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

$1tn Norwegian oil fund plans to ditch oil and gas stocks

Norges Bank Investment Management, which runs Norway's $1tn oil fund, has recommended that the sovereign wealth fund ditches its investments in oil and gas stocks.

The deputy central bank chief supervising the fund said if approved the proposal would mean cutting its investments in oil and gas companies which now represent 6 percent - or around $37 billion - of its benchmark equity index.

The fund's biggest oil and gas holding at the end of 2016 was $5.36bn in Anglo Dutch firm Shell, followed by $3.06bn in ExxonMobil, $2.04bn in fellow United States oil firm Chevron, $2.02bn in the UK's BP, and $2.01bn in France's Total. It also held stakes in Italy's Eni, France's Total and Sweden's Lundin Petroleum.

"Our advice is to simply remove the oil and gas sector, as it is defined in the FTSE reference index, from the fund's reference index", Matsen said.

"Nothing is imminent and even if the advice is fully implemented we believe this will have limited impact on the oil and gas producers, as the holdings of Norges Bank are relatively small and no doubt will be disposed of over an extended time frame", she added.

"Norway is already heavily invested in oil and gas resources, so selling off the oil fund's fossil stocks will clearly help reduce our financial carbon risk", said Truls Gulowsen, head of the group.

"However, in periods of substantial and prolonged oil price changes, the difference in returns between oil and gas stocks and the broad equity market have been considerable". The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said.

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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 $5.34-billion and exceeded only by its ownership in Apple and Nestle.

Government finances in Norway have been hit hard by the drop in oil prices in recent years.

The fund, formally known as the Government Pension Fund Global (GPFG), is ranked as the world's biggest sovereign wealth fund.

In addition to its holdings via the fund, Norway has its own exposure to oil and gas through untapped offshore hydrocarbon reserves, as well as its 67 percent stake in the national oil company, Statoil. The sector accounts for 14 percent of Norway's gross domestic product (GDP).

The decision now rests with the Norwegian Ministry of Finance.

At the earliest, the ministry's first opportunity could come in the spring, with a vote in parliament in June.

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