Published: Sun, March 10, 2019
Markets | By Otis Pena

Norway's $1 trillion wealth fund turns its back on oil and gas

Norway's $1 trillion wealth fund turns its back on oil and gas

Norway's trillion-dollar sovereign wealth fund, is set to phase out oil and gas companies from its benchmark index and sell their shares, the government has announced, citing potential financial risks.

The government of Norway, the biggest oil and gas producer in western Europe, said it was specifically targeting exploration and production companies, "rather than selling a broadly diversified energy sector".

It will retain its stakes in Exxon, Shell, BP and other oil majors as they fall into a different category.

The decision follows advice from the Norwegian central bank in 2017 which recommended divestment from oil and gas companies in a bid to make the government's wealth "less vulnerable to a permanent drop in oil prices".

Oil and gas represent nearly half of Norway's exports and 20% of the state's revenues.

Norway's finance ministry today appeared to partly endorse this analysis, arguing that removing oil and gas stocks from the wealth fund would reduce the country's "aggregate concentration risk". It has been ethical about what it invests in and doesn't buy shares in, tobacco companies for instance.

The ministry's decision which was earlier backed by the country's central bank, is still not the final word.

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"This shows that while the fund was initially built on revenue from oil and gas, the Ministry of Finance understands that the future belongs to those who transition away from fossil fuels", he said.

The companies the fund would divest would be phased out gradually, once the policy is approved, the government said. "The state's revenues from the continental shelf are, as a general rule, a effect of the profitability of exploration and production activities". "This measure is about diversification", the report adds.

"We cheer for this decision and the government deserves tribute", says Gaute Eiterjord, leader of Nature and Youth.

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

Norwegian lawmakers will vote on the proposal to divest from oil and gas companies later this year. "It would be a mistake as I see it to cut off the fund's possibility to invest in them", Jensen said.

Odd Arild Grefstad, CEO of Norwegian asset manager Storebrand Group, which has $90bn in assets under management, described the divestment decision as "reasonable and forward-looking". The fund said the shift would affect 1.2 percent of its equity holdings.

This is fairly sensible and obvious if you think about it, Norway instead of immediately spending all its vast income from its oil and gas production and living high on the hog, has been eminently sensible and invested a significant part of it for future generations.

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