March 8, 2019
UPDATE: The Facts You Need on Norway’s Calls for Diversification
After more than a year of deliberation, Norway’s Finance Ministry has recommended a partial step in selling select oil and gas stocks from its trillion-dollar wealth fund, the largest publicly held investment in the world. In a statement on Friday, Minister of Finance Siv Jensen explained the decision is meant to “reduce the vulnerability” of the Norwegian fund “to permanent oil price decline.”
Here’s what you need to know to clarify this decision to diversify the portfolio outside the frame of a traditional divestment:
- This decision is not final. The recommendation for the Norwegian fund will now be sent to the nation’s parliament for approval.
- This decision does not impact the fund’s investments in international integrated companies. The sovereign wealth fund owns $37 billion shares in oil companies of various breadths and Norway’s Finance Ministry has only approved the sale of pure exploration and production companies. The large integrated firms, such as BP, Royal Dutch Shell, Total and ExxonMobil, will not be impacted by this decision. This nuance in their recommendation is indicative of Norway’s motivation – diversification, not denouncement.
- That means only roughly one fifth of the fund’s oil and gas investments are impacted. Of the $37 billion shares currently held, the proposal would only see the fund sell approximately $7.5 billion. It is, at its core, a compromise that meets the 2017 proposal from the fund’s Investment Management (NBIM) halfway. While the original plan was hailed as a huge moment by climate activists, with nearly 80% of the fund’s fossil fuel holdings intact, this plan simply cannot be colored the same.
- The fund highlights the key role large energy companies play in supporting an array of energy resources. Pointing out the significant investments in low-emission technology already sourced from the fossil fuel industry, Minister Jensen defended her decision to keep major oil companies in the portfolio.
“The integrated companies will most probably be the companies that will increase their investments in a much broader spectrum of the energy industry going forward. These are the companies making the big investments now in renewables and so on. [Exiting from this] would in reality have constricted the fund’s chance to take part in these types of investments.”
In a latter Bloomberg interview, Jensen added:
“It would be sad if the pension fund would not be able to invest in those companies in the future.”
- Norway still relies on oil and gas for nearly all of the state funding. Diversification has long been a contentious issue in Norway. Though Jensen assured the move did not reflect the government’s views on the price of oil or the sustainability of the petroleum sector, it’s ironic that a state so heavily dependent on oil, a state that used the proceeds of its massive energy wealth to line the coffers of the very fund now in debate, is suddenly inclined to give up select holdings in fossil fuels; albeit, in a token way.
With only 1.2% of the fund’s stock holdings affected, the proposed plan rates minimally on the scale of divestment. However, the decision still smacks of hypocrisy. No doubt divestment activists will hail this as a victory, and Norway can placate those opposed to its robust energy development, but the facts remain far different. Norway is still a critical energy economy that recognizes the only path forward includes working with energy companies with the resources and technology to find solutions, not empty gestures.