Norway's pension fund could cut billions in oil stocks to spread risk

Norway’s sovereign wealth fund to disinvest from oil and gas   

by Gavin Hinks

Norway’s sovereign wealth fund to disinvest from oil and gas by Gavin Hinks

The Government Pension Fund of Norway, which recently surpassed one trillion dollars in value, is the world's largest sovereign wealth fund.

Paul Fisher, former deputy head of the Bank of England's Prudential Regulation Authority, said: "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".

The fund's biggest oil and gas holding at the end of 2016 was $5.36bn in Anglo Dutch firm Shell, followed by $3.06bn in ExxonMobil, $2.04bn in fellow U.S. oil firm Chevron, $2.02bn in the UK's BP, and $2.01bn in France's Total. "It does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector", he added.

Oil and gas stocks account for around 6 percent of its benchmark index.

The deputy central bank chief supervising the fund said if approved the proposal would mean cutting its investments in oil and gas companies which now represent 6 percent - or around $37 billion - of its 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.

Norway's fund was established to harness the country's oil and gas income while also giving the government room for maneuver in fiscal policy should oil prices drop, the mainland economy contract and as its oil eventually runs out.

Norwegian oil Norges Bank Norway oil and gas fossil fuels
Norwegian oil platform under construction

The advice from Norges Bank is based on assessments of the exposure to oil price risk in the wealth of the Norwegian government.

"Oil price exposure of the government's wealth position can be reduced by not having the fund invested in oil and gas stocks".

In September, the fund value reached $1 trillion for the first time after being boosted as the world's major currencies strengthened against the USA dollar, combined with strong equity markets.

Matsen emphasised that the recommendation is to remove oil and gas stocks from its benchmark index but that it wants to keep them as part of its "investment universe".

The Ministry of Finance said the government aims to make a decision in the fall of 2018.

If it decides to back the central bank's proposal, the country's parliament would be able to vote on it in June 2019 at the earliest.

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