The Norwegian Sovereign Fund has announced a $7 billion sale of shares for 134 exploratory fossil fuel and energy companies.
Norway owns the largest sovereign fund in the world, the Government Pension Fund Global (GPFG), which is valued at over $1 trillion. In 2017, Norges Bank suggested that the fund step away from oil and gas stocks to protect against consistent downward trends in oil prices. The problem is that 6.4 percent of the fund is invested in these stocks.
Over the last two years, the fund has honed a plan to divest upstream oil and gas shares. It will also move away from smaller exploratory fossil fuel and energy companies. The selloff is estimated to be worth about $7 billion (NOK 66 billion) from 134 companies. However, the fund has announced it will not sell any Equinor shares for the time being. NHH rector and professor Øystein Thøgersen explains:
We have well illuminated four to five opportunities. Of those who seem realistic and who are a very direct way of getting rid of oil risk, then these two men should possibly consider carefully.
The fund is going to be selling shares in companies like Advantage Oil and Gas and Apache Energy, despite strong market presence within some of the smaller exploratory energy companies.
The companies being sold off are only those actively exploring additional non-renewable energy resources. At press time, it is unclear how the fund will reinvest its money. Some sustainability supporters are speculating and hoping to see the fund invest further into renewable energy companies.
How Much Difference Will It Make?
The fund is currently invested as follows:
At the end of 2016, the fund’s equity investments were split between investments in the financial sector (23.3 percent), industrial companies (14.1 percent), consumer goods (13.7 percent), consumer services (10.3 percent), healthcare (10.2 percent), technology (9,5 percent), oil and gas (6.4 percent), basic materials (5.6 percent), telecoms (3.2 percent) and utilities (3.1 percent).
Even major companies like Swedish Lundin Petroleum, which the fund owns a 1.19 percent stake in, are on the fund’s chopping block. Some expect the selloff to result in a marked increase in survivability granted oil prices drop and remain below the projected threshold of NOK 420 per barrel.
The Norwegian Sovereign Fund fears rippling effects of a long-term dip in oil prices. Thus, Norges Bank is recommending that it vacate the oil and gas energy sectors. The fund provided a revised proposal which suggested a 20 percent selloff of energy-related shares. Only “upstream” energy companies on the FTSE Russell are being sold.
To spread out its risk, the fund will likely reinvest these gains into other sectors, though where they will be placed has not yet been determined. The selloff of coal companies in 2017 was part of an environmentally-focused decision to move away from heavy polluters.
— Martti Ristimäki (@MarttiRistimaki) March 9, 2017
However, the government has stated this selloff is strictly financially motivated. Its petroleum policy also presently “remains unchanged.”