Norway’s sovereign wealth fund told to divest from coal

The Norwegian parliament has made a landmark decision to divest from companies generating 30% or more revenue from coal. The decision is significant given Norway’s USD 900 billion sovereign wealth fund is the world’s largest.

coalThe finance committee agreed in a bipartisan motion that the fund, which owns about 1.3% of all listed companies globally, should sell stakes in firms that generate more than 30% of their output or revenues from coal-related activities.

USD 5 billion divestment
The new exclusion criteria would be applicable to producers, such as mining firms, and consumers, such as power generators. The fund, managed by the central bank, would make the actual divestment decisions, also taking into account if companies plan to reduce their coal exposure.

The environmental organisation Urgewald estimates that the Norwegian sovereign wealth fund owns shares in coal companies worth USD 10 billion. However, it would only need to divest from half of the investments to comply with the new regulations. The reason for this is that companies like Glencore, the world’s largest exporter of coal, Anglo American and BHP Billiton has less than 30% revenue derived from coal.

Still, USD 5 billion is a decent amount and sends and important signal to companies and investors.

Reduce financial risk
The law still needs to be approved by parliament and the final vote is due to be held on Friday 5 June. It is expected to be a formality.

There has been some opposition to the law. It has been argued that the sovereign wealth fund should not be used as an environmental tool. The long term goal for the fund should be to secure maximum return to preserve the wealth of the country.

What the opposition fail to consider is that coal is a natural resource that runs the risk of being forced to be left in the ground. At some stage the world leaders will have to take action to fight climate change and as coal has the highest CO2 emissions among conventional fossil fuel, it is most likely the first to be stranded.

This pose a serious risk to anyone invested in coal-companies as their share value will collapse. Hence the new law will reduce the financial risk of the world’s biggest sovereign wealth fund.

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