Oil companies may slip on $1 trillion fund’s green shift

NEW DELHI: The decision of the world’s largest sovereign wealth fund to stop investing in oil and gas explorers and producers globally may affect Indian companies such as Reliance Industries Ltd (RIL), Oil and Natural Gas Corp. Ltd (ONGC), Indian Oil Corp. Ltd. (IOC) and Oil India Ltd (OIL), where the $1 trillion fund has made investments.

The decision of Norway’s Government Pension Fund Global (GPFG) comes against the backdrop of uncertainty in global oil markets and concerns about climate change that have led several countries to harden their focus on renewable energy.

GPFG has made 253 investments in Indian equities so far totalling $7.39 billion. Of this, it has invested a total of $658 million in RIL ($485.19 million), ONGC ($108.74 million), IOC ($61.6 million) and OIL ($2.03 million).

GPFG owns stakes of less than 1% in each of the four companies.

“The government is proposing to exclude companies classified as exploration and production (E&P) companies within the energy sector from the Government Pension Fund Global to reduce the aggregate oil price risk in the Norwegian economy,” the Norwegian government said in a statement on Friday.

It said those classified as E&P companies by the index provider FTSE Russell as belonging to its so-called subsector “0533 Exploration & Production” in the sector “0001 Oil & Gas” “will be excluded from the GPFG’S benchmark index and investment universe”.

“The proposal will serve to reduce the aggregate concentration risk associated with this type of activities in the Norwegian economy,” it said, adding that investments in “exploration and production companies will be phased out from the Fund gradually over time.”

International crude oil prices have been impacted by factors such as the moves made by the Organization of the Petroleum Exporting Countries and Russia to cut supplies. Also, the US administration has imposed sanctions on state-run oil firm Petr leos de Venezuela SA, and President Donald Trump has pulled the US out of a 2015 pact with energy-rich Iran that was signed to curb the Islamic Republic’s nuclear programme in return for ending sanctions. To be sure, GPFG will remain invested in integrated global oil majors, while Indian E&P companies do not foresee a major impact on their market value given the marginal holdings of GPFG.