Norway's government has been told its state-run fund should drop its investments in oil and gas stocks.
"Our perspective here is to spread the risks for the state's wealth", Egil Matsen, the deputy governor at the central bank in charge of overseeing the fund, said in an interview in Oslo on Thursday. The fund could dump up to $40 billion (€33.9 billion) worth of shares in worldwide oil giants such as Royal Dutch Shell, BP, Chevron and Exxon Mobil.
The fund also held 1.7 percent of Italy's Eni, 1.6 percent of France's Total and 0.9 percent of Sweden's Lundin Petroleum, among others.
Oil and gas equities now account for around 6% of the Government Pension Fund Global's benchmark index, or just more than 300 billion Norwegian kroner ($36.49 billion). The index has recovered from its summer lows on the back of rising crude prices but it remains down 5 percent year to date and is among the worst sectoral performers in Europe. While the fund says the plan isn't based on any view on the future of oil prices or the industry, it will likely add pressure on oil producers, already struggling in a world where renewable energy is gaining sway. Now, the fund is planning to dump oil and gas stocks.
"However, in periods of substantial and prolonged oil price changes, the difference in returns between oil and gas stocks and the broad equity market have been considerable".
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It said the step would make the country "less vulnerable to a permanent drop in oil and gas prices", and its advice was not based on a price forecast or the sector's sustainability. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said. At the end of the third quarter, Royal Dutch Shell was the fund's third-biggest equity investment at more than $5bn.
The fund is among the world's biggest investors in stocks, owning $667 billion worth of shares in over 9,000 companies globally.
"Oil price exposure of the government's wealth position can be reduced by not having the fund invested in oil and gas stocks".
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.
Norges Bank manages Norway's $1 trillion (£758bn) sovereign wealth fund on behalf of the government. The sector accounts for 14 percent of Norway's gross domestic product (GDP). The proposal has to be reviewed by the Finance Ministry, which in turn needs to decide whether to propose it to parliament.