Strong oil demand helps NBIM beat benchmark despite weaker renewables

Norway’s $1.3trn wealth fund also publishes biodiversity expectations for companies

Norges Bank Investment Management (NBIM) has attributed its strong returns in the first half of 2021 in part to good performance from the energy sector, buoyed by rising oil prices. 

The firm, which runs Norway’s trillion dollar sovereign wealth fund, beat its benchmark at 9.4% (€95bn) returns over the period, with energy stocks delivering the strongest returns, 19.5%.

NBIM cited the impact of rising global demand for oil as economies began to ‘unlock’ from the pandemic, and moves by OPEC+, the intergovernmental body that sets policy among oil-rich states, to restrict supply. As of yesterday, the Dow Jones US Oil & Gas Index was at $399, up from $315 at the end of 2020.

The finance sector provided NBIM with the second strongest returns this year so far, bringing in 18.2%, with investments in banks “performing especially well” at 23.2%. 

Overall, NBIM’s equity investments, which constitute 72.4% of its portfolio, returned 13.7% in the first half of the year.

The fund beat its benchmark by 0.28%. That benchmark is set by Norway’s Ministry of Finance and is a composite of  FTSE Russell’s Global All Cap stock index and Bloomberg Barclays Indices.

The Ministry of Finance mandated NBIM to invest in unlisted renewable energy infrastructure last year, and the fund completed its first deal in May, taking a 50% (€1.4bn) stake in the Borssele 1 & 2 wind farm in the Netherlands. The return on that investment was -1.93%, according to the latest results, but NBIM said this was due “mainly to exchange rate movements”, adding that there “was no change in the value of the investment at the end of the period relative to the purchase price”. 

But, despite strong performance in its broader equities portfolio, NBIM revealed that Spanish wind energy firm Iberdrola was its second worst-performing stock, behind Japanese pharmaceutical company Daiichi Sankyo.

In addition to its half year results, NBIM also today published expectations for portfolio companies around management of biodiversity impacts. Among the expectations included in the eight-page document were that boards should disclose “material impacts of activities, products and services on biodiversity and ecosystems”, using, where possible, “recognised reporting methods and metrics”.