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Norway’s $1 trillion fund to divest from the gas and oil industry

posted onNovember 21, 2017
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Norway’s $1 trillion wealth fund-the largest sovereign wealth fund in the world- said it may stop buying oil and gas stocks in order to avoid exposure to oil price fluctuations. The fund, managed by the Norges Bank Investment Management, a department of the country’s central bank made the proposal to Norway's Ministry of Finance on Thursday. Finance Minister Siv Jensen said the government will give the plan careful thought and decide what to do in “fall of 2018” at the earliest.

In the bank’s view dumping investment in oil and gas stocks would make the country’s wealth “less vulnerable to a permanent drop in oil and gas prices”. The proposal would need to be approved by government and parliament.

“Our advice is to simply remove the oil and gas sector, as it is defined in the FTSE reference index, from the fund’s reference index,” Deputy Central Bank Governor Egil Matsen told Reuters.  “That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index.”

The Oslo-based fund, known officially as the Government Pension Fund Global (GPFG), owns large stakes in most of the world's oil majors, including a 0.92% stake in Chevron, a 0.82% stake in Exxon Mobil 1.65% in BP and 2.23% in Royal Dutch Shell as of the end of 2016, so the news of a shift in investment strategy is significant. Currently, fossil fuel investments account for about 6 percent of the fund’s assets, or just more than 300 billion Norwegian kroner ($36.49 billion).

Norges Bank also said the fund, did not need the holdings given the country’s own oil revenue through its 67 percent stake in the national oil company Statoil. Following the announcement, Europe's index of oil and gas shares hit its lowest level since mid-October and was trading down 0.27 percent but environmental groups praised the plan.

“From a financial point of view this makes perfect sense, and we have been arguing for this for many years. This is a rational move given the overall exposure the Norwegian economy has towards oil.” The Guardian quoted Jan Erik Saugestad, chief executive of Storebrand Asset Management as saying.

"This is a victory for common sense. We have argued this for some time and there is no reason for Parliament not to approve this," Martin Norman, Head of Sustainable Finance Campaign for Greenpeace Nordic, told Reuters.

"Bravo Norway, and let's hope it gets through because the future of fossil fuel investment is looking shaky indeed," said Rachel Kennerley, climate campaigners at Friends of the Earth.

Sony Kapoor, a former adviser to Norway’s government, told Bloomberg the plan is “a belated victory for common sense over the powerful oil and gas lobby in Norway,” calling on the fund to now boosts its “green” investments at least tenfold.
Last year, GPFG sold shares in 52 coal-dependent companies , on environmental grounds.

In 2016, the fund made 447 billion Norwegian kroner ($57 billion) and this year made 499 billion kroner ($63 billion) in just the first two quarters. In the third quarter , oil and gas stocks were the best performing asset class for the fund, delivering an 8.7% return.

GPFG was established over 20 years ago and is among the world's biggest investors in stocks, owning $667 billion worth of shares in over 9,000 companies in 77 countries. It owns about 1.3 per cent of all listed stocks globally and about 2.3 per cent of all stocks listed in Europe.