World's biggest sovereign wealth fund proposes ditching oil and gas holdings

Bloomberg

Norway's central bank has recommended that the Ministry of Finance remove oil and gas holdings from its $1 trillion (£760 billion) sovereign wealth fund.

The sovereign wealth fund, fuelled by the state's oil revenues which have dropped sharply in recent years, is now worth around 8.24 trillion kroner (854 billion euros), invested primarily in shares (65.9 percent) as well as bonds and real estate.

But the potential move by Norway's sovereign wealth fund is one of the most significant pledges yet, for a few reasons. The argument is simple: climate change has exponentially increased the risk of backing coal, oil and gas, so investors should put their money elsewhere for the sake of both the planet and their own fortunes.

Norges Bank made the new recommendation in light of falling oil prices.

"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", the bank said.

The bank's advice came after analysis showed that the oil price risk poses threats to the national economy, as now oil and gas equities account for around 6 percent and nearly $35 billion dollars, including shares in the American Exxon Mobil Corporation and Shell.

Matsen said the decision does not reflect a particular view on energy prices or the sustainability of the sector.

"The issues raised by Norges Bank are complex and multifaceted", the finance ministry said.

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The Central Bank of Norway, which runs the fund, sent a proposal to the Ministry of Finance today.

The advice constitutes the next major step in scrubbing the world's biggest wealth fund of climate risk after it largely sold out of coal stocks.

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

Oil and gas investments may have soured for managers of the Norwegian sovereign wealth fund but two Canadian funds say they have plenty of room for such securities in their portfolios.

The oil and gas sector accounts for 5.5 percent of its equity investments.

But, as any energy investor would know, oil and gas stocks have been poor performers for the past few years.

The plan would entail the fund, which controls about 1.5 per cent of global stocks, dumping as much as $40bn of shares in worldwide giants such as Exxon Mobil and Royal Dutch Shell.

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. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said.

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