Norway's $1 trillion oil fund may turn its back on oil

Norway's $1 trillion oil fund may turn its back on oil

While Norway has built much of its sovereign wealth through oil and gas development in the past-six percent of the fund is invested in fossil fuels-it's now home to a fast-growing solar power sector, with solar installations rising by 366 percent from 2015 to 2016.

The nation will be "less vulnerable" to a drop in oil by not being invested in stocks of companies in the industry, the Oslo-based fund said Thursday.

Norway's $1-trillion sovereign wealth fund proposed dumping about $35bn in oil and gas stocks, including Royal Dutch Shell and Exxon Mobil, to protect the economy of western Europe's biggest petroleum producer. 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 oil and gas sector now spans a broad range of energy-related activities, including companies classified as integrated oil and gas, oil service and renewable energy.

The fund said it doesn't expect returns or market risk to be affected "appreciably" by its proposal, emphasizing that cutting exposure to the energy industry would allow it to crank up investments in other sectors.

The proposal came in a letter sent by the central bank to the finance ministry and signed by its governor, Oeystein Olsen, and the chief executive of the fund, Yngve Slyngstad, Deputy Central Bank Governor Egil Matsen said in an interview. It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas. The proposal is based on the oil and gas sector as defined by the FTSE reference index.

Wikimedia Commons
Wikimedia Commons

The pension fund's managers said they remain anxious about the impact of falling oil prices on overall government revenue.

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.

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.

"This is the biggest pile of money on the planet, most of it derived from oil - but that hasn't blinded its owners to the realities of the world we now inhabit".

The Norwegian government said it would consider the proposal, but a decision should not be expected until next year and a "thorough assessment" was required.

Oil and gas stocks would be replaced by investments in other companies, Matsen said.

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