Norway's fund divestment proposal sends European oil index to one-month low

Norway's fund divestment proposal sends European oil index to one-month low

Norway's fund divestment proposal sends European oil index to one-month low

In a move co-founder Bill McKibben called "astonishing", Norges Bank, which oversees the world's largest sovereign wealth fund, advised the Norwegian government to dump all of its shares in oil and gas companies, leaving those entities out of its $1 trillion fund. According to Norges Bank, their analysis of the oil price risk in Norway's overall wealth fund risk was based on future oil and gas revenues, and its direct holdings in Statoil and the GPFG.

"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".

Norway relies on oil and gas for about one-fifth of its economic output, and according to the central bank, divesting of oil and gas would make sense. Its biggest holdings include stakes in Royal Dutch Shell, Exxon Mobil, and BP.

"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.

The fund's managers recommended Thursday that oil and gas investments worth roughly $37 billion be sold in order to protect the country against a permanent drop in energy prices.

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Owning close to 1.5% of global stocks, the Norwegian fund largely follows indices, but is allowed some active management of its portfolio. It also held stakes in Italy's Eni, France's Total and Sweden's Lundin Petroleum. In 2014, Stanford University said it wouldn't invest in coal-mining companies, and under pressure from environmental activists other USA endowment funds have debated whether they should pull out of fossil fuel investments.

"This is the biggest pile of money on the planet, most of it derived from oil - but that hasn't blinded its owners to the realities of the world we now inhabit". Furthermore, the Government is responsible for the Norwegian economy as a whole and must take a broad and comprehensive approach to this issue, says Finance Minister Siv Jensen. In 2016, Norway also withdrew cash for the first time after sinking oil prices opened up holes in the budget.

The wealth fund, which controls about 1.5 percent of global stocks, proposes dropping %37 billion of shares in worldwide giants such as BP, Exxon Mobil Corp., Royal Dutch Shell Plc. and other holdings.

If it decides to back the central bank's proposal, the country's parliament would be able to vote on it in June 2019 at the earliest.

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