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Potential Perils of Single Issues for Norway’s Sovereign Wealth Fund

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Montalban Founder Dag Dyrdal, an advisor to financial institutions and corporations, wrote a column in Norwegian newspaper Dagens Naeringsliv titled, “The Oil Fund as a Political Activist” (translated) on May 27, 2015. From 2009 to 2012, Dyrdal was Chief Strategic Relations Officer and a member of the executive management team at Norges Bank Investment Management (NBIM), the manager of Norway’s wealth fund. His article highlights the growing debates and possible usage of Norway’s enormous prized treasure, its nearly US$ 900 billion sovereign wealth fund, as a political instrument to fulfill a myriad of single-issue agendas.

The risk of having a number of single-issues drive the investment process of a sovereign wealth fund invested in hundreds of markets can create a host of problems.

Single Issues

Norway is not the only country susceptible to politicians who view a pile of cash as their means to fulfill political purposes. In fact, many Western countries that have longer webs of special interest groups, have trouble forming savings vehicles that top the half trillion dollar mark without strict governance rules and checks.

Dag Dyrdal

Dag Dyrdal

Dyrdal writes: “The Environmental Party considers the fund a climate policy instrument. The Centre Party wants to split up the fund and decentralise management across Norway. While in opposition, The Progress Party wanted to use the fund as a lever for increased infrastructure investments in Norway, while the Christian Democrats and the Liberals on several occasions have wanted more development-oriented and green investments.”

The risk of having a number of single-issues drive the investment process of a sovereign wealth fund invested in hundreds of markets can create a host of problems. For example, the fund is under political pressure to divest from all coal assets, while the fund is still invested in oil & gas investments. At the end of 2014, Norway’s wealth fund owned 2.16% of BP PLC and 0.84% of Canadian energy giant Cenovus Energy Inc. In addition, the fund is being maneuvered to boost investments in renewable energy, a popular theme for many policymakers and a number of asset owners such as large private endowments, Swedish buffer funds and Dutch pensions. At the beginning of the year, the sovereign fund signaled a nearly US$ 3 billion allocation toward green technology listed equities. However, many top companies listed in the European Renewable Energy Index, have posted poor returns or even losses in 2014. At the end of 2014, the fund held US$ 4.5 billion in green technology companies.

Dyrdal writes about the importance of holistic thinking, what the fund’s creators used to combat short-term thinking and special interests.

Citing the fund’s impressive growth, Dyrdal understands that using the wealth fund for political expediency and altruistic projects has a nicer ring than maintaining its conservative mission to continue to making prudent investments for an indeterminate future. In Dyrdal’s words, “‘How can you not use this opportunity to make a difference’ has a stronger appeal than ‘saving for future generations.’”

Dyrdal writes about the importance of holistic thinking, what the fund’s creators used to combat short-term thinking and special interests. The largest singular sovereign wealth fund was able to grow fast because Norway’s government did not deviate from the core mission of the fund.

To date, Norway’s sovereign wealth fund has probably the most stringent guidelines on environment-social-governance (ESG) investing compared to its peer wealth funds. Dyrdal agrees that the purpose of the wealth fund and its formation was a political decision and sums up his article by encouraging future fund leaders and politicians to consider the original mission of the fund and not focus too heavily on single issues stating, “When that discussion is to take place, it is important to remember the historical legacy and future responsibility, to ensure a comprehensive perspective.”

Referenced Articles
Original article in Dagens Naeringsliv: Oljefondet som politisk aktivist

Translated article: The Oil Fund as a political activist

SWFI First Read, September 19, 2018

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