Norway's $1 trillion oil fund may turn its back on oil

Alicia Cross
November 17, 2017

Norges Bank, the central bank, made the proposal to Norway's Ministry of Finance on Thursday, saying that, given its size, the fund accounts for an increasingly large share of the nation's wealth and is an integral part of government fiscal policy. The fund could dump up to $40 billion (€33.9 billion) worth of shares in global oil giants such as Royal Dutch Shell, BP, Chevron and Exxon Mobil. It also has shares worth more than $1bn in oil services firm Schlumberger and Italy's Eni, whose share price slumped 0.86%.

The bank did not set a deadline for when the fund should drop its oil and gas holdings. The index has recovered from its summer lows on the back of rising crude prices but it remains down 5 percent year to date and is among the worst sectoral performers in Europe.

It aims to reduce the exposure of the fund - and therefore the Norwegian government - to oil price fluctuations.

In a letter sent to the Ministry of Finance today, the The Norwegian Central Bank, which runs the Sovereign Wealth Fund, said the move would make it "less vulnerable to a permanent drop in oil and gas prices". In 2014, Stanford University said it wouldn't invest in coal-mining companies, and under pressure from environmental activists other US endowment funds have debated whether they should pull out of fossil fuel investments.

"This news will be scrutinised very closely by funds around the world who are already looking closely at the climate risks in their portfolios and which sectors and companies will fare best in the low-carbon transition", said Stephanie Pfeifer, head of the Institutional Investors Group of Climate Change, which groups 140 investors that work on global warming and represent assets of more than 20 trillion euros. Furthermore, the Government is responsible for the Norwegian economy as a whole and must take a broad and comprehensive approach to this issue, says Finance Minister Siv Jensen.

$1tn Norwegian oil fund plans to ditch oil and gas stocks

"Oil price exposure of the government's wealth position can be reduced by not having the fund invested in oil and gas stocks".

Norway is a major oil producer, and it has plowed its energy earnings into the fund in order to fund pensions and other government expenses.

"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".

At the earliest, the ministry's first opportunity could come in the spring, with a vote in parliament in June.

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