Norway’s Sovereign Wealth Fund Divests from Coal

This Nordic country’s oil reserves are only the 21st largest on Earth, but while oil giants Venezuela and Nigeria frittered away their hydrocarbon wealth, Norway has invested its relatively meager oil revenues into its people. Established over 25 years ago, Norway’s Government Pension Fund is the largest sovereign wealth fund in the world, and is worth approximately $825 billion. According to the Norwegian government, the purpose of the fund is to pay for the country’s welfare programs for current and future generations.

And last week, the fund’s managers announced that divestment from coal companies is underway.

Norway’s government began considering a divestment strategy from coal in 2014. Until then, the country’s finance ministry insisted that there was no need for “negative filtering” in order to exclude conventional energy companies from the fund.

The fund had enjoyed a period of rapid growth, due in part to oil and coal revenues, but also because of the ongoing devaluation of the country’s currency. But as oil prices declined, and as the calls for divestment from fossil fuels became louder, the ministry appointed a task force of economists to reevaluate the fund’s investment strategy. A government committee then recommended that any change to how the fund was managed should be based on science.

So last summer, Norway’s parliament agreed to sell off investments in companies that generated more than 30 percent of their revenues from coal. Meanwhile, the fund has announced that about $6 billion of its assets will be diverted into “environmental investments.”

As many as 52 companies have been banned from the fund, the Guardian reports. They include China Coal Energy; American coal giants AES and Peabody Energy (which declared bankruptcy last Wednesday); and the Indian companies Reliance Power and Tata Power.

While environmental groups in general welcomed this announcement, Greenpeace Norway has been more guarded with its praise. Last summer the NGO released a “to-do” list that revealed 122 companies, which according to the Norwegian Parliament’s standards, should be eliminated from the fund.  Many companies on that list include some of the largest electric power utilities in the U.S. Greenpeace suggested the amount of securities the fund should liquidate totals about $8.2 billion, which is still less than 1 percent of the fund’s total assets.

Activist investor organizations, including Ceres, have long argued that pension funds should divest from fossil fuels for a wide range of reasons, from the fracking industry’s threat to water quality to the passage of more regulations that aim to keep climate change risks in check. A major study co-written by London School of Economics professors, and backed up by the Harvard Business Review, maintains that trillions of assets worldwide are imperiled due to short- and long-term climate change risks. California’s public employee pension fund (CALPERS), one of the world’s largest pension funds, was instructed to divest from coal companies by July 2017. Other states, including Vermont, are considering similar divestment strategies.

Coal, of course, is easy pickings for pension funds. Clean energy technologies, while rapidly becoming more scaleable and cheaper, still have a long path ahead. The natural gas boom in the U.S. has allowed utilities to shift away from coal-burning to natural gas-fired power plants. And while environmental groups insist pension funds are still highly exposed due to investments in oil and gas companies, the reality is that even if electric vehicles significantly advance in the next decade, much of the world will still require oil for transportation needs. But as a John D. Rockefeller descendant explained, the nexus of climate change and emerging technologies means cashing in those fossil fuel assets should be begin sooner rather than later.

Image credit: Wiki Commons (CSIRO)