Norway’s SWF urged to invest $25bn in renewables

A report from the Institute for Energy Economics and Financial Analysis comes as the fund’s CEO abandons effort to expand into unlisted infra and PE.

Norway’s sovereign wealth fund should increase its investment in renewable energy in response to global stresses on the oil sector, according to a new report from a Cleveland-based energy think tank.

“The same forces driving the decline in the oil industry are also providing opportunities to profit from renewable energy,” the report from the Institute for Energy Economics and Financial Analysis said. “The renewable sector is producing attractive returns, is growing and its outlook is positive.”

The report comes five months after Norway’s finance ministry agreed to raise the $976 billion Government Pension Fund Global’s equities share target to 70 percent, up from the previous 62.5 percent. IEEFA recommended that Norway reallocate around $25 billion – or 35 percent of the capital shifted to meet the new benchmark – to a renewable energy portfolio.

This could include increasing investment in utilities and listed infrastructure companies active in the renewables space, investing in indexes with renewables exposure and direct investments in listed and unlisted infrastructure projects.

Norway has resisted opening up the GPFG to investments in unlisted infrastructure, citing the asset class’s exposure to regulatory and political risk, and is now abandoning efforts to expand into the asset class as well as private equity entirely, Yngve Slyngstad, chief executive of Norges Bank Investment Management, which manages GPFG, told Bloomberg in a recent interview.

“Today we’re close to $1 trillion. Realistically speaking, whether we should invest in infrastructure, private equity or the likes isn’t a very important question for the fund,” Slyngstad said. “It would be such a small proportion, and the duration of implementation would be so long, that if it were to have an impact on returns, it would in reality be if the fund was going down in size.”

“Even in real estate, which is a very big asset class, you need to spend many years building a significant proportion,” the chief executive added.

This week’s report is not the first time IEEFA has pushed the world’s largest SWF to shift its policy. In February, the organisation published a report urging the fund to invest 5 percent of its assets in unlisted infrastructure, including renewables.