Photographer: Michele Tantussi

Norway Wealth Fund Faces Ban on Investing in Coal Assets

Updated on

Norway’s parliament reached an agreement to ban the country’s $890 billion sovereign wealth fund from investing in utilities or miners that base at least 30 percent of their business or revenue on coal.

The decision, backed by all parties, will be announced in the Oslo-based legislature’s Finance Committee today, according to a statement from the ruling Conservative Party. The ban could include 50 to 75 companies with an investment of 35 billion kroner ($4.5 billion) to 40 billion kroner, according to an estimate by Norwegian Finance Minister Siv Jensen.

“Investing in coal companies poses both a climate-related and economic risk,” said Svein Flaatten, a Conservative member of the committee.

The move comes after the minority Conservative-led government balked at more restrictions on the world’s biggest wealth fund, arguing it shouldn’t become a political tool. The fund has also already sold out of the biggest pure coal miners and earlier this year sent letters to the biggest miners and power producers it owns, including EON SE, to ask them to provide information on their strategy and timeline for phasing out coal.

The new restrictions, which are planned to be in place by Jan. 1, should allow the fund to stay invested in companies with plans to restrict their coal exposure, according to the draft proposal. Norway’s central bank, which manages the fund, will be tasked with studying how the new criteria should be implemented.

Top Holdings

Banning the fund from investing in utilities that use more than 30 percent of coal in their fuel mix would force it to sell stakes in power producers such as RWE AG, SSE Plc and Duke Energy Corp., all among the investor’s top 10 holdings in that industry, according to presentation material from the fund. Those three holdings alone represented $1.7 billion at the end of 2014, according to the fund’s website.

RWE AG declined to comment on the agreement as the company is still looking into its details, Sabine Jeschke, a spokeswoman, said today by phone from Essen.

Other companies affected could include China Shenhua Energy Co. Ltd., Australia’s AGL Energy Ltd. and India’s Reliance Power Ltd., German environmental group Urgewald said in a statement.

RWE rose 0.1 percent in Frankfurt, while SSE fell 1 percent in London. Duke Energy closed 0.6 percent higher Wednesday in New York.

While the new exclusion criteria should be allowed to evolve over time, no other activities or industries than mining and power production are being considered for now, the parliamentary committee said in its proposal.

Pressure is rising on coal producers and companies that use the fuel to switch to sources with lower carbon emissions. Investors from Stanford University to insurer Axa SA and pension funds such as KLP and the Church of England have pledged to reduce or scrap such holdings.

“It’s a very good start,” said Rasmus Hansson, a member of parliament for Norway’s Green Party. “We’ve crossed an important line declaring the fund as a climate policy vehicle.”

The Norwegian fund’s investment in pure coal producers has plummeted to about $65 million, according to the presentation to parliament. Coal producers represent 0.01 percent of its equity portfolio. It’s still invested in companies focused on production of metallurgical coal used in steel.

The fund owns about 31 billion kroner of stocks in the mining industry, including top-ten stakes in Glencore Plc and Anglo American Plc. Its equity holdings in power-producing companies amount to about 109 billion kroner, including stakes in Iberdrola SA, GDF Suez and SSE Plc.

BHP Billiton Ltd. and Rio Tinto Group, the world’s two biggest mining companies, derive less than 30 percent of their sales from coal. Glencore, the world’s largest exporter of coal, also falls under the threshold thanks to its commodity trading business.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE