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Oil – the industry of the past

Several of the world's politicians and money managers are now turning their backs on the fossil industry for climate reasons. Norwegian politicians talk enthusiastically that Norway must take its share of global responsibility, but in the Oil Fund, investments in the fossil industry seem to continue as before.

NGOs, universities and private individuals around the world have called for a boycott of the fossil fuel industry, and the world community is following up. At the beginning of 2018, 848 institutions had disinvested from the fossil fuel industry for values ​​totaling more than 6 billion dollars. More than 000 individuals have also sold out of coal, oil and gas. From the end of 58, the World Bank will no longer provide loans for upstream activity in the petroleum sector, and the coal industry has long since lost its lending privileges.

Common climate goals. It is widely agreed that global warming that exceeds two degrees compared to pre-industrial times will cause irreversible damage to Earth's ecosystems. The world must make drastic emissions cuts. It is estimated that 80% of the world's known fossil fuel reserves must remain in the ground if we are to stay below the two-degree target.

In 2014, then-UN Secretary-General Ban Ki-Moon urged major investors such as pension funds and insurance companies to sell coal, oil and gas and invest in renewable energy. Local politicians in cities such as Melbourne, Paris, Stockholm and Oslo have later taken this call on a tight arm, with promises to cleanse the city's pension fund for investments in the coal and petroleum industries. Just before New Year, it was announced that the heavyweight New York is also withdrawing its pension funds from existing investments in gas and oil, and that the city is suing five of the world's largest petroleum companies for their contribution to climate change. France recently passed a law that immediately prohibits all exploration drilling in French territory, and which from 2040 is extended to also prohibit the extraction and production of French oil and gas.

New York withdraws its pension funds from existing fossil investments.

The purpose of divestments is not primarily to do financial harm, but to delegitimize the companies – withdraw the social license for non-renewable energy – and put the climate issue on the agenda. In this way, one also sends a political signal by not disinvest. "The Petroleum Fund should be fossil-free both because it is climate-morally right and economically sensible, especially for a country like Norway that is already overexposed to oil and gas," writes Truls Gulowsen, head of Greenpeace Norway, in an email to Ny Tid ; "Too much money has been invested in climate-damaging businesses. By withdrawing the Oil Fund from oil and gas, Norway can contribute to changing this. "

"To a large extent, financial arguments overlap with climate arguments."
- Post city

The future in our hands also works for a fossil-free Oil Fund. Ingrid Stolpestad, who is an adviser there, writes in an e-mail to Ny Tid: "If we are to achieve the climate goals, most of the world's fossil reserves must remain in the ground. Investing in companies whose business model is to extract resources that will prevent us from achieving the climate goals is neither sustainable nor ethically justifiable. That is why we and many of us believe that we should not invest in fossil fuels. "

SPU's fossil investments. The oil fund – formally the Government Pension Fund Global (GPFG) – is currently valued at NOK 8160 billion. 300 billion of these – or 3,7% of the fund's total value – are invested in oil and gas. More than a third of these $ 300 billion has been invested in the companies ExxonMobil, BP, Chevron, Royal Dutch Shell, ConocoPhilips and Gazprom – all on the list of the ten largest environmental violations in the petroleum sector.

The Ministry of Finance manages Norway's petroleum revenues via the GPFG. The responsibility for maintaining the investment portfolio is delegated to Norges Bank, whose investment strategy is governed by the purpose clause of the highest possible return within the framework of low risk. The scope for using the GPFG as a political instrument is consequently limited, and there is a "broad political agreement that the Government Pension Fund should not be an instrument in foreign or climate policy". The Ministry of Finance has been criticized for its reluctance to allow the GPFG to invest in unlisted green infrastructure, such as solar energy, wind farms and power grids, despite the recommendation from Norges Bank to allow for such investments. Per Espen Stoknes, Deputy Representative to the Storting for the Green Party, disagrees with the Ministry of Finance's conclusion: If we are to equip society to answer the biggest questions of our time, the money must be moved from gray to green. In addition, it pays off! This is a win-win for the climate, and our common wallet in the GPFG », he writes in an e-mail to Ny Tid.

The GPFG as a political instrument. However, some political guidelines on the use of the GPFG have been adopted. The Independent Council on Ethics provides guidance to Norges Bank based on the guidelines for observation and exclusion from the GPFG, established by the Ministry of Finance in 2014. Companies that produce tobacco and specific types of weapons, as well as companies that contribute to human rights violations and serious corruption, are excluded, for example. from the GPFG.

By Marianne Morild. Oil Plant 2012, bitumen on canvas, 150 x 120 cm. In private ownership.

In 2016, the guidelines for the use of the GPFG were extended by a so-called «coal criterion», which opened for the observation and exclusion of «mining companies and power producers who themselves or consolidated with units they control receive 30 per cent or more of their thermal coal income, or base 30 per cent or more of its thermal coal business ”. A broader "climate criterion" was also adopted which states that individual companies, regardless of sector, can be excluded if "there is an unacceptable risk of the company contributing to or itself responsible for (...) actions or omissions that at an aggregate company level in unacceptable degree leads to greenhouse gas emissions ». Since there is no clear understanding of what is considered "unacceptable" in this context, the criterion is not applicable in practice. The Council on Ethics also writes that companies that are considered for exclusion from the GPFG "(…) must have large emissions, [and] that emissions per unit produced are higher than competitors, and that there are no credible reduction plans that specifically describe how emissions should be reduced. to an acceptable level within a reasonable time. "

There is disagreement as to whether these criteria are sufficient. Storting representative Kari Elisabeth Kaski (SV) recently criticized the coal criterion for being too liberal. In a letter to the Storting dated March 5, 2018, she refers to a review of the oil fund's investments which reveals that the fund is still invested in companies that build new coal power plants and extract coal.

"The Petroleum Fund should be fossil-free both because it is climate-morally right and economically sensible." –Gulowsen

Gulowsen believes that the Oil Fund should be used politically: “The Oil Fund is our greatest economic power. It should not be abused, but it is logical that the Oil Fund's administration follows a broad political agreement to avoid cluster bombs, nuclear weapons, tobacco, natural destruction, climate change, child labor and so on. ” As he has previously pointed out: “Money placement is also politics. The Oil Fund has capacity as a tool that should be used to invest in sectors to support. ” Stoknes also supports a more active use of the GPFG: “The GPFG should take a much more active role in climate policy. We get no real change unless we dare to follow up on words of action and move the money to green projects. ”

Ethical investments. Incorporating ethical considerations into the GPFG's investment strategy can be risky. This was confirmed when, at the beginning of March, the head of the GPFG, Yngve Slyngstad, presented the annual report of the GPFG's return and risk. The report shows that the exclusion of tobacco and cluster weapons during the period 2006-2017 has resulted in a reduced return of 0,1 percentage points on average each year, and that the exclusion of companies due to human rights or coal production has reduced the annual return by 0,06 percentage points on average. On the other hand, ethical sales of shares in companies that cause "significant environmental damage" have increased the annual return by an average of 0,04 percentage points. The GPFG has an average return of 6,1 per cent each year.

"Only 40 percent of Norwegians would choose ethical investments if it resulted in a reduced pension." – Simonsen

In the article "Attitudes towards ethical pension management among Norwegians", Professor Caroline D. Ditlev-Simonsen (Institute of Forensic Science and Governance, BI Norwegian School of Management) and Professor Emeritus Fred Wenstøp (BI) examine Norwegians' attitudes to ethical pension management. They conclude that only 40 per cent of Norwegians would choose ethical investments if it resulted in a reduced pension. Of the remaining 28 percent, negative about such a scenario, while 32 percent said they did not know. The study also shows that most Norwegians believe others are less willing to accept a reduced pension for ethical reasons than they themselves are.

Øeconomic perspective. In recent years, an economic argument has also emerged for divestments from the petroleum sector, namely that there is a bubble in the oil and gas stock market. In 2011, financier Mark Campanale – founder of the Carbon Tracker Initiative think tank – introduced the terms 'stranded assets' and 'unburnable carbon' to explain to investors why they not should invest in the fossil industry. He believes that climate policy will eventually reflect the actual emissions cuts needed to reduce global warming, and that such a policy will mean that large parts of the industry's oil and gas reserves will not be recoverable. These resources are therefore to be regarded as so-called stranded assets – values ​​which, due to a sudden change in the market, do not yield the return that was predicted at the time of investment. Campanale believes that this risk is not reflected in the current market value of petroleum companies, and that the shares are consequently overpriced. As soon as investors realize this, Campanale claims, the bubble will burst.

For Norway, another economic consideration also applies in the management of the GPFG. Due to the state ownership in Statoil, oil shares make up a larger share of Norway's portfolio (10 per cent) than what applies to the world market (5 per cent). Before the New Year, Norges Bank sent a recommendation to the Ministry of Finance to remove the petroleum sector as such from the GPFG's benchmark index as a measure to reduce exposure to price fluctuations in this sector. Vista Analyze has made a similar assessment on behalf of Greenpeace. In an e-mail to Ny Tid, Gulowsen writes that the analyzes show "that it is both an economic risk to rely on new fossil investments, and that doing so is an immoral bet against the world being able to take the climate problem seriously". Stolpestad writes in an e-mail in Ny Tid: "It is interesting to note that this debate has several perspectives. In this question, financial arguments largely overlap with the climate arguments. "

"The money needs to be moved from gray to green." – Stoknes

Disinvestment effect. Gulowsen is positive about the effect of the commitment to the fossil industry: “In my view, the movement is already having a significant effect. The fossil industry is restructuring, many companies have announced, in part, significant investments in renewable energy, and the sector is attracting the less attractive workforce to a lesser extent. In addition, questions are increasingly being asked about the basic economic analysis behind continued efforts on fossil solutions, given that investors are either withdrawing or demanding higher dividends. All this helps to weaken the power and influence of the fossil industry, so that the necessary green shift can come faster. ”

Ditlev-Simonsen, however, questions the effect of divestments: "It is difficult to find evidence that the exclusion of industries and companies solely for ethical reasons makes the world more sustainable." She believes one should rather focus on influence through ownership: "If big owners instead use their power as a shareholder to influence the company to act more socially responsible and sustainable, it can have a positive effect."

Stolpestad agrees positively with the effect of the antifossil movement: “Five years ago, it was almost inconceivable that oil, coal and gas should not be something banks and funds should invest in. Then students at universities all over the world began to demand that universities' money not should be invested in fossils. It was the start of a global pullout wave that shows that more and more people believe it is wrong to make money in extracting fossil energy. This is both a clear signal that this is the industry of the past, and it also frees up huge resources that can be invested in renewable, that is, the industry of the future. ”

Stoknes misses explicit action at the political level: “The Greens have previously proposed to rename the GPFG to the 'Future Fund', and turn over the investments. This is because the Greens believe that we also have a global responsibility for implementing the changes that Norwegian politicians believe is so important. So where is the action?»

See also case The Oil Fund and the Skancke Committee


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