Norway's central bank recommends removal of oil stocks from sovereign fund

Norway's central bank recommends removal of oil stocks from sovereign fund

"The investments in the GPFG and the stake in Statoil result in a total exposure to oil and gas equities for the government that is twice as large as would be the case in a broad global equity index", Norges Bank said.

The proposal came in a letter sent by the central bank to the finance ministry and signed by its governor, Oeystein Olsen, and the chief executive of the fund, Yngve Slyngstad, Deputy Central Bank Governor Egil Matsen said in an interview. The government, which also controls Statoil ASA and offshore oil and gas fields, was forced to withdrew cash from the fund for the first time previous year to meet spending commitments after oil prices dropped.

Matsen emphasised that the recommendation is to remove oil and gas stocks from its benchmark index but that it wants to keep them as part of its "investment universe". The move would also mean raising its investments in other sectors.

The fund is the world's largest sovereign wealth fund.

The Norwegian central bank, which runs the Oslo-based fund, is recommending the fund be divested of more than $37 billion, or about 6.0 percent of the fund's benchmark equity index, according to Bloomberg.

The plan would entail the fund, which controls about 1.5% of global stocks, dumping as much as $40 billion of shares in worldwide giants such as Exxon Mobil Corp. and Royal Dutch Shell.

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At the end of the third quarter, Royal Dutch Shell was the fund's third-biggest equity investment overall, worth around US$5.34 billion and exceeded only by its ownership in Apple and Nestle. However, it made clear that its recommendation involved divesting from existing oil and gas shares as well as ruling out future investments.

Nicolò Wojewoda of 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". "The straight answer is that all other sectors would be weighted up in proportion".

While Norway has built much of its sovereign wealth through oil and gas development in the past-six percent of the fund is invested in fossil fuels-it's now home to a fast-growing solar power sector, with solar installations rising by 366 percent from 2015 to 2016.

The timing of the coming divestments is as yet unclear.

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.

The aim of the proposal is to make Norway's wealth less vulnerable to a permanent drop in oil prices, especially at a time when the fund is increasing the proportion of its portfolio it invests in equities to 70 percent from 60 percent previously.

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