The Norwegian finance ministry has approved the plan for the Government Pension Fund Global (GPFG) to divest oil stocks, but the latest plan involves the cull of considerably fewer stocks than those earmarked for exclusion seven months ago.
The ministry announced late yesterday: “The decision to phase out upstream oil and gas companies from the GPFG shall apply to companies classified as ‘Oil: Crude Producers’ by the index provider FTSE Russell.”
The sub-sector is to form part of the FTSE Global All Cap index after September 2020 following changes to FTSE Russell’s classification system.
The finance ministry’s decision followed up parliament’s endorsement of the proposal to omit upstream oil and gas companies from the fund’s benchmark and investment universe, it said.
The phase-out — which the ministry and the fund’s manager Norges Bank Investment Management (NBIM) have made clear is aimed at protecting the country’s overall wealth from oil-price risk and not being done for climate reasons — will be made gradually over time, the ministry said.
The ministry has taken the advice from NBIM in its letter of 11 September. In the letter, the manager advocated defining the upstream companies to be divested as those contained in the new ‘Oil: Crude Producers’ sub-sector.
From NOK300bn to NOK50bn
The ministry said that as of mid-September, 95 companies in this new sub-sector were in the fund’s benchmark.
These made up about 0.8% of the GPFG’s benchmark for equities, corresponding to about NOK54bn (€5.4bn) at the time, it said, adding that there may be some deviations between the fund’s benchmark index and actual investments.
The list of 95 companies compares with the 150 firms the ministry listed back in March as the fund’s equity holdings that were categorised by FTSE Russell as exploration and production companies within the oil and gas sector category.
Back in March, NBIM said that according to the FTSE definition, the fund held “Exploration and Production” companies worth approximately NOK66bn at the end of 2018 – corresponding to 1.2% of the fund’s equity holdings.
The latest reduction in the scope of the divestment brings the planned investment exit even further from the recommended sell-off of more than NOK300bn (€31bn) of oil and gas equities that was originally proposed in November 2017 by NBIM.
The total divestment may now be around the value of the GPFG’s holding in Royal Dutch Shell, which was worth NOK51.3bn at the end of 2018.
The upcoming classification “Oil: Crude Producers” was defined by FTSE Russell in July as “companies engaged in the exploration for and drilling, production, and supply of crude oil on land”.
Firms primarily exploring and drilling for oil and gas in offshore areas are included in a separate category.
The finance ministry said it had now sent a letter to Norges Bank with suggested specific changes in the management mandate for the GPFG, and outlined how the unwanted exposure would be shed in practice.
“By using the index provider’s classification, the GPFG’s benchmark index and investment universe will continuously be delimited towards upstream oil and gas companies, including corporate events, new listings and new information on or changes in companies’ activities over time,” it said.