocks. Its move is likely to put pressure on other investors and companies to step up their climate action.

Norway’s sovereign wealth fund is taking a leading role in the fight against climate change. Its new climate risk demands are likely to have a significant impact on companies around the world.