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Sovereign wealth funds: What’s next for Norway?

Precise take a look at the current position of Norway's sovereign wealth fund and what the future holds for the country.

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It is something the rest of the oil producing nations look on with envy – Norway’s Government Pensions Fund Global. At £580bn it is the largest sovereign wealth fund in the world. People from Norway are proud of it, saying: “We are extremely lucky. Someone several decades ago was really smart to deal with the income from the oil industry to generate the welfare of this country as a whole.”

It’s meant that, in relative terms, a country which depends on the oil and gas industry for 25% of its GDP barely suffered as the price of oil plummeted towards the latter half of 2014.

But the fund is now beginning to gather criticism instead of plaudits as it looks to continue investing its wealth fund and there are calls for the Norwegian government to step in with fresh regulation.

First came news that the country’s state owned oil company has plans to drill in Russia. While the EU and US are considering enhancing their sanctions against Moscow over its role in the Ukraine conflict, Statoil ASA is cosying up to OAO Rosneft in western Siberia and the Sea of Okhotsk.

It’s not the only western company doing this. Exxon Mobil Corp. did shut down its Artic exploration but has since added drilling rights in Russia. Total SA the French giant is forging ahead with its $27bn Yamal liquefied natural gas project.

Approval is being sought by Statoil’s management, with spokesman Knut Rostad quoted as saying, “We won’t do anything without the necessary approvals.” While Norway isn’t a member of the EU, it has followed Brussel’s line regarding sanctions.

It is also looking to China for investment returns. News was welcomed that it had divested 32 coal mining companies, citing the risk posed from regulatory action on climate change. It wasn’t the first to do so following warnings from many global organisations including Goldman Sachs, the Bank of England and Standard and Poor’s that only a very small percentage of known fossil fuels can be safely burnt, potentially rendering the value of the remainder worthless to investors.

Greenpeace Norway guardedly welcomed the move. Truls Gulowsen from the charity said, “We are happy to see that the GPFG divested £60m by dropping 13 Indian coal companies, but at the same time, it has increased its investments in the Chinese coal sector by £61m.”

He drew comparisons between GPFG and KLP, Norway’s largest pension fund which divested from coal in 2014. “It is shameful that Norway’s private pension funds are far more willing to take action on the coal issue than the GPFG. Investing oil proceeds into the coal industry is the worst possible use of our nation’s money.”

The charity says politicians should send a clear mandate to GPFG to pull out of coal, tar sands and other fossil fuels. The fund is already banned from investing in weapons and tobacco products through acts of parliament.

But is it as black and white as it seems? Perhaps not. WWF has spoken out in defence of GPFG following a statement it released on how it wants companies to behave in relation to climate change. It wants them to build methods to reduce climate change through investment planning, report on their greenhouse gas emissions and other measures such as strategically reducing deforestation as a result of their own activities.

WWF Global Climate and Energy Initiative leader Samantha Smith was optimistic. “If other funds follow suit this could be the start of the tipping point the world needs to stop financing polluting energy and start financing a better world.”