Allocators

Norway Sovereign Wealth Fund Stumbles On Green Measure

Stockholm (NordSIP) – Opposition lawmakers have been lobbying the Norwegian government to allocate 5% – roughly $46 billion – of its $873 billion sovereign wealth fund (the world’s largest) by adding unlisted infrastructure projects to its portfolio of stocks, bonds and real estate, Bloomberg reports.  Part of this drive has been to convince the government to allow the fund’s managers to focus on private renewable-energy projects, which would add to the $7 billion (NOK 60 billion) the fund has hitherto spent buying shares in 226 listed companies meeting existing green investment criteria.

Since 1998, the average return of the fund after fees and inflation has been 3.8%, with returns declining in recent years in part due to diminishing oil revenues. Increasing the amount of capital allocated to alternative energy sources could therefore be a hedge against the reduced use of fossil fuels throughout the world.

The government, led by Prime Minister Erna Solberg, has so far rebuffed the measure, following its second attempt. “There is a broad political consensus that the fund has a financial objective and should not be used as a tool for foreign or climate policy,” according to Finance Minister Siv Jensen.  However, as Solberg told Bloomberg last month, “[w]e can’t just live as rentiers off the oil fund.”

A report by the Institute for Energy Economics and Financial Analysis  (IEEFA) showed that the median internal rate of return on renewable energy infrastructure investments would be roughly 15%, up from 10% for purely infrastructure investments. It therefore recommended allocating 5% of the fund’s portfolio to unlisted infrastructure, hiring additional staff familiar with these types of investments as well as forging partnerships with experts in the field, amounting to “an additional $24 billion in capital that could become available to enable improved sustainability of social enterprises and the recycling of philanthropic capital.” The numbers in the report are reportedly backed by the Norwegian sovereign wealth fund’s own experience in listed environment-related companies, which delivered returns of 12.4% in 2016.

Division among the governing parties on the issue could ensure another attempt to pass the measure in the not-too-distant future.

Picture (c) Olivier-Le-Moal—shutterstock.com

Kames Capital
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