Norway shakes oil world by dumping investments

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

Norway's central bank Norges Bank, which manages the country's $1 trillion wealth fund, has recommended the government to remove oil and gas companies from the benchmark index of the sovereign wealth fund.

Its central bank, Norges Bank, has advised that a withdrawal from the market will avoid the fund's value from being damaged by the irreversible fall in oil prices.

In what's being seen as a major boost in the fight against climate change, Norway's fund would become the first equity investor to back out of the sector completely, reports Bloomberg.

In its letter, the Norwegian central bank makes the same point, noting that Norway has twice the exposure to oil and gas compared with a broad global equity index because of its domestic oil and gas tax revenue and its controlling ownership of worldwide major oil company Statoil. 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. While Norwegian officials say the plan isn't based on any particular view about future oil prices, it's apt to ratchet up pressure on fossil fuel companies already struggling with the growth of renewable energy.

For this reason, NBIM said in its current two-year strategy plan that it would adopt a broader wealth perspective when advising the ministry.

"That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index". Oil and gas equities now account for around 6 percent of the GPFG's benchmark index or just over NOK 300 billion.

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

In July, it bought a 45 per cent interest from Royal Dutch Shell in an offshore Irish natural gas project and, in June, it committed up to US$1 billion to a new company called Encino Acquisition Partners which is to focus on buying USA oil and gas companies. Built on transfer of oil revenue from May 1996, the fund is today the world's largest sovereign wealth fund is supposed to secure pensions for generations to come.

"Therefore, it is the bank's assessment that the government's wealth can be made less vulnerable to a permanent drop in oil prices if the GPFG [sovereign wealth fund] is not invested in oil and gas stocks".

The state also holds majority control of Statoil ASA, valued at US$66 billion, as well as direct ownership of offshore oil and gas fields.

Owning close to 1.5 per cent of global stocks, the Norwegian fund largely follows indexes, but is allowed some active management of its portfolio.

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