Norges Bank proposes dropping oil and gas stocks from sovereign wealth fund

Norway's oil fund wants to divest from oil

In a letter this week, Norway's central bank urged the Norwegian government to consider divesting oil and gas company shares held in the US$1-trillion oil fund to avoid the risk of permanently lower commodity prices.

Commonly referred to as "the oil fund", Norways wealth fund is fuelled by the state's oil revenues which have dropped sharply in recent years.

Norges also owns between 2pc and 4pc of United Kingdom oil companies including North Sea producer Premier Oil, services group Lamprell and onshore drillers IGas.

McKibben compared the bank's recommendation to "the moment when the Rockefellers divested the world's oldest oil fortune" in 2014, when the heirs to Standard Oil said that if founder John D. Rockefeller were alive in the 21st century, "he would be moving out of fossil fuels and investing in clean, renewable energy".

Norges Bank made the new recommendation in light of falling oil prices.

The fund said it doesn't expect returns or market risk to be affected "appreciably" by excluding oil and gas stocks.

The Central Bank of Norway, which runs the fund, sent a proposal to the Ministry of Finance today.

The fund is the world's largest sovereign wealth fund.

Norges Bank underlines in a press-release that this advice is based exclusively on financial arguments and does not reflect any view on the sustainability of the oil and gas sector.

"Oil price exposure of the government's wealth position can be reduced by not having the fund invested in oil and gas stocks". Currently, fossil fuel investments account for about 6 percent of the fund's assets, or $37 billion.

The aim is primarily to reduce the fund's exposure to oil price fluctuations.

The oil and gas sector now spans a broad range of energy-related activities, including companies classified as integrated oil and gas, oil service and renewable energy. "This exposure is increased several-fold when the government's future oil and gas revenues are also taken into account", he added.

Norway's largest private pension by value said that if the fund did ditch oil and gas stocks, the action could influence other investors.

It is among the largest investors in a wide range of oil companies, holding stakes at the end of 2016 of 2.3 percent in Royal Dutch Shell, 1.7 percent of BP, 0.9 percent of Chevron and 0.8 percent of Exxon Mobil.

CIBC chief economist Avery Shenfeld said higher-risk, higher-reward equities like oil and gas have a place in a balanced portfolio but he said he agrees that Norway could sell its energy shares. The Bank's advice has largely been based on how changes in the investment strategy can be expected to affect return and risk for the fund in isolation.

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