The world's largest sovereign wealth fund should divest from oil and gas exposure and should be permitted to invest 5% of assets in renewable energy infrastructure, a think tank states.
The 8.3 trillion Norwegian kroner ($949 billion) Government Pension Fund Global, Oslo, and its investments are the subject of a new report by think tank Re-Define.
The report, Why and how the oil fund should invest in unlisted renewable infrastructure at scale, cited a 2017 recommendation by the fund's asset manager, Norges Bank Investment Management, to divest from oil and gas stocks. At the time NBIM said oil and gas equities accounted for about 6%, or 300 billion kroner, of the fund's benchmark index.
"The importance and urgency of divestment cannot be overstated," the report said.
Re-Define said all of NBIM's significant holdings in oil and gas are about 1% or less, and that NBIM also holds 2.17% of BP stock – valued at more than $3 billion. "These are non-strategic minority stakes and a year is enough time to sell them down gradually without any adverse market reaction," the report said.
It also recommended NBIM be allowed to invest 5% in unlisted renewable energy infrastructure, as a way of further reducing "the excessive fossil fuel risk it is exposed to." This would be funded by assets released through divestment of oil and gas assets.
"This sector has been shown to be the only one that performs well under various climate-change scenarios, even as fossil-fuel investments suffer badly. Such a strategy would thus be good for diversification," the report said.
Currently under consideration is a so-called environmental allocation for the fund, at less than 1% of total assets, the report said. Re-Define said this should be expanded to at least 5% "for it to be in line with what NBIM itself and the expert group on infrastructure have both suggested, and for this mandate to make any real impact on the fund itself."
Any renewable investments should be undertaken by a new subsidiary, the report recommendations said. This should be "modeled roughly" on NBIM's real estate subsidiary, Norges Bank Real Estate Management.
A spokesman for NBIM declined to comment, adding executives had not seen the report. He said the Norwegian Ministry of Finance is still considering if and how to incorporate unlisted renewable infrastructure investments into its allocation.
Questions regarding unlisted equities will be addressed in its spring report on the fund, a spokeswoman for the Ministry of Finance said noting that questions regarding investments in the energy sector will also be addressed.
