Norwegian government fund to phase out ‘upstream’ oil stocks but not majors

Norway’s government has said its $1trn sovereign wealth fund should not remove all fossil fuel stocks from its benchmark index, but has proposed excluding “upstream” oil and gas producers to avoid oil price risk.

This means companies like Lundin Petroleum, Canadian Natural Resources, Cenovus Energy, Chesapeake Energy, Woodside Petroleum and Encana Corporation could be sold off – over time – by Norway’s Government Pension Fund Global, one of the world’s largest investors. The full list of 134 companies is here.

Norway’s government has said companies classified by index provider FTSE Russell as ‘Exploration & Production’ should be excluded – this comprises 134 companies with a market value of NOK 70bn (€7.1bn).

It follows a two-year consultation after a request from GPGF’s asset manager Norges Bank Investment Management to remove fossil fuels from its benchmark index as insurance against oil price decline.

Norway’s Minister of Finance Siv Jensen said: “The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline. Hence, it is more accurate to sell companies which explore and produce gas, rather than selling a broadly diversified energy sector.”

Exploration and production companies should be phased out from GPFG over time in consultation with Norges Bank, said the Norwegian government.

But the move must now be voted through by Norway’s parliament which could make changes to how far GPFG’s fossil fuel divestment will go. The vote is expected in the coming months at the Storting, where the government has a majority.

Jensen also said that the Ministry of Finance will ask Norges Bank to review its efforts relating to climate risk in the GPFG, focused on companies it holds with the largest exposure.The decision on GPFG’s fossil fuel stocks was based on advice from Norges Bank, an expert group chaired by economics professor Øystein Thøgersen, a former executive board member of Norges Bank and public consultation.

Catherine Howarth, chief executive of campaign group ShareAction, said: “Norway’s announcement is further evidence that investors are growing increasingly dissatisfied with oil exploration and production companies.

“Institutional investors are withdrawing their capital from oil and gas companies on the grounds that quicker-than-expected growth in clean energy and associated regulation is making oil and gas business models highly vulnerable. This announcement will put pressure on investors to ramp up their engagement with integrated oil majors ahead of the AGM season.”

Martin Norman from Greenpeace Nordic said it was a, “baby step in the right direction”.

“It is not dealing with the underlying problem,” he said. “It is a bit of a mixed feeling. Norway is still overexposed to the fossil fuel industry. And it still holds shares in the State’s Direct Financial Interest and Equinor.

“It’s a lost opportunity for Norway. But the government does talk about climate risk and it is the 2nd step in the right direction after the coal decision.”

The expert commission that advised against GPFG divesting fossil fuels said it would be more effective for the government to reduce its own direct holdings in the fossil fuel sector such as its 67% stake in Equinor (formerly Statoil) to insure against oil price declines.

In 2015, Norges Bank started divesting from coal. Alongside today’s decision on Norges Bank, the government said it did not plan to sell shares in the State’s Direct Financial Interest (SDFI) or in Equinor to reduce the state’s oil price risk.