LONDON (Reuters Breakingviews) - Norway has taken a step in the right direction, but then slipped on an oily patch. Oslo on Friday finally answered a question that had kept climate change watchers on tenterhooks: whether its $1 trillion Government Pension Fund Global would continue to invest in oil and gas stocks. Its equivocal response represents a missed opportunity.
From now on, Norway’s mega-fund will start to offload around $7 billion of shares in groups that exclusively look for and produce oil. Dumping stocks that represent about 1 percent of its $600 billion-odd equity holdings is clearly better than doing nothing, the approach advocated last August by a government-appointed group of experts. But it falls well short of selling $37 billion of stocks in bigger oil groups that both produce and refine crude, like Royal Dutch Shell, as the country’s central bank had recommended in November 2017.
Like any big crude producer, Oslo is treading a fine line. If oil demand were to peak in the next decade, diversifying as much as possible into less carbon-heavy areas would be a good idea. But with many forecasters expecting that zenith in 2040, and the likes of Shell sporting 5 percent-plus dividend yields, there is a practical case for the status quo.
One of the expert group’s justifications for this is that what Norway decides to do with its shareholdings in oil companies is a trifling matter compared with the wealth it has already accumulated and the likelihood it will extract a large portion of the remaining oil reserves over the next decade. If so, that could equally be used as an argument to ditch these shares. Arguing that the fund should remain in the big oil groups because these companies are investing in renewables is equally odd. Shell, for example, will continue to invest over 90 percent of its $25 billion annual capex in oil and gas.
In 2018, the GPFG’s value dipped by 6 percent, partly because of its overexposure to equities and underexposure to potentially higher-yielding areas like private equity. Politicians forbid a presence in the latter. It’s a shame Oslo has made the equally political call to pull its punches when it comes to setting the agenda on climate change.
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