Norway’s sovereign wealth fund, the world’s largest, will invest almost $3 billion into green technology stocks next year, Chief Executive Officer Yngve Slyngstad signaled.
Starting Jan. 1, the $870 billion fund will accelerate investments in renewable energy, waste management and energy-storage companies, among others, Slyngstad said last week in an interview after giving a speech in Geneva. The shift will take place over a “shorter time frame,” he said.
The fund is under political pressure to boost investment in environmentally friendly areas and reduce its exposure to the coal industry. Yet the shift has proved challenging as investments in the cleanest technologies have generated low returns or even losses. The European Renewable Energy Index, which includes the industry’s 10 largest and most traded stocks, delivered investors a 35 percent loss over the past five years.
“No matter what you think, if it’s going to be a good investment or not, it’s very simple: We will invest in this area,” Slyngstad said in his speech. “We’re convinced that we will find profitable investment opportunities, and we’re convinced this part of the portfolio will be a long-term outperformer.”
The fund will invest the equivalent of 1 percent of its total assets in environmental technology, Slyngstad said. The investor held $4.5 billion in green technology at the end of last year.
The fund has been investing in makers of energy-storage technologies, transport and agriculture as it targets a broader pool of assets than just renewable energies for its green portfolio, Slyngstad said.
“Although the five-year history is not beating the broader market, the two-year has recently been very profitable for us,” he said. Over that period, the European Renewable Energy Index more than doubled in value.
A government-appointed commission is due to release a report on Dec. 3 that will provide its findings on whether Norway’s fund should hold any coal investments.
“Coal is a sector with huge challenges,” Slyngstad said. “When I was in the parliament a year ago, I said that we didn’t think that coal was a particularly profitable investment area and I can probably repeat that today.”
The fund is mandated by the government to hold about 60 percent in stocks, 35 percent in debt and 5 percent in properties. The investor, which gets its capital from Norway’s oil and gas wealth, has lobbied to expand into new asset classes to help generate higher returns.
After getting its first capital infusion 18 years ago, the fund has steadily added risk, moving into stocks in 1998, emerging markets in 2000 and real estate in 2011 to safeguard the wealth of western Europe’s largest oil exporter.
The fund has missed a 4 percent real return target since it started investing in the late 1990s. Since the establishment of Norges Bank Investment Management in 1998, the unit inside the central bank that runs the fund, it has had a real annual return of 3.7 percent and a nominal return of 5.75 percent, on average.