The Norwegian Central Bank, known as Norges Bank, has told its government to dump its shares in oil and gas companies, a move that could have a significant impact on the sector.
The announcement comes following rising concerns that investing money into the energy sector has left the government exposed to the unstable price of crude oil, especially given the country’s shares in Statoil ASA, a Norwegian multinational oil and gas company.
Norges Bank, which runs the country’s $1 trillion sovereign wealth fund, known as the Government Pension Fund, and the biggest in the world, has voiced its concern for the state’s $37 billion investments in oil and gas companies, saying in a statement earlier this week that the proposal, if carried out, would make the country “less vulnerable to a permanent drop in oil and gas prices.” Despite the clear-cut claim, it is understood that the recommendation was not born out of any sort of speculation over the future of the market or the sector’s sustainability.
Commenting on the proposal, the bank’s deputy governor, Egil Matsen, claimed, “the recommendation is based exclusively on financial arguments and analyses of the government’s total oil and gas exposure.”
Moreover, regarding the importance of protecting the government’s economic interests, Matsen went on to state that “oil price exposure of the government’s wealth position can be reduced by not having the fund invested in oil and gas stocks,” thus further justifying the move as a stabilizing recourse to ensure national prosperity.
The proposal has had an immediate impact, pushing down the value of shares in European oil companies. By the afternoon of the 16 November, European oil and gas shares were trading down 0.39%, hitting the lowest level since mid-October.
The Norwegian government has said it will consider the proposal, opening the possibility of a vote by 2019, with the finance ministry putting out a statement that “the issues raised by Norges Bank are complex and multifaceted,” thus worthy of much deliberation and study.
The proposal has been welcomed by individuals and interest groups alike. For example, Paul Fisher, former deputy head of the Bank of England’s Prudential Regulation Authority and current senior associate at the Cambridge Institute for Sustainability Leadership, commented on the quite “unsurprising” move for “the world’s largest sovereign wealth fund managers” to no longer “take the increasing risk associated with oil and gas assets, which do not have a long-term future.” The move has also been praised by the Norwegian Greenpeace organization, with Truls Gulowsen, the group’s executive, stating that, on account of the nation’s already heavy investments in oil and gas resources, “selling off the oil fund’s fossil stocks will clearly help reduce [the country’s]financial carbon risk.” Finally, Jan Erik Saugestad, chief executive of the company Storebrand Asset Management, shared his approval of the program from a fiscal point of view, claiming that, the move “makes perfect sense,” and that it “is a rational move given the overall exposure the Norwegian economy has towards oil.”
In a time when questions surrounding the environment are ever-present, it would seem that this proposal, if seen through, presents a small victory for preservationists and opponents of climate change practices. Whether or not the plan materializes remains to be seen, though it certainly seems to be in the nation’s best interests, both fiscally and environmentally, to consider some rendition of the proposal.