Norway’s US$1-trillion wealth fund wants out of oil and gas stocks

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


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 on the 16th November. 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% in London.


“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 is not 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.


The fund’s largest oil and gas holdings as of 2016 Market Value are: Royal Dutch Shell US$5.36 billion; Exxon Mobil US$3.1 billion; Chevron US$2.04 billion; BP US$2.03 billion; and Total US$2.02 billion.


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.


Mr 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.”


The state also holds majority control of Statoil ASA, valued at US$66 billion, 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. Last year Norway also withdrew cash for the first time after sinking oil prices opened up holes in the budget.


Today’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,” Mr Matsen said.


The fund said it does not expect returns or market risk to be affected “appreciably” by excluding oil and gas stocks. The move would also mean raising its investments in other sectors.


Owning close to 1.5% of global stocks, the Norwegian fund largely follows indexes, but is allowed some active management of its portfolio.