Norway: in the path to stranded assets
On March 8, Norway’s sovereign wealth fund announced their plan to dump oil and gas exploration companies from its portfolio. This means it will sell its holdings in 134 companies, classified as oil and gas exploration and production companies by the index provider FTSE Russell, according to The Guardian. In total, the shift in strategy will affect about $7,5bn. It is the largest sovereign wealth fund with a total AUM of approximately $1 tn, most of it coming from…Norwegian oil production and exports. Fully integrated oil and gas companies such as BP, Total and Shell are not impacted by this decision, as they are considered as potential positive investors in renewable energies.
Photo: Carina Johansen / Bloomberg
"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 oil and gas, rather than selling a broadly diversified energy sector," Minister of Finance Siv Jensen was quoted as saying. In 2015, Norway’s sovereign fund already decided to divest in coal, taking the lead in decarbonisation and ethical finance that might make exploration and production more expensive.
Charlie Kronick, oil campaigner for Greenpeace UK, offered grudging approval for the plan. “This partial divestment from oil and gas is welcome, but not enough to mitigate Norway’s exposure to both global oil and gas prices and the wider financial ramifications of climate change,” he told The Guardian. “However, it does send a clear signal that companies betting on the expansion of their oil and gas businesses present an unacceptable risk, not only to the climate but also to investors.”
In other words, oil and gas are at risk of becoming stranded assets and need to be assessed accordingly. With a more restricted and expensive access to funding, this might be a self-fulfilling prophecy.
Emeric Nicolas, Head of Data Science Dpt.
Sources: Beyond Ratings, Financial Times, Bloomberg