The fossil fuels sector was dealt two major body-blows over the last fortnight.
First, Norway’s trillion-dollar state pension fund – the Government Pension Fund Global (GPFG) – announced it will divest $7.5 billion of its stock holdings in firms that explore and produce oil and gas across the world.
A detailed timeline of the divestment has not yet been shared, but the fund’s decision is targeted at reducing its vulnerabilities to a “permanent oil price decline”.
The GPFG will, however, continue to remain invested in oil majors like Shell and BP – that are beginning to invest heavily in renewable energy, and which the fund feels have more potential for growth when compared to firms solely focussed on renewable energy.
The decision is seemingly influenced by the advice Norway’s central bank, Norges Bank, tabled before the country’s ministry of finance in 2017, where it spelled out the financial risks of the fund’s continued exposure to oil and gas stocks.
However, the GPFG has denied any influence, and has, instead, termed the announcement a strategy to diversify its energy portfolio. A full list of firms to be divested from is here.
In India, the divestment is likely to wipe off $604 million of investment from the country’s top four oil and gas explorers – ONGC, RIL, IOC and OIL. RIL (Reliance Industries) would be the worst affected as it could lose up to $485 million alone.
Secondly, in more bad news for coal, BNP Paribas also announced that it would limit its investments in thermal coal companies to ones that obtain not more than 10% of their revenues from mining the fuel.
The new policy goes into effect from January 2020, and reflects the €400 billion-strong firm’s strategy to minimise its exposure to the (potential) decline in demand for thermal coal.
The policy will also exclude firms that account for more than 1% of the total global output of thermal coal. The quantum of divestment could thus top $1 billion.
However, the firm will make exceptions for companies that pledge to reduce their extraction and use of thermal coal – within two years – to levels that align with the Paris Agreement.