Norway grapples with growing political influence from $ 1.4 billion oil fund
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Norway’s $ 1.4 billion oil fund is testing the logic and limits of some of the hype around responsible investing.
Can an investor fully funded by oil and gas revenues take a credible stance against climate change? Can a fund ultimately controlled by the Norwegian parliament and government decide what to invest – and, more importantly, what not to invest – and not be seen as acting politically?
These questions and many more have come to animate a lukewarm national election campaign that should see the return of the center-left to power after eight unprecedented years of center-right rule in Oslo. The oil fund, now headed by a former top hedge fund manager, is the world’s largest sovereign wealth fund, holding an average of 1.4% of all listed companies globally.
Since its inception 25 years ago, Norwegian politicians have been chanting their hearts out that the fund is purely a financial investor and not a foreign policy tool (or anything else) for the party that owns the power in Oslo.
But this belies the reality of the fund’s influence on capital markets. The fund has grown so rapidly – both thanks to soaring oil markets and revenues which have quadrupled its assets over the past decade and 20 times since 2001 – that its initial insistence on being one financial investor had to be abandoned for the mantra of being a “responsible owner”.
Various policies have been formulated by the fund manager – Norges Bank Investment Management, a branch of the central bank – on everything from executive compensation and board diversity to sustainability reporting and different categories of business. ‘actions, all based on international standards rather than a particular Norwegian point of view.
But alongside that, there are a number of product bans taken by the Norwegian parliament as a sign of what the people – the ultimate owners – are unwilling to stick to. The original exclusions of tobacco and nuclear weapons producers were added over the years by Parliament to include companies overly dependent on coal and pure petroleum exploration and production groups.
It is in this context that Jonas Gahr Store, leader of the Labor Party and favorite to become Prime Minister after the September 13 elections, declared at the end of 2019 that “we have to get used to saying that the oil fund is a political tool. “. . His comments caused a storm, with the central bank governor and the current center-right government chanting that the fund should never be used for political purposes. Many on the left have welcomed the position, however, as they wish to use the fund to promote green change.
But for many, his comments only reflected the reality of the fund and its growing weight. As Karin Thorburn, a professor at the NHH Norwegian School of Economics and a recent member of a government-appointed committee that looked at climate risk for the oil fund, says about the fund’s tens of thousands of votes during annual meetings: “There is no such thing. as apolitical. To some extent, every decision is political.
The Expert Group it was part of the suggestion that the oil fund, once considered the world leader in ethical or responsible investing, had been overtaken by other funds. Its mandate should be changed to include climate risk and a long-term goal that companies in its investment portfolio should have net zero emissions, the panel recommended. Companies that fail to establish a net zero schedule could be excluded. “Before, this was never explicit in the mandate: what is it to be a responsible investor? asks Thorburn.
She argues that it’s less about the financial impact such a push would have and more about gaining popular support for the fund. “It’s really a question of legitimacy. You really need political legitimacy for the fund to work in Norway, ”she said.
Perhaps unsurprisingly, reaction to the report was divided along party lines. Gahr Store has vowed to implement the recommendations if he comes to power, while the right-wing populist Progress has argued that it would be “unwise to politicize the oil fund”.
All of this is probably a taste of what’s to come for one of the few sovereign wealth funds in a democracy as Norway grapples with its own climate change issues and has Europe’s largest oil industry. western. The fund is now about four times the size of Norway’s annual GDP, its annual payments are a quarter of the state budget, and it’s worth more than the oil and gas left in the ground for Norway. Questions about the political use of the fund are just beginning.