Norway to allow sovereign wealth fund to invest in unlisted renewables

The move comes less than a month after the government said the fund would stop investing in upstream oil and gas.

Norway’s finance ministry is proposing that the country’s sovereign wealth fund be allowed to invest in unlisted renewables where “a major part of the renewable energy investment opportunities” can be found.

In a statement, ministry said that Norges Bank, which manages the Government Pension Fund Global, would initially invest in the sector “with partners in developed markets, and in projects with relatively low operational and market risk”.

The proportion of the GPFG’s investments in renewables would be capped at 2 percent of the fund’s market value, which as at 31 December 2018 amounted to Nkr 8.25 trillion ($962.0 billion; €857.5 billion).

The statement said that allowing unlisted renewable energy infrastructure was “not a climate policy measure, but is a part of the investment strategy for the fund”.

“The proposal to allow for investments in unlisted infrastructure for renewable energy in the GPFG is part of the annual white paper on the government pension fund,” a ministry spokeswoman told Infrastructure Investor. “After parliament’s deliberation of the white paper, expected some time before the summer, the Ministry of Finance will, in consultation with Norges Bank, prepare the necessary provisions and changes in the management mandate for the GPFG. The ministry aims for the provisions to enter into force no later than 1 January 2020.”

The government for years had refused to invest in unlisted infrastructure despite calls to do so by the Institute for Energy Economics and Financial Analysis, a Cleveland-based think tank; and Singapore-based EDHEC Infrastructure Institute. The reasons for not investing in the asset class ranged from the difficulty in quantifying the advantages of doing so to increased exposure to political and regulatory risk. Furthermore, Siv Jensen, who has served as finance minister since October 2013, has often said that if the GPFG were to invest in infrastructure, and particularly in renewables, this might be construed as the government using the fund to promote Norwegian foreign or climate policy.

Instead, the GPFG is heavily weighted towards equities – 66.5 percent of its overall portfolio was allocated to the asset class as at the end of 2018, while fixed income accounted for 30.8 percent and unlisted real estate for 2.7 percent.

However, a change in stance became apparent in January 2018 when Prime Minister Erna Solberg’s newly elected coalition government said it would consider investing in private infrastructure through the GPFG.

The proposal to allow the GPFG to invest in renewables comes less than a month after the government said the sovereign fund would no longer invest in the upstream energy sector. The government said it had taken the decision “to reduce the aggregate oil price risk in the Norwegian economy”.

However, it also noted that climate change was “an important financial risk factor for the GPFG, and will over time have an impact on several of the companies in which the GPFG is invested”.

It is unclear whether the two moves are related.

The Government Pension Fund was created in 1990 to invest revenues generated by Norway’s oil and gas sectors in order to finance rising public pension expenditure. It comprises GPFG and the smaller Nkr 239 billion Government Pension Fund Norway, which invests primarily in Norway.