The Norwegian sovereign wealth fund will not be forced to sell coal and oil stocks but will try to influence better ethical behaviour on a case-by-base basis by shareholder engagement.
Opposition parties in Norway had called for the fund, which, ironically, exists to invest Norway's income from selling oil, to divest from fossil fuel companies.
Other institutional investors including the Rockefeller Brothers Fund, Stanford University and Glasgow University have committed to selling fossil fuel stocks in response to environmental concerns.
However, an expert review chaired by economist Martin Skancke decided that the Government Pension Fund Global of Norway should stay invested in the sector.
"Energy production constitutes an important basis for our society, and fossil fuels – both petroleum and coal – will remain part of the energy mix for decades to come," says a statement from the review. "The question is thus not whether investors will own these companies, but which investors are 'good' owners of these assets from a financial and ethical perspective."
The decision reflects a trend in the responsible investment space to promote engagement, in which investors try to influence better behaviour by using their voting rights as shareholders. The trend reflects a move away from the strategy of exclusion, in which investors blacklist companies or sectors they view as unethical. The exclusion strategy was pioneered by Nordic institutional investors in the last two decades.
"The report recognises that stranded assets can be material for investors," says James Leaton, research director at Carbon Tracker, a research organisation. "The recommendation is that this is dealt with through active ownership and improved reporting on managing climate risk – an approach we hope will deliver meaningful results if considered alongside climate constraints."
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