Pension Advisory Board: Divesting From Fossil Fuels Will Harm Future Returns

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There have been calls from many corners in recent months and years for pension funds and other institutional investors to begin divesting from fossil fuel-based investments.

But not many institutional investors have heeded that call, choosing instead to use their sway as major shareholders to work with companies.

One of the largest asset holders in the world is taking a similar approach. The board of the $857.1 billion Norway Pension Fund Global has told the fund that divesting from fossil fuels would be an unwise financial decision that would reduce returns.

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The Norway Pension Fund Global should reject calls to dump fossil fuel investments and concentrate instead on working with the worst offenders, according to its advisory board.

The country’s finance ministry asked the board to evaluate whether divesting from coal and petroleum companies was a “more effective strategy for addressing climate issues and promoting future change than the exercise of ownership and exertion of influence.”

The panel of international investment experts concluded that the fund—despite being one of the world’s largest investors—has minimal power over climate change. Becoming a force for environmental causes would mean changing its mandate and fiduciary duty to Norwegian citizens, the board stated in an extensive report published today.

“We do not think that it would be better for the climate—or the fund—if these shares were to be sold to other investors who, in all probability, will have a less ambitious climate-related ownership strategy than the fund,” the advisors said.

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The portfolio is an “inappropriate and ineffective climate change tool,” the report said. “Neither exclusion nor the exercise of ownership can be expected to address or affect climate change in a significant way.”

Furthermore, the board warned that attempting to halt or slow climate change via the $800 billion fund could threaten future returns.

Instead, the board proposed changing its investment guidelines to permit excluding companies that “operate in a way that is severely harmful to the climate.”

Norway’s largest pension fund announced last month plans to divest from coal assets. But it said divesting from other fossil fuels posed a major risk to future returns.

 

Photo by penagate via Flickr CC

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  1. […] of one of the largest asset owners in the world, the $857.1 billion Norway Pension Fund Global, concluded that divesting from fossil fuels would be an unwise financial decision that would reduce […]

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