Norway’s NOK8.35trn (€852bn) sovereign wealth fund (SWF) should be allowed to invest at least 5% of its assets into renewable energy infrastructure, according to a report from think-tank Re-Define.
The report entitled “Why and how the oil fund should invest in unlisted renewable infrastructure at scale” states that apart from being a promising and fast-growing asset class, green infrastructure’s biggest opportunities are in emerging markets, where they boost economic development.
Given the current size of the Government Pension Fund Global (GPFG) — which is built on Norway’s petroleum revenue — the recommendation would see NOK415bn of new investment moving into the green infrastructure sector.
Re-Define’s managing director Sony Kapoor said: “In order to reduce risk, and generate more stable long-term returns, NBIM [Norges Bank Investment Management], which invests on behalf of the GPFG, should be allowed to invest at least 5% in renewable energy infrastructure.”
Norway is far too reliant on fossil fuels in terms of exports, investments, growth, taxes, finance and its overall economy, Kapoor argued, adding that this is particularly dangerous now that climate change action requires big cuts in fossil fuel consumption.
On top of reducing excessive fossil fuel risk, Kapoor said investments in green infrastructure do uniquely well under the various climate risk stress test scenarios that large long-term investors around the world are gradually adopting.
The same recommendation also applies to other fossil-fuel driven sovereign wealth funds, Kapoor said, which he said need to ramp up their renewable infrastructure investments significantly to cut risks and harness new opportunities.
“Renewables are also far more competitive against traditional fossil fuels in most emerging markets, often without any need for subsidies thereby substantially reducing political and policy risk,” he said.
The report, published by Re-Define and environmental foundation ZERO, argues that the GPFG should — as recommended by NBIM back in 2017 — divest from oil and gas stocks.
Norway’s Finance Ministry is due to publish its decision on the whether the fund should divest from this equity sector in its annual report on the fund scheduled for April, as well ruling on other issues currently under discussion such as whether any unlisted infrastructure investment will be allowed.
Although the ministry has continued to reject proposals for the GPFG to be allowed to expand its investment mandate to include unlisted infrastructure, it indicated in a report published in April 2018 that it was open to investments in renewable energy infrastructure.
It is looking into the possibility of unlisted renewable energy infrastructure investments being made within the scope of the GPFG’s special environment-related mandates, which have existed since 2010.
Kapoor pointed out in his report that the environmental mandate is currently small, at less than 1% of the fund, and should be expanded to at least 5% of the fund in order to make any real impact on the fund itself.
NBIM told the ministry in a letter on 29 October last year that the upper limit for the environment-related mandates would have to be raised in order for it to be able to “exploit the fund’s special characteristics and invest cost-efficiently in unlisted renewable energy infrastructure”, but gave no specific proposal on future size.
Renewable investments should be executed by a new subsidiary of NBIM, Kapoor proposed in the report, modelled roughly on its real estate subsidiary Norges Bank Real Estate Management (NBREM).
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