Norway's fund divestment proposal sends European oil index to one-month low

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17 November, 2017

Since the establishment of the GPFG, Norges Bank has advised the Ministry of Finance on the fund's investment strategy.

Norges Bank's proposal must now be reviewed by Norway's Finance Ministry, which has said it will announce its own view in the autumn of next year.

"It is not surprising that we see the world's largest sovereign wealth fund managers no longer prepared to take the increasing risk associated with oil and gas assets, which do not have a long-term future", said Paul Fisher of the Cambridge Institute for Sustainability Leadership, in an interview with the Guardian.

"That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index".

"Norway is already heavily invested in oil and gas resources, so selling off the oil fund's fossil stocks will clearly help reduce our financial carbon risk", said Truls Gulowsen, head of the group.

The Norwegian fund, officially known as the Government Pension Fund Global, is among the largest investors in a wide range of oil companies, including Royal Dutch Shell, BP, Chevron and Exxon Mobil. It also held stakes in Italy's Eni, France's Total and Sweden's Lundin Petroleum. At the end of the third quarter, Royal Dutch Shell was the fund's third-biggest equity investment at more than $5bn.

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"However, in periods of substantial and prolonged oil price changes, the difference in returns between oil and gas stocks and the broad equity market have been considerable".

But Norges Bank said that investing money back into the energy sector meant the government's exposure to the price of crude was too high, particularly given the country's majority stakes in Statoil ASA. "The straight answer is that all other sectors would be weighted up in proportion".

The timing of the coming divestments is as yet unclear.

Norwegian Minister of Finance Siv Jensen said the issues raised by Norges Bank "are complex and multifaceted" and its advice requires a thorough assessment.

The wealth fund, which controls about 1.5 percent of global stocks, proposes dropping %37 billion of shares in worldwide giants such as BP, Exxon Mobil Corp., Royal Dutch Shell Plc. and other holdings.

The fund has grown so large that even though the Norwegian state is taking less than 3 per cent of the fund's value every year for its fiscal budget in recent years, oil spending now accounts for one in five crowns spent by the state.


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