World's biggest wealth fund wants out of oil and gas

17 November, 2017, 02:04 | Author: Sheri Evans
  • Pumpjacks at work pumping crude oil near Halkirk Alta

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.

The bank recommended the removal of oil stocks from the fund's benchmark index, which would still give it a little leeway to invest modestly in the sector.

The bank that runs the world's biggest sovereign wealth fund has told the Norwegian government it should dump its shares in oil and gas companies, in a move that could have significant consequences for the sector. 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.

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".

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"The risk for the oil sector is how many investment funds will downsize their exposure to extractive industries", said Jason Kenney, oil analyst at bank Santander.

"Our perspective here is to spread the risks for the state's wealth", Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas. The Stoxx Europe 600 Oil and Gas index reversed gains after the announcement, sliding 0.3% as of 3:47 p.m.in London.

The fund is the world's largest sovereign wealth fund.

"This news will be scrutinised very closely by funds around the world who are already looking closely at the climate risks in their portfolios and which sectors and companies will fare best in the low-carbon transition", said Stephanie Pfeifer, head of the Institutional Investors Group of Climate Change, which groups 140 investors that work on global warming and represent assets of more than 20 trillion euros. The fund was initially set up to invest the proceeds from Norway's oil reserves.

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The aim is primarily to reduce the fund's exposure to oil price fluctuations. The Bank states that the advice 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.

Thursday's recommendation comes 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.

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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