World’s largest investment fund

ByFahad Ali

Associated with maritime trade


September 11, 2023

Fahad Ali describes an unusually vast financial

The financial prowess of the western world is not only confined to the United States and high-performing West European performing economies. The financial strength of the western world is widely spread and include smaller economies such as Norway and its other Scandinavian sister countries, Sweden and Denmark that excel in economic output and material prosperity. The Scandinavian countries usually top the global index in terms of socio-economic excellence and their citizens enjoy the most benefits across the world. They are also known as the hub of peaceful existence that has proved conducive to socio-economic development providing exceptional life conditions to their populace.

In this context Norway has also taken lead in terms of international investments and its investment portfolio is rated to be the largest of its kind. Norway’s $1.4 trillion wealth fund, the world’s single largest stock market investor,holding stakes in around 9,200 companies globally, equivalent to 1.5 per cent of all listed stocks and has set the pace on many issues in the field of environmental, social and corporate governance (ESG). The Norwegian fund, which contains all state revenues from the country’s massive oil and gas sector, was created in the early 1990s to help finance the generous welfare state system once the wells run dry. It invests in equities, bonds and real estate. Sovereign funds are state-owned investors in various kinds of assets that aim to generate revenue for government programmes and pensions.

Strict ethical regulations bar it from investing in particularly inhumane weapons makers, the tobacco industry and companies that are found guilty of violating human rights, causing serious environmental damage or corruption. Norway’s sovereign wealth fund has excluded two companies due to concerns over ethics and has re-admitted three others. The fund, valued at around 3.8 trillion kroner (526 billion euros), sold the 0.67 per cent and 1.1 per cent stakes it held respectively in the US groups Jacobs Engineering and Babcock & Wilcox, because of their involvement in the manufacturing of nuclear weapons. The third shareholder in MBDA, European aerospace giant EADS which has activities in the military nuclear industry, remains on the blacklist of companies that the fund will not invest in. The fund has blacklisted 54 companies, including Boeing, Lockheed Martin, Safran, Philip Morris, British American Tobacco, Wal-Mart and Rio Tinto.

On the other hand, the Norwegian fund re-introduced British company BAE Systems and Italy’s Finmeccanica after their joint venture, missile maker MBDA, stopped producing ASMP-A nuclear warhead missiles for the French army. The US chemicals group FMC Corporation, which was excluded from the fund in 2011, has also been re-admitted after putting an end to its phosphate acquisitions in Western Sahara, a territory annexed by Morocco in 1975. The Norwegian finance ministry also decided to take German company Siemens off of its observation list, where it had been placed in 2009 after a series of corruption scandals.

In an interesting decision the fund grew dominantly on petrodollars decided to sell off stakes in oil and gas exploration and production companies to reduce its exposure to black gold. While the decision is based solely on financial considerations and not on the environment, a divestment — even partial — by an investor worth more than $1 trillion was seen as a major blow to the fossil fuels industry and hailed by the environmental lobby. The government of Norway, the biggest oil and gas producer in western Europe, said the divestment was specifically targeting exploration and production companiesrather than selling a broadly diversified energy sector. The objective is to reduce the vulnerability of their common wealth to a permanent oil price decline and the point stressed here is that the move should not be interpreted as a lack of confidence in the future of the oil sector.

As the decision only concerns companies specialised in upstream operations, it could affect 134 groups like Chesapeake of the US, Canada’s Encana, China’s CNOOC, France’s Maurel and Britain’s Tullow, among others. Companies involved in downstream operations, such as distribution and refining, and, more importantly, integrated companies which do both down- and upstream — such as giants ExxonMobil, Shell, BP and Total — will not be affected. This proposal therefore concerns $7.5 billion of the around $37 billion the fund held in the oil and gas sector at the end of 2018. The Norwegian decision follows a headline-making 2017 recommendation by the Scandinavian country’s central bank, which manages the fund, aimed at limiting the state coffers’ exposure to a steep drop in oil prices, as in 2014.

Sometimes later Norway, for the first time, had drawn out more cash from its sovereign wealth fund than it paid in, as the oil-rich nation grapples with plummeting crude prices. State oil revenues have fallen considerably, and for the first time in a long time have become less than the national budget deficit. The government withdrew in January a net 6.7 billion kroner ($780 million) from the fund — much more than the 4.9bn kroner forecast last year for the whole of 2016. The sovereign fund is fuelled by Norway’s huge oil and gas revenues and is intended to pay for future generations in the welfare-state after the country’s wells run dry.

Its investment policy is run according to strict ethical rules, with a focus on sustainable economic, environmental and social development. The government is only permitted to withdraw up to four per cent from the fund to help balance its budget.Norway, like other oil producing countries was hit hard by the 70 per cent fall in global crude prices since mid-2014 due to a supply glut. Strict ethical regulations bar it from investing in particularly inhumane weapons makers, the tobacco industry and companies that are found guilty of violating human rights, causing serious environmental damage or corruption.
The fund published for the first time an analysis of its voting record during this year’s annual shareholder meeting season, where investors vote on issues including executive pay. Since 2021, the fund has campaigned to boost the number of women on company boards and to consider targets if fewer than 30 per cent of directors are female. It pointed out that if a company does not have even one woman on the board, then the fund will vote against that company.

The fund has also put executive pay in the spotlight and now plans to also step up the pressure, though details of how are not decided. It mentioned that the large packages are getting larger, and from the figures that are seen, the larger packages are increasing more than the median of packages, and more than inflation. So far this year, the fund voted against one in every 10 CEO pay packages, more than in recent years, and including against a growing number in the United States, its report showed. This year for the first time the fund analysed the structure of all US pay packages above $20 million to see if they aligned with long-term value creation. As a result of its analysis, the fund voted against more than half of pay packages above this level, the report showed. The fund voted against the pay of Coca-Cola’s James Quincey, Apple’s Tim Cook and PepsiCo’s Ramon Laguarta, the fund’s voting record showed. TW


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