The manager of Norway’s giant sovereign wealth fund has recommended divesting from more than NOK300bn (€31bn) of oil and gas equities.

Norges Bank wrote to the Ministry of Finance today, recommending removing oil and gas sectors from its benchmark index.

Øystein Olsen, chairman of Norges Bank, and Yngve Slyngstad, chief executive of Norges Bank Investment Management (NBIM), wrote: “In this letter, we conclude that the vulnerability of government wealth to a permanent drop in oil and gas prices will be reduced if the fund is not invested in oil and gas stocks, and advise removing these stocks from the fund’s benchmark index.”

The two men said this advice was based exclusively on financial arguments. 

“It does not reflect any particular view of future movements in oil prices or the profitability or sustainability of the oil and gas sector,” they wrote.

NBIM is the arm of the central bank which manages the Government Pension Fund Global (GPFG). The fund was launched to invest the proceeds from Norway’s oil reserves.

Norges Bank said its analyses of the oil price risk in Norway’s overall government wealth were based on the government’s future oil and gas revenues, its direct holdings in Statoil and the GPFG. 

“The investments in the GPFG and the stake in Statoil result in a total exposure to oil and gas equities for the government that is twice as large as would be the case in a broad global equity index,” the bank said.

This exposure increased dramatically when the government’s future oil and gas revenues were also taken into account, it said.

Oil and gas equities made up about 6% of the GPFG’s benchmark index or just over NOK300bn, Norges Bank said, and 4% of GPFG’s investment portfolio.

The bank said that the oil fund accounted for a much larger share of the government’s wealth than it did in previous years, and so was an integral part of fiscal policy.

For this reason, NBIM said in its current two-year strategy plan that it would adopt a broader wealth perspective when advising the ministry.