World’s Largest Sovereign Wealth Fund to Cut Ties with Oil and Gas Exploration
“The objective is to reduce the vulnerability of our commonwealth to a permanent oil price decline.”
Norway’s $1tn wealth fund – the largest sovereign wealth fund in the world – is planning to cease funding oil and gas companies, with the exceptions of majors such as Shell and BP, which have renewable energy divisions.
The fund, called the Government Pension Fund Global (GPFG), invests revenue from Norway’s reserve of North Sea Oil, accumulating about $1tn of wealth, according to its website. The GPFG plans to cut ties with companies whose focus is oil and gas exploration and production, but not because of climate change concerns itself.
Reducing Exposure to Oil
According to the GPFG, the decision is propelled by the need to protect Norway’s economy by “reducing exposure to oil price falls,” instead of “climate concerns” and lesson Norway’s dependence on the oil industry. Experts predict that the universal demand for oil will reach its peak by the 2030s, since new efforts are being made to lower dependence on fossil fuels.
The GPFG plans to sell stakes in 134 companies, including Tullow Oil, Ophir Energy and Nostrum Oil & Gas, Premier Oil and Soco International. After the announcement, all of the aforementioned companies saw a drop in share price. UK-based Tullow Oil was down nearly three percent.
“The objective is to reduce the vulnerability of our commonwealth to a permanent oil price decline,” Norway’s finance minister, Siv Jensen, told The Guardian. “Hence, it is more accurate to sell companies which explore and produce oil and gas, rather than selling a broadly diversified energy sector.”
Not All Ties Cut
The fund will remain invested in some major oil and gas companies including Shell and BP that are involved in developing renewable energy.
“While BP and Shell are excluded from the current divestment proposal, they must now recognize that if they continue to spend billions chasing new fossil fuels, they are doomed,” Charlie Kronick, oil campaigner at Greenpeace UK, told The Guardian.
Although the move to divest is still subject to parliamentary approval, it could create an opportunity for environmentalists to put pressure on other global investors to encourage big companies to join the transition towards “less polluting fuels.”
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.”
Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis, told the Guardian: “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.”