We gasped a few weeks back when DWS Group launched an environmental, social and governance (ESG) ETF that raised nearly US$1 billion from a Finnish insurance company.
Two doors down, the US$1 trillion Norwegian sovereign wealth fund made its own announcement: it has enough North Sea oil exposure, so it’s slashing its energy portfolio. The Scandinavians aren’t talking; they’re acting.
Norway’s oil wealth comes from “upstream” extraction, so that’s the focus of the divestiture campaign. It’s not a wholesale energy liquidation just yet. Integrated oils like Chevron are still fair game because they have downstream refining and can thus offer diversification. Nevertheless, Norway is sending a clear message.
The trailblazing fund is a force to be reckoned with, controlling 1% of global listed equities. When it bobs, you weave.
There are two takes here—the idealistic one and the realistic one:
1. Idealistic: A progressive northern European country is leading the way on a megatrend, just as it did with state-provided health care, parental workplace benefits and gender roles (and if we stretch to the Netherlands, drug decriminalization and bicycling).
2. Realistic: A society whose fortunes are levered to the oil price is diversifying concentration risk under the guise of ESG.
Take note, Canada.
This nation is the portrait of cognitive dissonance. Justin Trudeau was supposed to be this era’s incarnation of the Summer of Love, with a warm Canadian kiss on the Paris Agreement for greenhouse emissions. Puzzling, then, the prospect of a Trans Mountain pipeline expansion.
Meanwhile, having Big Oil reach Big Tobacco pariah status can happen faster than you can google “University Divestment 1980s Apartheid.” I’ll give you the Coles Notes: apartheid died once institutional investors started cutting ties.
If you don’t think Canadian oil interests are petrified of the New Left’s answer to Trump—e.g., American congresswoman Alexandria Ocasio-Cortez—visit Suncor’s website. You wouldn’t know it was in the oil sands business, because you can’t get past all the sustainability, climate change and photos of sunshine. That’s when it dawns on you: this is like Altria urging smoking cessation. Catch even a fraction of the so-called Green New Deal and one-fifth of the S&P/TSX 60 is in a real pickle.
As Oslo goes, so goes Ottawa? Norway’s sector trap is particularly acute, so it forges the path (figure 1). Canadian asset allocators, get your compass: Norway is drawing the map.
Figure 1: Index Energy Weight
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