Norway's oil fund wants to divest from ... oil

Norway's oil fund wants to divest from ... oil

In a letter to the government, the bank said that if the world's largest sovereign wealth fund - commonly referred to as the "oil fund" - were to divest its oil and gas shares, Norway would be less vulnerable to a lasting decline in oil prices.

The sovereign wealth fund, fuelled by the state's oil revenues which have dropped sharply in recent years, is now worth around 8.24 trillion kroner (854 billion euros, $1 trillion), invested primarily in shares (65.9 percent) as well as bonds and real estate.

The move will have significant ramifications for oil and gas companies. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said.

The fund's managers recommended Thursday that oil and gas investments worth roughly $37 billion be sold in order to protect the country against a permanent drop in energy prices.

"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure", said the bank's deputy governor Egil Matsen.

Norway is a major oil producer, and it has plowed its energy earnings into the fund in order to fund pensions and other government expenses.

"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.

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The pension fund's managers said they remain anxious about the impact of falling oil prices on overall government revenue.

Nicolò Wojewoda of Europe was also hopeful about the implications of Norges Bank's decision, calling it "yet another nail in the coffin of the coal, oil, and gas industry".

In addition to its holdings via the fund, Norway has exposure to oil and gas via large untapped offshore hydrocarbon reserves, as well as its 67 per cent stake in the national oil company, Statoil.

"This is the biggest pile of money on the planet, most of it derived from oil - but that hasn't blinded its owners to the realities of the world we now inhabit". The fund has a small amount of leeway to make individual investments and wants to keep oil and gas in its "investment universe", he said.

The decision now rests with the Norwegian Ministry of Finance.

And analysts warned that the central bank's proposal could have a knock-on effect on the sector.

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