Asset AllocationOctober 4, 2019

Norway’s Pension Fund Divests from Upstream Energy Companies

The Scandinavian country is the latest entity to run scared from oil-dependent firms.

Reported by Staff Report

The Oslo-based Government Pension Fund Global announced on Wednesday that it will remove upstream oil and gas companies from its $1 trillion portfolio. The loss of $5.5 billion in equity follows a June proposal from the Ministry of Finance to move away from financial instruments associated with volatile oil prices.

Since 2018, a rash of entities have ducked for cover from risky energy firms that identify, extract or produce raw materials from deposits, drill wells or underground. Last week, ExxonMobil sold its upstream operations in Norway for $4.5 billion. In August, BP divested $5.6 billion of its upstream assets in Alaska. In July, French multinational oil and gas operator and supplier Total divested about $5 billion of several non-core upstream assets to Petrogas, the energy exploration and production subsidy of Oman-based MB Holding. Four months earlier, Houston-based Wishbone Energy divested $300 million in Texas- and Mexico-based upstream assets.

Exploration and production companies accounted for .8 percent of the Norway fund’s portfolio in August. The FTSE Global All Cap fund, an equity benchmark index, recently reclassified upstream energy companies, a process that will be complete in September 2020.

In a September 11 letter to the Ministry of Finance, Oystein Olsen, governor of Norway’s central bank, and Yngve Slyngstad, CEO of Norges Bank IM, which manages the fund, wrote that, “It is reasonable to assume that the market will know which stocks the the bank will be selling as aprt of this phase-out.”

Norway’s central bank recommended the move in November 2017, but the Ministry of Finance floated the proposal in March. A few months later, the fund pledged to invest in wind, solar and other renewable energy projects, both listed and unlisted.

Oil is on a downward trend. Since October of 2018, crude oil prices have fallen about 45% from 9.09 to 4.16.

The list of institutions that are steering clear from fossil fuel investments in general is growing. Last year, Ireland became the first country to divest its public fund from fossil fuels, with Royal Dutch Shell divesting $1.3 billion of its upstream oil and gas interests there. The World Bank has stopped funding new oil and gas developments.