The decision of the world’s largest sovereign wealth fund to reduce holdings in oil stocks wasn’t as far-reaching as the industry feared, but dealt a symbolic blow to fossil fuels that will reverberate for energy companies and their investors.
While the divestment by Norway’s $1 trillion fund doesn’t include Big Oil, instead rooting out $7.5 billion of companies that focus purely on exploration and extraction, the impact of the announcement rippled through the sector. Shares of all oil companies initially plunged on the news, suggesting the move sets the industry up for greater disruption.
It’s a bitter taste of the new reality for oil producers, which increasingly have to fight for investor dollars rather than enjoying the perks of being indispensable to the global economy.
“The Norwegian sovereign wealth fund is seen as something of a poster-child amongst sovereign wealth funds,” said Alejandro DeMichelis, director of oil and gas research at Hannam & Partners LLP. “This decision could also trigger other large investors to review their stance towards investing in the oil and gas sector.”
Life is changing for oil companies. Ten years ago, they accounted for about 15 percent of the S&P 500 index. Today, they make up just 5 percent, having been mostly displaced by technology giants such as Facebook Inc. and Apple Inc.
Driving this shift is a smorgasbord of new energy sources that’s bringing unprecedented competition for capital.