World's biggest wealth fund wants out of oil and gas

$1tn Norwegian oil fund plans to ditch oil and gas stocks

At the end of 2016, the fund's equity investments were split between investments in the financial sector (23.3 per cent), industrial companies (14.1 per cent), consumer goods (13.7 per cent), consumer services (10.3 per cent), healthcare (10.2 per cent), technology (9,5 per cent), oil and gas (6.4 per cent), basic materials (5.6 per cent), telecoms (3.2 per cent) and utilities (3.1 per cent).

Around six percent of the fund's holdings, or $37 billion, consist of oil- and gas stocks such as BP, Royal Dutch Shell and ExxonMobil.

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.

The sovereign wealth fund, fuelled by the state's oil revenues which have dropped sharply in recent years, is now worth around 8.24 trillion kroner (854 billion euros, $1 trillion), invested primarily in shares (65.9 percent) as well as bonds and real estate.

The bank did not set a deadline for when the fund should drop its oil and gas holdings.

"The risk for the oil sector is how many investment funds will downsize their exposure to extractive industries", said Jason Kenney, oil analyst at bank Santander. The proposal is based on the oil and gas sector as defined by the FTSE reference index.

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 invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas.

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

"It clearly stands out, perhaps not surprisingly, but not obviously, that indeed there is a substantial difference.in return between the oil and gas sector and the broad stock market in periods when the oil price changes substantially", Matsen said. "We can do that better by not adding oil-price risk".

Thursday's recommendation comes at a "good time because the stock portion will now be increased to 70% and that would also mean that we would buy more oil and gas stocks", Matsen said.

Nicolò Wojewoda of 350.org Europe was also hopeful about the implications of Norges Bank's decision, calling it "yet another nail in the coffin of the coal, oil, and gas industry".

In the White Paper to Parliament on Long-term Perspectives on the Norwegian Economy 2017, the Ministry addressed the sensitivity of Norway's national wealth to a permanent drop in petroleum revenues.

If it backs the central bank's proposal, Parliament could vote on it in June 2019 at the earliest.

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