Norway’s $1 trillion fund to dump oil and gas shares

11 March, 2019, 10:36 | Author: Mary Valdez
  • Activists opposed to the Keystone XL tar sands pipeline project tie themselves to the White House fence during an environmental protest in Washington

Norway's $1tr sovereign wealth should divest from upstream oil and gas companies to reduce the country's financial exposure to fossil fuel commodities, the Norwegian government said today.

After a year of deliberation, the government on Friday approved the removal of 134 companies classified as exploration and production companies by FTSE Russell, while allowing the bigger integrated oil and gas companies to remain in the fund. The fund, somewhat ironically, derives its income from Norway's booming oil and gas industry.

The fund, called the Government Pension Fund Global, was created with revenue from the country's oil and gas operations and is invested in securities and real estate outside of Norway with the intention of providing for an aging population and for when oil revenues begin to decline.

"Exploration and production companies will be phased out from the fund gradually over time", the government proposal said, without giving a timeline for the divestment. The proposal would see the fund sell about $7.5 billion in stocks.

The fund had holdings worth around $37 billion - 5.9 percent of its total equity investments - in the oil sector at the end of a year ago.

"They take on much bigger investments than renewable companies do".

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The government goes part of the way in meeting a 2017 proposal from the fund, which rattled global markets by calling for a full divestment of the oil and gas sector.

Mark Campanale, executive director of the Carbon Tracker Initiative, a think-tank on climate issues, says Friday's decision is more significant than when the fund sold off its shares in coal companies.

Jensen defended her decision to keep the big oil companies in the portfolio, citing their increased investments in renewable energy.

Their report also found that exiting the energy sector would "only make a limited contribution to further reduction of [the oil price] risk".

Although it was under some pressure to sell its holdings in the oil and gas sector for environmental reasons, Norway's Central Bank has made it clear that it is selling some of its $37bn of energy shares for more boring reasons, it doesn't like having all its eggs in one basket. At the end of 2018, it owned shares in around 300 oil producers and service companies including nearly US$6 billion in Royal Dutch Shell, or 2.5 per cent of the company.

Norway's decision comes as institutional investors around the world are assessing their climate-related financial risk, and the long-term prospects for fossil fuel industries.

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