The bank that runs the world’s biggest sovereign wealth fund has told the Norwegian government it should dump its shares in oil and gas companies, in a move that could have significant consequences for the sector.
Norges Bank, which manages Norway’s $1trn fund, said ministers should take the step to avoid the fund’s value being hit by a permanent fall in the oil price.
The fund was built on the back of Norway’s hydrocarbon wealth, and around 300bn krone (£27.73bn), or 6%, is invested in oil and gas companies.
The recommendation by Norway’s central bank pushed down shares in European oil majors including BP, Shell and Total.
“The return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices,” the bank explained in a statement.
“Therefore, it is the bank’s assessment that the government’s wealth can be made less vulnerable to a permanent drop in oil prices if the GPFG [sovereign wealth fund] is not invested in oil and gas stocks.”
The Norwegian government said it would consider the proposal, but a decision should not be expected until next year and a “thorough assessment” was required.
“The issues raised by Norges Bank are complex and multifaceted,” the finance ministry said.
The bank did not set a deadline for when the fund should drop its oil and gas holdings. However, it made clear that its recommendation involved divesting from existing oil and gas shares as well as ruling out future investments.
The move was welcomed by Paul Fisher, former deputy head of the Bank of England’s Prudential Regulation Authority and senior associate at the Cambridge Institute for Sustainability Leadership.
“It is not surprising that we see the world’s largest sovereign wealth fund managers no longer prepared to take the increasing risk associated with oil and gas assets, which do not have a long-term future,” he said.
Greenpeace Norway welcomed the central bank’s intervention, but said Norway must now also cease exploring for oil in the Arctic.
“Norway is already heavily invested in oil and gas resources, so selling off the oil fund’s fossil stocks will clearly help reduce our financial carbon risk,” said Truls Gulowsen, head of the group.
The oil price fell below $30 a barrel in January 2016 during a two-year slump, but has since recovered to just over $60 in recent weeks.
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