The world’s biggest wealth fund has recently announced that it’s considering excluding oil and gas stocks from their benchmark indexes: 6% of the fund’s benchmark index (around €31bn) is currently invested in the oil and gas sector, with stakes in companies such as Exxon Mobil Corp, Royal Dutch Shell, Chevron, and BP. (Bloomberg,FoxBusiness, FT, IPE, WSJ, 16 Nov).
In a letter to the government, Norges Bank, which manages the fund, said ministers should take the step to avoid the fund’ value being hit by a permanent fall in the oil price. The bank stated that “the vulnerability of government wealth to a permanent drop in oil and gas prices will be reduced if the fund is not invested in oil and gas stocks” and advised removing these stocks from the fund’s benchmark index. “Investing money back into the energy sector amplifies the government's exposure to the price of crude”, especially given the country’s dependence on oil and gas for about a fifth of economic output and a majority stake in Statoil ASA. Norges Bank’s analysis continues: “the return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices”. “Our perspective here is to spread the risks for the state’s wealth”, added Egil Matsen, the deputy central bank governor overseeing the fund. “We can do that better by not adding oil-price risk". (Bloomberg, 17 Nov) (Press release, 16 Nov).
The $1trillion fund will still need to wait for final word from the government, which should not be expected until next year, as a thorough assessment will be required. The issues raised by Norges Bank are complex and multifaceted,” the Ministry of Finance said. In the meantime, institutional investor heads from a variety of institutions including Storebrand, AP4, Nordea and others welcomed the announcement. Norway’s wealth fund “is clearly indicating that this is a completely new ball game,” said Sasja Beslik, Head of Group Sustainable Finance at Nordea Bank AB that oversees $250million. “This is a seminal moment”, he added. An exit by Norway’s wealth fund “will place greater responsibility on the rest of the investment community”, said Jan Erik Saugestad, the Chief Executive Officer of Storebrand Asset Management ($80bn AUM). (Bloomberg, 20 Nov).