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Norges Bank proposes dropping oil and gas stocks from sovereign wealth fund

Norway's central bank Norges Bank, which manages the country's $1 trillion wealth fund, has recommended the government to remove oil and gas companies from the benchmark index of the sovereign wealth fund.

The country’s sovereign wealth fund, known as Government Pension Fund Global (GPFG), uses the revenues generated from the Norway's oil and gas sector for investment.

The oil and gas stocks currently represent 6% or around $37bn of the fund’s benchmark equity index.

The recommendation comes as Norges Bank seeks to make the Norwegian government’s wealth less vulnerable to a permanent drop in oil and gas prices.

Norges Bank deputy governor Egil Matsen said: “This advice is based exclusively on financial arguments and analyses of the government’s total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector.”

Norges Bank said that its analyses of the oil price risk in the government’s wealth are based on the future oil and gas revenues in the country, the government’s direct share in Statoil and the GPFG.

Norway Finance Minister Siv Jensen said: “The advice from the Bank requires a thorough assessment, in line with established practice for key decisions on the management of the Fund. Furthermore, the Government is responsible for the Norwegian economy as a whole and must take a broad and comprehensive approach to this issue.”

The Norwegian Finance Ministry plans to announce its own views on the bank’s recommendation in autumn 2018.

Earlier this year, Norges Bank has excluded another 10 coal companies from the Government Pension Fund Global based on its coal guidelines for observation and exclusion.

The observation and exclusion decisions have been made based on recommendations from Norges Bank Investment Management, which conducted third round of analysis of companies that may be affected by this criterion.

Image: Norges Bank headquarters in Oslo, Norway. Photo: courtesy of User:Mahlum/Wikipedia.