Sovereign wealth funds scaling down exposure to fossil fuels

LONDON • Some sovereign investors are reducing their exposure to fossil fuels or seeking clean alternatives to protect their portfolios from rising environmental risk.

Norway's US$900 billion (S$1.2 trillion) sovereign wealth fund (SWF) - itself financed by oil sales - and the New Zealand Super Fund (NZSF) are among those adjusting investments in anticipation of tougher environmental rules or damage from the impact of global warming.

Rising temperatures could lead to more violent storms and flooding, posing a threat to infrastructure and prime real estate, both favoured by sovereign investors.

Norway's SWF, the world's largest, is divesting from companies that derive more than 30 per cent of their turnover or activity from coal, a major source of greenhouse gases.

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It is also investing in alternative fuel companies such as NextEra Energy, a US wind farm developer. By next month, the fund's ethics watchdog is likely to recommend that the fund excludes or puts on a watch list the first of several firms in the oil, cement and steel industries.

The fund is also pushing companies to disclose carbon emissions and plans to handle climate change risk.

"In terms of greenhouse gas emissions, we are actually expecting companies to increase reporting on it," the fund's chief executive Yngve Slyngstad told Reuters. "We want to have more transparency on investment plans and how they are affected."

MORE TRANSPARENCY

In terms of greenhouse gas emissions, we are actually expecting companies to increase reporting on it. We want to have more transparency on investment plans and how they are affected.''

CHIEF EXECUTIVE YNGVE SLYNGSTAD, of Norway's sovereign wealth fund.

The NZSF said last year that it would set a target by the end of this month to reduce its carbon footprint. "We should be able to increase our returns for the same risk, or get the same returns with less risk," Mr Adrian Orr, the chief executive of NZSF, said in November.

In an update, an NZSF spokesman said the fund was looking at its passive portfolio rules and this would lead to a reduction in fossil fuel holdings. It has already invested in energy-efficient glass manufacturer View and waste gas-to-fuel firm LanzaTech.

France's SWF Caisse des Depots (CDC) is also aiming to reduce the carbon footprint of its equity portfolio by 20 per cent by 2020, and is exiting companies that derive more than 20 per cent of revenue from coal. Early this month, Swedish pension fund AP7 sold its investments in six energy-related companies it says violate the 2015 Paris Agreement, which aims to limit global warming to below 2 deg C and has pushed environmental risk up the agenda.

Even where fossil fuel divestment is not a priority, more investors want to capture the upside in the green economy.

The Abu Dhabi Investment Authority has invested in renewable energy firms Greenko and ReNew Power while Singapore's GIC has targeted investments in electric vehicles.

Ithmar Capital, Morocco's strategic investment fund, wants to raise US$1 billion to US$2 billion from infrastructure specialists and other SWFs for its Africa-focused green infrastructure fund.

Mr Mahmood Alkooheji, chief executive of Bahrain's SWF Mumtalakat, also described renewables as "the way forward".

"We can't not be thinking of the environment," he told Reuters. "For Bahrain, it's a very promising area, we have sunshine 366 days in a year. It's energy for free so why not invest in it?"

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 20, 2017, with the headline 'Sovereign wealth funds scaling down exposure to fossil fuels'. Print Edition | Subscribe