Earlier this year the people of Norway were given some good news. The country’s central bank announced that in 2013 the market value of its giant oil fund increased by more than $200 billion US dollars. The windfall came partly from returns on the fund's investments, partly from new capital transferred by the government to the oil fund, and partly due to a weaker krone exchange rate. “We are all millionaires now!” announced one countryman in response to the news – and he was not kidding (…if you convert the funds into Norwegian kronas). With over $850 billion US dollars in assets, Norway’s “Government Pension Fund Global” (GPFG), also simply called the “Oil Fund”, is the largest sovereign wealth fund of any country in the world. With a population of a mere 5 million, the $850 billion work out to $170,000 (1.020 million kronas; 2015 figures) for every woman, man and child in Norway. One billion dollars in earnings pass through the fund’s office in the Norwegian Central Bank each week. The bank expects the fund to exceed US $1 trillion by 2020. Current assets are already more than 1.5 times larger than Norway’s GDP.
There are several countries in the world that draw revenue from their oil wealth. From Saudi Arabia to the USA to Venezuela to Angola and Canada, some squander their profit, many lose it to corruption, in North America we lower income taxes for political expediency while others reinvest. Norway stands out in the crowd because it saves every penny of it. The oil fund is where surplus monies (e.g. royalties and taxes) generated by Norway’s oil and gas industry are deposited. Despite its enormous fiscal reserves, the country still maintains high income, consumption and gasoline taxes. Gas, for example, is $2.50 per litre ($9.45 per gallon; 2015 figures).
Across party lines Norway’s politicians agree: the stewardship for the country’s oil and gas wealth is theirs’ to uphold. Eventually, the oil and gas reserves are going to run out. Upcoming generations will depend on the prudent and careful management of this country’s wealth to ensure the availability of future social programs and the solidity of a good infrastructure.
With the latest jump in the fund’s assets, Norway is finding out: with wealth comes responsibility – and scrutiny. The fund wields enormous power. Norway’s fund exposure in Europe is approximately 50%, owning on average 2.5% of every listed company in Europe.
Of course, as globally thinking, highly ethical and socially responsible political leaders, the Norwegian government wants its noble principles reflected in the way the fund is managed. After all, with this level of wealth, the country is able to flex its muscle to affect real change in the world on ethical, environmental and human rights issues:
· Out with shares of companies that use child labour!
· Drop nuclear weapon producers and tobacco companies from the portfolio!
· In with green energy research and development
· Away with coal, gas and oil producers!
Wait a minute – is that right? Isn’t the entire fund based on gas and oil industry earnings? In fact, the Norwegian government recently announced the expansion of the Ekofisk oil field in the North Sea and Norway’s involvement in Alberta’s oil sands project. And what about recent statistics that place Norwegians close to the top on the list of the world’s worst polluters?
Still, despite this rather warped perspective on ethical investing, Norway’s huge oil fund is a testament to the foresight, savvy and discipline of the Norwegian people. In 100 years from now, when other oil and gas producing nations (Canada included) will be wondering where all that money has gone after their natural resources have been depleted, Norway will be benefitting from an enormous trust that sustains their people and the nation’s infrastructure.