Saturday, 23 March, 2019

Biggest wealth fund to dump stakes in oil, gas companies

World’s largest sovereign wealth fund in Norway to dump oil stocks Norway's $1 trillion wealth fund turns its back on oil and gas
Priscilla Morrison | 10 March, 2019, 22:38

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 is proposing to exclude companies classified as exploration and production companies within the energy sector from the (fund) to reduce the aggregate oil price risk in the Norwegian economy, the Finance Ministry said in a statement.

Norway has watered down plans for its sovereign wealth fund to shun investing in all oil and gas companies, announcing that it will boycott only pure oil explorers.

This clarification will come as a bit of a reprieve for big UK-listed oilers like BP PLC (LON:BP.), in which the fund holds a 2.3% stake, and Royal Dutch Shell PLC (LON:RDSA), in which it has a 2.5% holding.

Norway has the largest oil industry in Western Europe, and it accounts for about 20% of the country's output.

The proposition to remove energy exploration and production from the fund's portfolio, which now make up around six per cent of the wealth fund's investments, comes on the heels of a 2017 recommendation from Norges Bank.

However, a growing number of analysts have argued in recent years that exposure to fossil fuel assets brings with it significant financial risks. The news comes after Norway's central bank published a press release in 2017 stating that divesting from oil and gas would make the wealth fund "less vulnerable" to oil shocks in the future.

The fund is managed by the Norwegian central bank.

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The finance ministry said that pure oil and gas explorers would still be sold, but that integrated groups, which also refine crude oil and operate petrol stations, would not be included in the ban.

"We were quite surprised to see this and we certainly don't agree with their assertion", said Jon Stringham, manager of fiscal and economic policy for the Canadian Association of Petroleum Producers.

"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure", the Bank's Deputy Governor Egil Matsen said at the time.

The fund won't sell its shares in the State's Direct Financial interest (SDFI), a portfolio of Norway's exploration and production licenses. "This measure is about diversification", the report adds.

According to the Norwegian government, the motion aims to diversify national wealth from oil and is not due to speculation over future oil prices.

"Everything indicates that nearly the entire growth in listed infrastructure for renewable energy over the next 10 years will be driven by companies that do not have renewable energy as their main activity".

But the government adjusted the proposal, saying major firms had the scale to shift to renewable energy.

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