Should Norway keep investing the sovereign wealth fund in oil and gas?

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Norway's Sovereign Wealth Fund Should Continue Oil and Gas Investments, Commission Recommends

A government-appointed commission has advised that Norway's sovereign wealth fund should maintain its investments in oil and gas companies, a stance that diverges from the Norwegian central bank's prior suggestion to reduce exposure to oil price volatility. The fund, which manages Norway's oil and gas revenues for future generations, held approximately 4% of its value, or about $37 billion, in energy stocks at the close of 2017. A final decision regarding the divestment from energy shares is anticipated this autumn.
Commission's Rationale on Oil Price Risk

The commission chair, Oeystein Thoegersen, articulated that divesting energy stocks would not serve as an effective hedge against a sustained downturn in oil prices. He further stated that these energy holdings contribute only marginally to Norway's overall exposure to oil price fluctuations. The commission's report suggests that if the aim is to reduce the Norwegian state's exposure to oil price risk, a more impactful approach would be to decrease the state's direct ownership in companies like Equinor or Petoro.
Central Bank's Previous Proposal

Previously, the fund's manager, the Norwegian central bank, had put forward a proposal to diminish the fund's exposure to the ebb and flow of oil prices. This suggestion, made in November, led to a decline in European oil and gas company shares. The fund's strategy is built upon broad investment diversification and a high threshold for exclusions, indicating a general reluctance to divest from sectors unless specific criteria are met.
State Ownership in Energy Firms

The Norwegian state holds significant stakes in key energy companies, owning 67% of Equinor (formerly Statoil) and 100% of Petoro. The commission highlighted that reducing these direct state ownerships could be a more direct method to mitigate oil price risk. However, past Norwegian governments have consistently opted against reducing the state's holdings in these entities, maintaining a long-standing policy.
Fund's Investment Scope

As the world's largest sovereign wealth fund, Norway's fund invests revenues derived from the nation's oil and gas production into international stocks, bonds, and real estate. At the end of 2017, the fund's energy stock portfolio included holdings such as 2.19% in Shell, 2.17% in BP, and 0.94% in Chevron, among other significant investments in major global energy corporations.

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Should Norway keep investing the sovereign wealth fund in oil and gas?

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