Norway’s wealth fund wants out of oil and gas stocks

OSLO: Norway’s US$1 trillion sovereign wealth fund proposed dumping about US$35bil in oil and gas stocks, including Royal Dutch Shell Plc and Exxon Mobil Corp, to protect the economy of western Europe’s biggest petroleum producer.

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

The Finance Ministry said it would study the plan and decide at the earliest in “autumn 2018.” The Stoxx Europe 600 Oil and Gas index reversed gains after the announcement, sliding 0.4% as of 1:14pm in London yesterday.

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy governor at the central bank in charge of overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil price risk through the fund.”

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. 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.

Built from Norway’s oil and gas revenue over the past two decades, the fund takes into account ethical rules encompassing human rights, some weapons production, the environment and tobacco when deciding on investments.

Its fossil fuel investments have also come under closer scrutiny as Norwegians increasingly struggle to reconcile their ambition to be a climate leader, while remaining one of the world’s biggest oil and gas nations.

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

The state also holds majority control of Statoil ASA, valued at US$66bil, as well as direct ownership of offshore oil and gas fields. Norway depends on the oil and gas industry for about 20% of its economic output.

The fund has doubled in value over the past five years and was this year given the go-ahead to boost its stock holding to 70% of its portfolio to help drive returns. Norway last year also withdrew cash for the first time after sinking oil prices opened up holes in the budget.

Yesterday’s recommendation came at a “good time because the stock portion will now be increased to 70% and that would also mean that we would buy more oil and gas stocks,” Matsen said. — Bloomberg