Daily Management Review

Norway pension fund holds off on ditching oil companies


In November 2017, the largest sovereign investment fund in the world, the Norwegian Oil Fund, with assets reaching $ 1 trillion, shocked global markets. Representatives of the fund said they intend to abandon investments in oil and gas companies totaling $ 35 billion in order to protect the Norwegian economy from a constant drop in oil and gas prices.

However, after almost 2 years, the Norwegian Oil Fund plans to reduce investments not by $ 35 billion, but by $ 6 billion. This is less than share of the fund in Shell alone. Norwegian economists note that such a decision will be more likely a symbolic step that will not have the desired effect.

The initial preposition shocked the markets. Investors wondered if other large funds would refuse to invest in the oil and gas sector, while shareholders and environmentalists were increasingly urging large oil companies to take climate change seriously and prepare their business portfolios for peak oil demand, whenever it occurred.

After several months of discussion, the Norwegian Ministry of Finance decided to exclude 134 oil and gas companies from the fund.

At the end of 2018, the Norwegian fund owned stakes in oil exploration and production companies in the amount of $ 7.8 billion (NOK 66 billion).

For comparison: at the end of 2018, the fund owned shares in oil and gas companies totaling $ 37 billion, and investments were made in 341 companies. At the same time, the fund invested less than 1% in Exxon and Chevron, 2.45% in Shell, 2% in Total, 2.31% in BP and 1.59% in Eni. Shell alone accounted for $ 5.9 billion.

Now, 2 years after the initial proposal, Norway is ready to make a final decision on which companies will be excluded from its Oil Fund. In fact, it pretty much reduced the initial list of companies that were going to be excluded, leaving only those firms that are engaged in oil exploration and production. At the same time, the fund will continue to invest in large oil companies. 

According to Bloomberg estimates, at the end of 2018, the Norwegian fund owned shares of a number of companies in the "crude oil producers" category for a total of $ 5.7 billion. This is less than the share of the fund in Shell worth $ 5.9 billion.

The overall impact of the world's largest investment fund, which refuses to invest in a number of oil companies, will be insignificant for stock markets, but its planned actions may force institutional investors to reconsider their participation in the oil and gas sector. Calls for a gradual departure from this segment are getting louder.

source: oilprice.com