Norway's $1tn wealth fund proposes ditching oil and gas investments

17 November, 2017, 02:06 | Author: Salvatore Jensen
  • An unidentified oil worker walks in front of a natural gas flame burning off in the Persian Gulf desert oil field of Sakhir  Bahrain.       AP  Hasan Jamali

At the end of 2016, the fund's equity investments were split between investments in the financial sector (23.3 per cent), industrial companies (14.1 per cent), consumer goods (13.7 per cent), consumer services (10.3 per cent), healthcare (10.2 per cent), technology (9,5 per cent), oil and gas (6.4 per cent), basic materials (5.6 per cent), telecoms (3.2 per cent) and utilities (3.1 per cent).

Going forward, the Ministry of Finance will obtain further information and notify Parliament about the ongoing work in the Report on the Management of the Government Pension Fund, to be submitted in the spring of 2018.

The plan would entail the fund, which controls about 1.5% of global stocks, dumping as much as $40 billion of shares in worldwide giants such as Exxon Mobil Corp. and Royal Dutch Shell.

Matsen said "now is a good time" for the proposal because otherwise the new 70% threshold will result in the fund buying even more oil and gas shares because it tracks indexes that include such stocks.

The fund's biggest oil and gas holding at the end of 2016 was $5.36bn in Anglo Dutch firm Shell, followed by $3.06bn in ExxonMobil, $2.04bn in fellow United States oil firm Chevron, $2.02bn in the UK's BP, and $2.01bn in France's Total.

The proposal came in a letter sent by the central bank to the finance ministry and signed by its governor, Oeystein Olsen, and the chief executive of the fund, Yngve Slyngstad, Deputy Central Bank Governor Egil Matsen said in an interview.

The sovereign wealth fund is the world's largest. In periods of stable oil prices, the returns on oil and gas stocks have largely moved in tandem with the broad equity market.

Wikimedia Commons
Wikimedia Commons

In addition to its holdings via the fund, Norway has exposure to oil and gas via large untapped offshore hydrocarbon reserves, as well as its 67 per cent stake in the national oil company, Statoil.

Oil and gas stocks would be replaced by investments in other companies.

"This is the biggest pile of money on the planet, most of it derived from oil-but that hasn't blinded its owners to the realities of the world we now inhabit", said McKibben.

The aim is primarily to reduce the fund's exposure to oil price fluctuations.

If it decides to back the central bank's proposal, the country's parliament would be able to vote on it in June 2019 at the earliest. However, it made clear that its recommendation involved divesting from existing oil and gas shares as well as ruling out future investments.

While the fund says the plan isn't based on any particular view about the future of oil prices or the industry as a whole, it will likely add to pressure on producers already struggling with the growth of renewable energy supplies.

And analysts warned that the central bank's proposal could have a knock-on effect on the sector.




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