David Foxwell reflects on moves by Norway’s sovereign wealth fund to stop investing in E&P companies while continuing to back transitioning oil companies
In September last year, I argued the way Norway manages its sovereign wealth fund is likely to change.
I said at the time that I thought the country might remain invested in oil, but a new focus on sustainable use of the oceans was likely to benefit renewable energy, such as offshore wind, and hasten a retreat from oil and gas.
Last week, something of the sort happened: the Government Pension Fund announced it plans to sell its shares in oil exploration and production (E&P) companies, but it will remain invested in what can broadly be called ‘oil companies’ that are in transition to a more sustainable business model. That is, those that are also applying their skillset to growing opportunities in markets such as offshore wind.
Decisions and statements from the fund are always ‘finessed' in a way that reminds me of announcements from the US Federal Reserve about fiscal policy in the US. Norway's fund said it wants to avoid exposure to a wholesale collapse in oil prices. The change it has announced only affects about 2.5 % of its massive portfolio, but make no mistake, a major change has taken place.
A sovereign wealth fund built on oil is edging away from investing in it, but wants to remain invested in integrated companies that are moving into green energy. Those include companies such as Ørsted, and to a lesser extent Equinor, for whom offshore wind is a small but growing part of the portfolio. Shell and Total are other examples.
As I noted back in September, if managers at the fund find a company in which the fund has invested and do not believe that company has a sustainable business model in the long-term, they will divest from it, as the fund already has with palm oil and other drivers of deforestation.
It is not as if the fund is engaged in a fire-sale of everything to do with big oil. It wants to continue to support companies as they develop strategies with more sustainable business operations. Being a pure-play E&P company does not fit into that category, but recognising business opportunities in the sector, many offshore oil and gas companies are already moving into offshore wind, and those are the types of company in which the fund will remain invested.
“Norges Bank has every reason to invest in companies that are moving into sustainable ocean industries, such as offshore wind, but energy companies that don’t are less and less likely to benefit from its largesse,” I said last year. If they don’t move sufficiently quickly, perhaps the fund will ‘encourage’ them, and its next step is surely to actively invest in renewable energy in the way that it used to with E&P companies. It may not do so yet, but it will.