Norway's state fund 'needs to ditch oil and gas investments'

Norway's state fund 'needs to ditch oil and gas investments'

Norway's state fund 'needs to ditch oil and gas investments'

The bank that runs the world's biggest sovereign wealth fund has told the Norwegian government it should dump its shares in oil and gas companies, in a move that could have significant consequences for the sector.

Going forward, the Ministry of Finance will obtain further information and notify Parliament about the ongoing work in the Report on the Management of the Government Pension Fund, to be submitted in the spring of 2018.

It also held 1.7 per cent of Italy's Eni, 1.6 per cent of France's Total and 0.9 per cent of Sweden's Lundin Petroleum, among others. 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.

Oil and gas are seen as increasingly risky investments as more countries turn to cleaner energy sources in order to meet requirements under the Paris climate agreement, which aims to keep global warming under two degrees Celsius above pre-industrial levels.

"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". It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas.

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If adopted by parliament, the fund would over time divest billions of dollars from oil and gas stocks, which now represent 6 percent - or around US$37 billion - of the fund's benchmark equity index. In 2014, Stanford University said it wouldn't invest in coal-mining companies, and under pressure from environmental activists other USA endowment funds have debated whether they should pull out of fossil fuel investments. At the end of the third quarter, Royal Dutch Shell was the fund's third-biggest equity investment at more than $5bn. In 2016, Norway also withdrew cash for the first time after sinking oil prices opened up holes in the budget. "We can do that better by not adding oil price risk through the fund".

"That would mean buying more stocks in the oil and gas sector", said Matsen.

In addition to its holdings via the fund, Norway has exposure to oil and gas via large untapped offshore hydrocarbon reserves, as well as its 67 per cent stake in the national oil company, Statoil. The sector accounts for 14 percent of Norway's gross domestic product (GDP).

The Finance Ministry said it would study the plan and come to a decision next autumn at the earliest.

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