Norway’s US$1tn wealth fund to divest from oil and gas exploration

The world’s largest sovereign wealth fund, which manages US$1 trillion of Norway’s assets, is to dump investments in firms that explore for oil and gas but will still hold stakes in firms such as BP and Shell that have renewable energy divisions.

The Norwegian government announced its decision in favour of excluding “companies classified as exploration and production companies” in the energy sector, explaining that its aim was to insulate Norway from a “permanent oil price decline”.

The country’s Parliament will have the final say on the move, but if it goes ahead the decision to divest oil and gas assets from the world’s largest sovereign wealth fund, a fund that was itself built through fossil fuel revenues, could send shockwaves across global markets and pile pressure on large oil companies to step up preparations for a low carbon transition.

“The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline,” said Norway’s finance minister, Siv Jensen.

The Government Pension Fund Global (GPFG), whose assets exceed those of rival sovereign wealth funds such as China’s, said it would phase out oil exploration from its “investment universe”.

The strategy shift, on the back of advice from the country’s central Norges Bank, will affect 1.2 per cent of its equity holdings, worth about US$7.5bn.

GPFG said the decision was motivated by a desire to protect the Norwegian economy by reducing exposure to oil price falls rather than climate concerns.

It will retain stakes in fossil fuel companies as long as they have some involvement in renewable energy.

Its stakes in large firms with renewable units include 2.4 per cent of Shell and 2.3 per cent of BP, because it believes they will play a major role in developing green energy.

It will sell stakes in 134 companies, including United Kingdom-listed firms Tullow Oil, Premier Oil, Soco International, Ophir Energy and Nostrum Oil and Gas, all of which experienced a fall in share price after the announcement, knocking US$169m off their combined stock market value.

Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis (IEEFA), said: “These are very important statements from a big fund.

“They’re doing it because fossil fuel stocks are not producing the value that they have historically.

“It’s also a warning to the integrated oil companies that investors are looking at them to move the economy forward to renewable energy.”

He said GPFG’s investment strategy also “underscores that the fracking business model is unsustainable”.

Greenpeace UK’s oil campaigner, Charlie Kronick, said: “This partial divestment from oil and gas is welcome, but not enough to mitigate Norway’s exposure to both global oil and gas prices and the wider financial ramifications of climate change.

“However, it does send a clear signal that companies betting on the expansion of their oil and gas businesses present an unacceptable risk, not only to the climate but also to investors.

“While BP and Shell are excluded from the current divestment proposal, they must now recognise that if they continue to spend billions chasing new fossil fuels, they are doomed.”