Norway's pension fund could cut billions in oil stocks to spread risk

$1tn Norwegian oil fund plans to ditch oil and gas stocks

"But clearly the direction is that. if the ministry and the politicians think it is good advice and they say yes to it, clearly the investments in the oil and gas sector will decrease over time", he added.

"The government's wealth can be made less vulnerable to a permanent drop in oil prices if the (pension fund) is not invested in oil and gas stocks", the fund's managers said.

The advice constitutes the next major step in scrubbing the world's biggest wealth fund of climate risk after it largely sold out of coal stocks.

The sector accounts for 14 percent of Norway's gross domestic product.

The proposal came in a letter sent by the central bank to the finance ministry and signed by its governor, Oeystein Olsen, and the chief executive of the fund, Yngve Slyngsad, Deputy Central Bank Governor Egil Matsen said in an interview.

"Oil price exposure of the government's wealth position can be reduced by not having the fund invested in oil and gas stocks", said Matsen.

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The sovereign wealth fund, fuelled by the state's oil revenues which have dropped sharply in recent years, is now worth around 8.24 trillion kroner (854 billion euros, $1 trillion), invested primarily in shares (65.9 percent) as well as bonds and real estate.

The bank said its analyses of the oil price risk in the government's wealth are based on the government's future oil and gas revenues, the government's direct holdings in Norwegian multinational oil and gas company Statoil and the GPFG. "We can do that better by not adding oil-price risk". The Stoxx Europe 600 oil and gas index reversed gains after the announcement, sliding 0.4% as of 1.14pm in London. The proposal has to be reviewed by the Finance Ministry, which in turn needs to decide whether to propose it to parliament.

The fund has doubled in value over the past five years and was just given the go-ahead to boost its stock holdings to 70% of its portfolio from 60% to help drive returns.

McKibben compared the bank's recommendation to "the moment when the Rockefellers divested the world's oldest oil fortune" in 2014, when the heirs to Standard Oil said that if founder John D. Rockefeller were alive in the 21st century, "he would be moving out of fossil fuels and investing in clean, renewable energy".

"The problem raised by the central bank is extensive and has many facets", Finance Minister Siv Jensen said in a statement.

Thursday's recommendation comes at a "good time because the stock portion will now be increased to 70% and that would also mean that we would buy more oil and gas stocks", Matsen said.

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