$1trn Norway wealth fund wants to drop oil and gas stocks

Norway's oil fund wants to divest from... oil

In a series of interviews yesterday, senior executives at the fund and Norway's Central Bank revealed the bank had written to the government to propose dropping oil and gas companies from its benchmark index.

The fund has a small amount of leeway to make individual investments and wants to keep oil and gas in its "investment universe", he said.

In what's being seen as a major boost in the fight against climate change, Norway's fund would become the first equity investor to back out of the sector completely, reports Bloomberg.

The fund said it doesn't expect returns or market risk to be affected "appreciably" by excluding oil and gas stocks. While the fund says the plan isn't based on any view on the future of oil prices or the industry, it will likely add pressure on oil producers, already struggling in a world where renewable energy is gaining sway.

Since the establishment of the GPFG, Norges Bank has, in line with the requirements in the mandate, advised the Ministry of Finance on the GPFG's investment strategy. The letter reveals that, based on estimates from a whitepaper titled "Long-term Perspectives on the Norwegian Economy 2017", the current value of future government oil and gas revenue is roughly "4,000 billion kroner" ($4.8 trillion) The ministry's calculations state that "a permanent drop in oil prices of 100 kroner per barrel would more than halve the present value of future oil and gas revenue", a huge blow to the Norwegian economy.

The global campaign to divest from fossil fuels may have just picked up its most significant ally to date - the largest sovereign wealth fund in the world.

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"During that time, the oil and gas sector will remain an important part of the global economy". "We can do that better by not adding oil price risk through the fund". Oil and gas companies now make up around 6% of the fund's benchmark equity index.

Not all investors are enthusiastic about oil and gas - the Caisse de depot et placement du Quebec, with $285 billion in pension funds under management, last month announced it would increase by 50 per cent its investments in low carbon industries while targeting a 25 per cent reduction in its carbon footprint per dollar invested by 2025. The move would also mean raising its investments in other sectors.

In July, it bought a 45 per cent interest from Royal Dutch Shell in an offshore Irish natural gas project and, in June, it committed up to US$1 billion to a new company called Encino Acquisition Partners which is to focus on buying USA oil and gas companies.

The proposal to sell oil and gas stocks must be approved by the government.

Norway, for example, owns two thirds of state oil company Statoil.

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