Published: Mon, March 11, 2019
Business | By Eloise Houston

Norway sovereign wealth fund, the world's biggest, to dump oil and gas

Norway sovereign wealth fund, the world's biggest, to dump oil and gas

Norway's sovereign wealth fund will exit all investments in oil and gas production acting on a government recommendation in line with a more cautious approach to energy investments by the world's largest sovereign wealth fund worth about US$1 trillion. The country's sovereign wealth fund was built up using wealth from Norway's hydrocarbon production, and as of past year had around $37bn invested in oil and gas stocks.

The Norwegian government, which gets 20 percent of its revenue from the petroleum sector, said Friday it wants to reduce its vulnerability to a permanent decline in the price of oil.

Oil and gas stocks would be replaced by investments in other companies, the deputy of the central bank told Reuters in 2017, when the idea was first suggested.

Although the decision focuses on upstream oil and gas companies, not large integrated groups such as BP and Shell, shares in some of the world's largest oil companies fell in reaction to the news.

Norway's sovereign wealth fund will drop oil and gas companies from its trillion-dollar investment index in a decisive blow against the fossil fuel industry.

The government still owns 67% of Equinor, formerly known as Statoil, which is an oil and gas company which pumps the equivalent of two million barrels of oil per day. The proposal would see a selloff of about $7.5 billion.

"To exclude all oil companies would limit the fund's opportunities", Finance Minister Siv Jensen said. The Ministry of Finance will ask Norges Bank to review the fund's climate risk, which could lead to it culling non eco-friendly companies.

"If the relationship between long-term returns in the broad equity market and oil and gas stocks persists, neither the expected return nor the market risk in the fund will be affected appreciably by whether or not the fund is invested in oil and gas stocks". These include Cairn Energy Plc, Anadarko Petroleum Corp., Chesapeake Energy Corp., Cnooc Ltd. and Tullow Oil Plc.

Jensen defended her decision to keep the big oil companies in the portfolio. The Norwegian government indicated in its release that it expects most of the future growth in renewable energy to come from companies that do not now have renewable energy as their main business.

The move is likely to ramp up pressure on both investors to diversify away from oil stocks, and oil firms to produce cleaner energy to tackle climate change.

Greenpeace campaigner Martin Norman said the government's decision "does not address Norway's exposure to oil and we are not showing the world the way forward".

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