Norway would be scrubbing around $40-billion of shares invested in global companies.
Norges Bank wrote to the Ministry of Finance today, recommending removing oil and gas sectors from its benchmark index.
"The return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices", said the bank in a statement.
If adopted by parliament, the fund would over time divest billions of dollars from oil and gas stocks, which now represent 6 percent - or around $37 billion - of the fund's benchmark equity index. While Norwegian officials say the plan isn't based on any particular view about future oil prices, it's apt to ratchet up pressure on fossil fuel companies already struggling with the growth of renewable energy. The Government aims to conclude on this matter in the fall of 2018.
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For this reason, NBIM said in its current two-year strategy plan that it would adopt a broader wealth perspective when advising the ministry.
The oil and gas sector now spans a broad range of energy-related activities, including companies classified as integrated oil and gas, oil service and renewable energy.
Two years of weaker oil prices has cut into the income of numerous world's largest sovereign-wealth funds, which are in largely resource-dependent countries like Saudi Arabia and Kuwait.
"During that time, the oil and gas sector will remain an important part of the global economy". "An economy such as Norway, heavily dependent on oil revenues to underpin its sovereign wealth fund, is to be congratulated for taking a timely and foresighted approach to managing its transition risk exposure". Pulling out of companies like Royal Dutch Shell and BP would make Norway's wealth "less vulnerable to a permanent drop in oil and gas prices", according to the country's central bank, the FT reported. This exposure is increased several-fold when the government's future oil and gas revenues are also taken into account. Its biggest holdings include stakes in Royal Dutch Shell, Exxon Mobil, and BP.
CIBC chief economist Avery Shenfeld said higher-risk, higher-reward equities like oil and gas have a place in a balanced portfolio but he said he agrees that Norway could sell its energy shares.
Norway's largest private pension by value said that if the fund did ditch oil and gas stocks, the action could influence other investors.