Norway jolts global energy industry
Norway’s sovereign wealth fund is by far the largest in the world. Valued at US$1tr, any move it makes tends to have a significant impact on whatever industry is in its path. This week, Norway has been advised by its central bank that it should consider divesting from oil and gas. Even aside from its multi-billion dollar investments in the sector, Norway is itself the largest fossil fuel energy producer in Western Europe, making this big news.
The advice was given to the Norwegian government on the basis that the future will see a “permanent drop in oil and gas prices” as a result of a global shift towards renewables which has led to the likes of solar and wind power pushing global energy prices down to the point where traditional fossil fuels are beginning to look uneconomical. The wind of change is blowing, and there are turbines in its path to take advantage.
Approximately 6% of the fund’s total value is invested in fossil fuels, and the recommendation from Norway’s central bank pushed down the global share price of oil and gas. Whilst the bank did not set a date by which it would be prudent for Norway to have divested by, its proposals made clear that it should be sooner rather than later and that there should be no new future investments.
Truls Gulowsen, the head of Greenpeace Norway, hailed this as “a victory for common sense,” and he was joined in this sentiment by Paul Fisher, former deputy head of the Bank of England’s Prudential Regulation Authority and senior associate at the Cambridge Institute for Sustainability Leadership. He commented that: “It is not surprising that we see the world’s largest sovereign wealth fund managers no longer prepared to take the increasing risk associated with oil and gas assets, which do not have a long-term future”.
One point of potential hypocrisy is that Norway has recently decided to try and open up areas of the Arctic for further oil exploration, but given that public opinion is against it and the government itself is being sued by Greenpeace. Whether it goes ahead is an open question at this stage.
The fund itself is the product of fossil fuel wealth which has been saved and harnessed for the benefit of the nation as a whole, rather than in the interests of a small group of shareholders. It offers an interesting case study in how a national body can work for the benefit of all if the political will is in place, and it is now offering a look at how a nation can positively affect the future of the planet.
All in all, even 6% of a US$1tr fund is not enough to sink the fossil fuel industry, but it has brought a spotlight onto the fact that there are alternatives. If this move is followed by further recommendations to invest the money into renewables instead, as seems likely, then Norway would shine a light onto an alternative path which other nations could also walk. The people who run the world’s largest hedge fund are not stupid, and if they are seeing no economic future for fossil fuels then the writing might be on the wall for the industry more quickly than expected.
