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

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

Norway's largest private pension by value said that if the fund did ditch oil and gas stocks, the action could influence other investors.

Europe's oil and gas index hit its lowest level since mid-October on Thursday after Reuters reported that Norway's trillion-dollar sovereign wealth fund had proposed to drop oil and gas companies from its benchmark index.

Around six percent of the fund's holdings, or $37 billion, consist of oil- and gas stocks such as BP, Royal Dutch Shell and ExxonMobil. "It does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector", he added.

The proposal is based on the oil and gas sector as defined by the FTSE reference index.

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The proposal came in a letter sent by the central bank to the finance ministry and signed by its governor, Oeystein Olsen, and the chief executive of the fund, Yngve Slyngstad, Deputy Central Bank Governor Egil Matsen said in an interview.

"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.

In September, the fund value reached $1 trillion for the first time after being boosted as the world's major currencies strengthened against the USA dollar, combined with strong equity markets. It owns owns more than $660bn-worth of shares in over 9,000 companies globally, and reached the $1tn-mark in terms of assets under management in September.

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. In 2016, Norway also withdrew cash for the first time after sinking oil prices opened up holes in the budget.

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The fund could still invest in the sector if other parts of the fund's mandate are fulfilled by having some investments in some of the companies, Matsen said. 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.

The decision now rests with the Norwegian Ministry of Finance.

"The return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices", the bank explained in a statement.

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