Article / 14 April 2016 at 16:34 GMT

Norway excludes 52 coal companies from giant oil fund

Consulting editor / TradingFloor
Norway
  • Oil-rich Norway excludes 52 coal miners and coal-fired utilities from huge fund
  • $863 billion sovereign wealth fund has sold its stakes in the companies
  • Exclusion of coal-dependent companies from portfolio is based on new criterion
  • Oil fund expects to divest more coal companies by end-2016

NBIM website
 The fund saves Norway's oil and gas wealth for a rainy day. 
Image: screengrab from NBIM website

By John Acher

Norway, which became one of the world's richest nations by pumping oil and gas out of the North Sea, has excluded 52 coal miners and coal-fired utilities from its $863 billion sovereign wealth fund for environmental reasons.

The world's biggest sovereign wealth fund has earlier ejected arms producers, cigarette makers and companies it says have caused grave environmental damage or abused human rights from its portfolio based on its ethical investing criteria.

It has now shone its ethical spotlight on coal, which is widely blamed as a major source of carbon emissions linked to climate change.

The Government Pension Fund Global, as Norway's oil fund is formally known, has excluded and sold any stock that it owned in 52 companies based in the United States (22 companies), China (7), India (7), Japan (3), Canada (2), Australia (2), Chile (2), Hong Kong (2),United Kingdom (1) Philippines (1), Greece (1), Poland (1), South Africa (1), the fund said. (Click here for the full list of companies.)

The list includes such names as American Electric Power, Dynegy and bankrupt Peabody Energy in the United States; China Coal Energy, China Power International Development and Datang International Power Generation of China; the world's biggest coal producer, Coal India, as well as Gujarat Mineral Development, Tata Power Co and Reliance Power of India; the UK's Drax Group, Japan's Okinawa Electric Power and Canada's Capital Power Corp.

According to a Reuters calculation, the divested holdings were worth at least $1 billion at the end of 2014 and included, among the biggest, a $188 million holding in CLP Holdings of Hong Kong.

This is the first time the fund has excluded companies under legislation passed last year mandated that groups that “base 30% or more of their activities on coal, and/or derive 30% of their revenues” from coal should be excluded. Other fossil-fuel companies had been excluded earlier based on risk assessments, but this is the first formal exclusion on the coal criterion.

And the fund, which is invested in around 9,000 companies in about 80 countries, said it is not finished, but would scour its holdings for other companies to be excluded under the new “product-based criterion.” 

“We will continue our research to identify companies that may be excluded according to the product-based coal criterion. The intention is to assess the remainder of relevant companies in the portfolio by the end of 2016,” Norges Bank Investment Management, the arm of the central bank that manages the fund, said in a statement.


Rags to oil riches

Norway, a country of just 5.1 million people, went from being one of Europe's poorest in the 19th century, when hundreds of thousands of Norwegians emigrated to America, to one of the richest in the world after the discovery of oil off its shores towards the end of the 1960s.

Today the oil fund, as it is commonly called, has about $170,000 worth of stocks and bonds saved for every inhabitant in the country.

In stark contrast to most resource-extracting nations, Norway is widely esteemed for having prudently set aside so much of its oil cash for future generations instead of squandering it. And some countries with new-found oil money, including as far away as tiny East Timor, have sought to emulate it.

Ethical mandate

The country and the fund are also seen as world leaders in the field of ethical investing. Its eviction of US retailer Wal-Mart from its portfolio in 2006 for abuses of worker rights was praised as courageous by rights activists and some politicians and blasted as misguided by fund managers who did not appreciate the blow to Wal-Mart stock.

Its exclusion of companies involved in nuclear arms manufacturing, including US groups Lockheed Martin, Boeing, Honeywell, Northrop Grumman, Europe's Airbus and others, as well makers of landmines and cluster bombs, has coincided with Norway's efforts on the world stage as a peace broker.

But the exclusion of coal-mining groups and coal-fired power producers from the fund based on environmental criteria is also a “luxury problem” for a nation that has drawn its own wealth from the production of fossil fuels for the past 40 years.

North Sea oil platform
 Meanwhile, Norway's oilfields keep on pumping. Photo: iStock


— Edited by Martin O'Rourke


John Acher is a consulting editor on TradingFloor

3y
seas seas
As if sucking the blood from the earth is not a problem.

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