Matsen emphasised that the recommendation is to remove oil and gas stocks from its benchmark index but that it wants to keep them as part of its "investment universe". While the fund says the plan isn't based on any view on the future of oil prices or the industry, it will likely add pressure on oil producers, already struggling in a world where renewable energy is gaining sway. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said.
"Therefore, it is the bank's assessment that the government's wealth can be made less vulnerable to a permanent drop in oil prices if the GPFG [sovereign wealth fund] is not invested in oil and gas stocks".
The Government Pension Fund of Norway, which recently surpassed one trillion dollars in value, is the world's largest sovereign wealth fund.
"Our perspective here is to spread the risks for the state's wealth", Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo.
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"Nothing is imminent and even if the advice is fully implemented we believe this will have limited impact on the oil and gas producers, as the holdings of Norges Bank are relatively small and no doubt will be disposed of over an extended time frame", she added.
Nicolò Wojewoda of 350.org Europe was also hopeful about the implications of Norges Bank's decision, calling it "yet another nail in the coffin of the coal, oil, and gas industry". The fund was initially set up to invest the proceeds from Norway's oil reserves.
Initial reactions from Norwegian politicians were positive, with two key centrist opposition parties backing the proposal.
"Bravo Norway, and let's hope it gets through because the future of fossil fuel investment is looking shaky indeed", said Rachel Kennerley, climate campaigner at Friends of the Earth.
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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. "The straight answer is that all other sectors would be weighted up in proportion".
The decision now rests with the Norwegian Ministry of Finance.
At the end of 2016, the fund's equity investments were split between investments in the financial sector (23.3 percent), industrial companies (14.1 percent), consumer goods (13.7 percent), consumer services (10.3 percent), healthcare (10.2 percent), technology (9,5 percent), oil and gas (6.4 percent), basic materials (5.6 percent), telecoms (3.2 percent) and utilities (3.1 percent).
And analysts warned that the central bank's proposal could have a knock-on effect on the sector.
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