The world’s largest sovereign wealth fund will sell off more than $10bn of stocks in companies related to fossil fuels following the rubber-stamping of Finance Committee recommendations in Norway’s Parliament today. As part of a broad shift from fossil-fuels to renewable energy, the move from Norway’s center-right coalition government confirms several recent announcements including the phasing out of oil exploration and coal-related stocks.
The new guidelines mean Norway’s Wealth Fund can no longer invest in companies that mine more than 20 million tonnes of coal annually, or generate more than 10,000 MW of power using coal. In practical terms, this means the Fund will almost certainly have to sell its 2.03 percent holding in Glencore, one of the world’s largest producers and exporters of seaborne traded thermal and coking coal. The stake in the British-Swiss multinational is worth more than $1bn alone. Other forced sales would include a 2.16 stake in Anglo American, worth around $620 million.
The Fund first decided to withdraw from coal back in 2015, but set a threshold that companies should have no more than 30 percent of their operations in coal. According to Greenpeace Norway, many companies shifted focus to get under the threshold and in 2018, the country still had more than 77 billion invested in coal. This included holdings in German firm RWE, which Greenpeace Norway claims is “the company with the highest CO2 emissions in Europe.”
According to Reuters, RWE have entered into a transformation plan that includes no new coal-fired plants and major investment in renewable energy projects. “By the end of 2019, more than 60% of RWE’s plants will be able to supply electricity with little or no CO2 emissions,” said a spokesperson.
Does it go far enough?
Despite the campaigners’ estimates that the Fund will have to divest more than $10bn of stocks, they believe more should be done. “The question is why do we not go all the way out of coal? Why can’t we do as AXA, Allianz and Generali have done and exclude companies that build new coal-fired power plants? Why not do as KLP and Storebrand have done and leave coal completely?” stated a press release.
During the Finance Committee’s review of the proposals, three of Norway’s smaller left-wing parties wanted to exclude companies with any coal-related activities from the Fund. Their wish was convincingly defeated as the Centre party and main opposition Labour party voted with the Government.
Despite the divestment of oil explorations stocks, the Fund will still hold stakes in petroleum companies that have renewable energy divisions, including the likes of BP and Shell. Of course, the Norwegian government still owns around two-thirds of Equinor, the global energy giant still known to many by its previous name Statoil. Equinor pumps the equivalent of two million barrels of oil per day, but has begun a diversification into renewables.
The Fund will also be cleared to invest in unlisted renewable energy projects, although a cap of 2% of the fund value has been proposed by the government for such investments.
Norway’s Wealth Fund
The sheer size of Norway’s Wealth Fund – its holdings total more than one trillion dollars – means that any move to restrict investments will have significant financial consequences in global markets.
The Fund, officially known as the Government Pension Fund Global, was set up in 1990 to give the Norwegian government flexibility in its fiscal policy and loosen the economy’s tie to oil prices. The Fund is an integrated part of the government’s annual budget but withdrawals are strictly limited.
The Fund’s diverse holdings include equities, fixed income and real estate on a global scale. Managed by Norges Bank Investment Management, the Fund’s value currently stands at 9.1 trillion Norwegian kroner, more than one trillion dollars. In the first quarter of 2019, the Fund enjoyed returns of $85bn, its strongest ever quarterly result.