Norway's Coal Divestment: An Example to Follow

By Katarina Hovden



On the 5 June 2015, the Norwegian Parliament voted unanimously to divest Norway’s $870 billion sovereign wealth fund from coal. The Government Pension Fund Global is the largest sovereign wealth fund in the world. As the biggest divestment from coal until date, this announcement gives great impetus to the divestment campaign and may incentivise other States and investors to follow suit. The text that follows will explain what the fossil fuel divestment campaign stands for, give background information about the Government Pension Fund Global (GPFG) generally, explain the process that led to the unanimous vote to divest and finally reflect on what lies beyond divestment.


The Fossil Fuel Divestment Campaign

Divestment entails the opposite of an investment, it means selling stocks, bonds or investment funds in particular companies, on the basis, for example, of moral and ethical reasons. The fossil fuel divestment campaign takes the standpoint that fossil fuels pose a risk to investors, to the climate system and to human beings and other living things, who rely on a stable climate for survival. The campaign demands divestment from the fossil fuel industry, as a matter both of risk mitigation and moral obligation.

Divestment campaigns have been successful in the past, for example in addressing the use of landmines and tobacco advertising and in engendering widespread condemnation of apartheid in South Africa, through divestment from companies that were doing business there.

The fossil fuel divestment campaign has received prominent endorsements from the United Nations Framework Convention on Climate Change (UNFCCC), the United Nations Environment Programme, UN Secretary-General Ban-Ki Moon, the President of the World Bank, US President Barack Obama, and more. It is in this context of growing support for the campaign, coupled with the upcoming UNFCCC’s 21st Conference of the Parties(COP21) in December, that Norway made its announcement to divest.


Norway’s Government Pension Fund Global

Norway’s Government Pension Fund Global (previously known as Petroleum Fund) was established in 1990 as a fiscal policy tool with a mandate to support government savings to finance public pension expenditure and to underpin long-term considerations in the phasing in of petroleum revenues into the Norwegian economy (s. 1 Government Pension Fund Act). It has a long-term orientation, aiming to invest petroleum revenues responsibly and thereby also ensuring inter-generational equity, i.e. enabling both present and future generations to benefit from Norway’s petroleum revenues. Despite its name, the GPFG has no formal pension liabilities. The GPFG’s capital is entirely invested abroad, in international equity, fixed-income markets and real estate.

The Ministry of Finance is legally mandated to manage the GPFG under Section 2 of the Government Pension Fund Act, while Norges Bank Investment Management carries out its operational management. Notably, the Ministry of Finance and Norges Bank Investment Management manage the GPFG on behalf of the Norwegian people, on the understanding that its capital is common property. Norges Bank Investment Management must aim for the following: to achieve the highest possible return, to ensure that GPFG is not invested in companies that are excluded under the relevant provisions for exclusion and to manage the GPFG responsibly, while considering that good returns in the long term are dependent on sustainable development (in economic, environmental and social terms) and on well-functioning, legitimate and efficient markets (§1-3 Management Mandate).

An Ethical Council was established in 2004, whose responsibility it is to advice the Ministry of Finance on the extent to which an investment is in conflict with Norwegian law, and on whether certain companies should be excluded, considering whether continuing to invest in those companies would entail an unacceptable level of risk that the GPFG would contribute to grave and systemic human rights violations, serious environmental damage, and more.


Coal and Petroleum under the Spotlight

In April of 2014, the Ministry of Finance appointed an Expert Group (the Skancke Committee) to evaluate GPFG’s investments in coal and petroleum companies, and more specifically to determine whether the exclusion of coal and petroleum companies would be a ‘more effective strategy for addressing climate issues and promoting future change than the exercise of ownership and exertion of influence’ (Mandate for Expert Group).

The Expert Group concluded, in their Report of the 3 December 2014, that no general and automatic exclusion mechanism for coal and petroleum producers should be created. Instead, ‘corporate governance’ should be the GPFG’s main vehicle for addressing climate change and an ad-hoc exclusion mechanism should be incorporated into the Guidelines for Observation and Exclusion, namely ‘contribution to climate change’, so that companies that contribute to serious damage to the climate could be excluded from the GPFG on a case-by-case basis.

The Group gave the following reasons for this decision: automatically excluding all coal or petroleum producers from the GPFG would not in itself impact greatly on the extent of climate change; fossil fuel companies’ energy production, energy use and emissions are not per se contrary to accepted ethical norms, as in fact society relies on such fuel; and a general coal and/or petroleum exclusion criterion would be inconsistent with other Norwegian policies, given the Norwegian Government’s role in the production of petroleum and coal.

The Group’s conclusions were criticised and Parliamentary representative Rasmus Hansson re-opened the issue in Parliament in a recommendation of the 4 December 2014. In that recommendation, two proposals were made:

  1. Parliament should ask the Government to pull the GPFG out of coal companies (notably, not petroleum); based on quantitative criteria for how heavily the company is involved in coal. This is the ‘product-based’ criterion.
  2. Parliament should ask the Government to propose that the GPFG’s Guidelines for Observation and Exclusion should be extended to include ‘activities that are harmful to the climate’, based on a risk assessment that takes the two-degrees Celsius target into account. This is the ‘conduct-based’ criterion.

The Ministry of Finance concurred with Rasmus Hansson’s two proposals and recommended that Parliament adopt them. Consequently, the matter came to a vote on the 5 June 2015.


Unanimous Verdict= Divest

On that date, the Norwegian Parliament voted unanimously in favour of both the product-based and the conduct-based criterion, and consequently took decisive action to pull the GPFG out of coal companies. More specifically, the Norwegian Parliament decided that the GPFG will pull out of its investments in companies that have 30% or more of its business in coal or where 30% or more of a companies’ revenue comes from coal. Moreover, the decision will also cover subsidiary companies, so that companies cannot subcontract their coal production and thereby avoid exclusion. This is an important safeguard, in particular in light of companies’ long chains of command. Moreover, the Norwegian Parliament adopted the conduct-based criterion relating to ‘activities that are harmful to the climate’ (also recommended by the Expert Group).

The Ministry of Finance has calculated that the measures, which will enter into force on 1 January 2016, will affect $5-6 billion of investments and 70-80 companies (of more than 9000 companies), while a group of NGOs (Urgewald, Greenpeace, Fremtiden i våre Hender) has calculated that it will affect $8.7 billion and 122 companies.


Beyond Divestment: Clean investments

 Despite the scepticism of the Expert Group, the GPFG’s divestment from coal and petroleum is significant. As the largest sovereign wealth fund in the world, GPFG’s divestment could have a tangible impact on the companies affected by the exclusion measures, and on their emissions, and it certainly carries a global political message. This global political message should not be undermined, in particular given the current international climate and efforts to work towards a new climate agreement in Paris at the end of 2015.

While undoubtedly the GPFG’s divestment from coal could have a ripple effect and incentivise other investors to divest, it does not address clean investments. Environmental investments are already a part of the GPFG’s mandate, which in the year 2013-2014 was set at $3.6 billion to $6.1 billion. While the Ministry of Finance recommended increasing the mandate in 2014-2015, to between $3.6 billion and $7.3 billion, this is arguably a modest increase, and one which has been criticised by some as unduly cautious. As a point of reference, the GPFG currently has somewhere between $30 and $40 billion invested in fossil fuel industries.

It is to be hoped that, in addition to further divestment pledges, greater attention will be given to clean investments, and to mandating, at a national and international level, a greater proportion of such investments. While the COP21 could be one such forum in which to make a commitment to increase the proportion of clean investments, and the negotiating draft text in fact includes many references to climate-resilient and low-emission investments , the draft text is vague and does not propose quantifiable objectives or obligations. Additionally, there is no guarantee that clean investments will be addressed at all at the COP21, and if addressed, it is unlikely that any potential agreement will mandate quantifiable objectives or obligations relating to clean investments.

For the time being, it will be up to national or regional governments and investors such as pension funds to follow the Norwegian example and opt for climate-friendly investments. California is heading in this direction by adopting legislation that will oblige its state pension funds not to invest in coal any more, and other US states have similar plans. In the Netherlands, one of the largest pension funds in the world announced that it will take climate change better into account, but calls for further steps- such as that taken in Norway- are growing louder.



Government Pension Fund Act,

Government Pension Fund Act (English),

GPFG Management Mandate,

Expert Group Mandate,

Expert Group Report

Expert Group Report (English)

E. Hendey ‘Does Divestment Work?’\

R. Hansson’s Recommendation (04.12.2014)

Ministry of Finance’s Recommendation (28.05.2015)

Norwegian Parliament’s verdict (05.06.2015)

Norwegian Parliament’s verdict (transcript, 05.06.2015)

Coal divestment bill passes California state legislature