The world’s biggest sovereign wealth fund, the $1trillion Norwegian state fund is leaning towards divesting its stake in oil & gas companies. It contemplates this as it looks at reducing its exposure to the oil price and diversify its investments. The fund is the largest shareholder in most of the world’s big oil & gas companies. A decision to divest could hurt these stocks. Furthermore, it could also trigger other big funds to reduce their exposure to fossil fuel companies. A final decision is expected early 2019.
Late last year, the $1trillion Norwegian state sovereign wealth fund announced that it is considering to divest all its holdings in international oil and gas companies. New Times at that time wrote;
The Norwegian Central Bank said in a letter to the Finance Ministry that the nation needed to diversify its investments. The fund, with Parliament’s approval, decided in 2015 to begin selling off its investments in mining companies and utilities that depend on burning coal.
The fund had about 4% of its assets ($40bn) in energy stocks as of end of 2017. The fund is the largest investor in various oil & gas companies. For example, it has 2.19% stake in Shell (RDS/A US), 2.17% of BP (BP US), 0.94% of Chevron (CVX US), 0.87% of Exxon (XOM US), 1.42% of Eni (E US) and 1.79% Total (TOT US).
In May this year, academics from Norwegian School of Economics (NHH), the Norwegian University of Science and Technology (NTNU) and the University of Oslo (UiO) all supported the suggestion. Bloomberg quoted;
The arguments for removing oil and gas stocks from the reference index “are very convincing,” Knut Anton Mork, a professor at NTNU and a former chief economist at Svenska Handelsbanken AB, said in an April 30 consultation letter.
“The advice given by Norges Bank has a solid scientific basis, and has broad support in both national and international academic communities,” the UiO professors wrote in their letter.
In August a commission appointed by the Norwegian government recommended against divesting the stakes. The commission stated;
“Divestment of the energy stocks in the Government Pension Fund Global (GPFG) is not an effective insurance against a permanent decline in oil prices,” commission chair Øystein Thøgersen said in a release. “The energy stocks only contribute marginally to Norway’s oil price risk.”
“In a scenario with sustained lower oil prices, the loss in the government’s net cash flow from petroleum activities will be substantial,” said the commission. “However, only around 1% of such a loss will be covered if the GPFG is not invested in energy stocks.”
Late last month, the fund held a presentation to key lawmakers discussing the proposal. Bloomberg notes;
The fund’s chief executive officer, Yngve Slyngstad, said that the fund would have made 308 billion kroner ($38 billion) more over the past decade had it not been invested in oil and gas stocks
It appears that the Norwegian parliament is leaning towards a divestment. Labor, the largest party in the parliament have indicated its support. Final decision will be made in spring of 2019 when the conservative led government will come out with its opinion.
It would potentially be detrimental for oil & gas companies if the sovereign wealth fund decides to divest. Not only due the fact a big shareholder selling its stake, but also the fund is considered a thought leader in ESG investing around the globe. Markets are worried that other big shareholders will follow suit as they all look to divest investments into fossil fuel companies.