FINANCE

Norway's plan to divest massive $900B fund from coal could hit U.S. companies

Directors of the Norwegian sovereign wealth fund, an investment pool worth more than $900 billion, will sell many of its coal industry holdings, officials said last week.

Norway's Parliament voted Friday to ratify the decision, made a week before by the body's finance committee. Parliament ordered the fund to sell stakes in mining and power companies that directly, or indirectly, base 30 percent or more of their revenue or their regular activities on coal.

The new screening method will go into effect in 2016. Petter Johnsen, the fund's chief investment officer, said in May that the new policy would affect between 50 and 75 listed companies.

An analysis of the fund's portfolio completed by Urgewald, a German advocacy group, as well as Greenpeace and Framtiden i våre hender, a Norwegian environmental advocacy organization, found this new policy is the largest coal divestment action to date.

"Norway's decision to take a stand against coal is an example for other governments -- and investors -- about shifting from polluting energy sources towards clean, renewable power," said Kumi Naidoo, Greenpeace International's executive director, in a statement.

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The fund holds roughly $4 billion to $5 billion in those 50 to 75 companies and invests in 122 companies that would fall under the new divestment criteria, a higher total than Norway's finance minister has indicated, according to the environmental groups.

Altogether, the assessment found, the holdings at risk to be sold add up to €7.7 billion., or $8.56 billion.

Holdings include major U.S. utilities

The decision may have spillover effects for U.S. companies, too.

The equity-heavy fund invests most of its stock positions in U.S. firms, and this new policy slates shares in dozens of American utility companies for sale.

American Electric Power Company Inc., Dominion Resources Inc., Duke Energy Corp., MidAmerican Energy Co., NRG Energy Inc., PPL Corp., Southern Co. and Xcel Energy Inc., among others, each base 30 percent or more of their business on coal.

Yngve Slyngstad, the CEO of the bank that manages the fund, told Parliament in May that his team has mailed letters to "the largest general mining companies," requesting plans for transitioning to "low-carbon energy systems." The bank has also pressed power companies for their strategies to phase out coal use, he said.

The fund, which holds roughly 1 percent of the world's stocks and bonds and is officially called the Norwegian Government Pension Fund, was built on wealth from oil and gas reserves off the nation's coast. Many people, inside and outside the fund, openly called it the "oil fund."

An external report, commissioned by the Norwegian government on fossil fuel investments and the wealth fund and released in December, concluded that climate change "raises important ethical and financial questions."

But, the authors added, "It is also hard to see how a general coal and/or petroleum exclusion criterion could be consistent with other Norwegian policies and commitments, including the government's role in the production of both petroleum and coal."

Not entirely a climate decision

Critics of fossil fuel divestment, namely the coal, oil and natural gas industries, as well as the colleges and universities that have rejected divestment, have said divestment hasn't and will not affect share prices.

The Norwegian Parliament's finance committee wrote in its announcement of the policy that "the fund must not be a climate policy or foreign policy investment," adding that "good long-term returns are dependent on sustainable development."

The fund has had investment criteria specifically related to climate change impacts for years and backed recent shareholder resolutions at BP PLC and Royal Dutch Shell -- one of its top-five biggest equity positions -- asking for better disclosure and guidance about long-term climate change risks.

Last week, Georgetown University announced it would strike direct coal investments from its endowment and the Rhode Island School of Design pledged to sell its direct fossil fuel holdings within two years (ClimateWire, June 5).

Bundled together, the coal, oil and gas industry represents a mammoth pool of assets worth, according to an estimate last summer from Bloomberg New Energy Finance compiled before the oil price slide, $5 trillion in market valuation.

Separately in Scandinavia, IKEA, the Swedish furniture and home goods supplier, pledged €1 billion ($1.11 billion) Thursday to finance renewable energy projects and climate change mitigation efforts in developing nations.

Twitter: @benhulac | Email: bhulac@eenews.net

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