Norway's Huge Coal Divestment: From Climate Hero to Greenwash and Back Again

The Intertubes have been buzzing over last week's news that the global coal industry has lost a $900 billion investor, namely the Norwegian Government Pension Fund. However, Norway's path to coal divestment is much more complicated than recent news makes out, and there are some lessons here for investment funds and other companies seeking to build a green brand.

The story actually started earlier this year, when the pension fund -- which happens to be the world's largest sovereign wealth fund -- splashily announced an ambitious coal divestment plan. In the latest development, Norway will introduce a follow-up plan to close an apparent loophole in its original plan.

Coal divestment 1.0

For those of you new to the topic, Norway's pension fund is not a conventional pension fund. Its financial support comes from Norway's petroleum revenues, hence its nickname, "the Oil Fund."

The Oil Fund was set up in 1990. Its initial focus was in government bonds, but it soon diversified into other markets. Its investments in the global tobacco industry as well as fossil fuels began to attract attention, which prompted the Norwegian government to establish a Council on Ethics for the Oil Fund in 2004.

The Council on Ethics has been effective, at least up to a point, and earlier this year the Oil Fund put out word that it had shaken 114 companies off its investment list, including 32 coal-mining companies. It linked the coal divestment decision to a risky regulatory environment related to climate change.

Coal divestment 2.0

The February announcement was greeted with applause, but the honeymoon didn't last long. Environmental groups spotted a major loophole right off the bat and started investigating. The results were just released in a report, titled Still Dirty, Still Dangerous, by the groups urgewald, Framtiden i våre hender (the Future in our Hands) and Greenpeace Norway.

The report notes the irony of Norway's official position on climate change:

"While the Norwegian government has been one of the leading proponents for a comprehensive and legally binding climate agreement, it has failed to connect the dots when it comes to the country’s sovereign wealth fund. The tens of billions of kroner the GPF has sunk into the coal industry make it one of the investment giants in a sector that must urgently be scaled back if we want to avoid catastrophic climate change."

The new report is a follow-up to the group's previous Dirty & Dangerous survey, which used five relatively conservative criteria to target 158 coal-related companies in the Oil Fund's portfolio. In comparison, the actual number picked out by the Oil Fund itself starts to look a little less impressive.

The real picture on the Oil Fund's coal divestment announcement is even worse, according to the report. Rather than cutting back on overall investment, the Oil Fund apparently consolidated -- and increased -- its coal portfolio:

"When we analyzed the GPF’s 2014 holdings list (published in March 2015), we found it had, indeed, divested from 51 coal companies in 2014. The total sum of its coal industry holdings has, however, grown and now amounts to NOK 85.8 billion, an increase of over 3 billion kroner, when compared to 2013. This shows the shortcomings of reports that focus only on divestment actions , but do not mention where funds have been re - invested."

In fact, according to our friends over at Vice, the Oil Fund's ties to coal account for almost a quarter of the global coal industry.

Well, that might not last much longer. The Associated Press reported late last week that Norway's parliament is taking steps to close the coal divestment loophole.

The new measure apparently echoes one of the criteria from Still Dirty, Still Dangerous, by limiting the Oil Fund to investing in companies that derive less than 30 percent of their revenue from burning or extracting coal.

Next steps for Norway -- and the business community

Norway's road to coal divestment carries two important, and very clear, lessons for the private sector.

The first, of course, is to be honest. The sketchy math behind Norway's original coal divestment announcement was a classic case of greenwash. The Oil Fund threw out some impressive-looking raw numbers, and hoped that the details would escape notice.

That's simply not possible in today's world, especially considering the growing shareholder involvement trend and the increased access to data and information.

The second lesson is a positive one. At least so far, Norway's experience shows that legacy investment funds and companies can maintain their connections with extractive industries while simultaneously building up their green cred, if they continue to take honest, significant steps to evolve.

That effort can yield bottom-line results. For nations, as well as the private sector, a solid green image is the key to attracting both talent and investment dollars. Norway, for example, has been aggressively promoting its green image, as the country attempts to lure new clean-tech investment to its shores. That probably explains why Norway's elected officials reacted with relative speed to close the coal divestment loophole.

Despite its ongoing, significant role in the global economy as a fossil fuel exporter as well as an investor, Norway's domestic progress on clean energy and sustainability has enabled it to achieve role-model status for climate change adaptability. Closing the coal divestment loophole has attracted additional accolades.

If Norway wants to maintain its green image, the next step will be to leverage its growing clean-tech sector to create new jobs at home, and to transition out of its fossil export role in favor of exporting clean technology.

That transition will be difficult, based on Norway's dependence on oil revenues (and to some extent on coal mining, by the way). However, even Saudi Arabia sees the writing on the wall, as it ramps up its solar industry and draws down its oil reserves.

The era of fossil energy is rapidly drawing to a close. Governments, as well as businesses, must act decisively -- and honestly -- in order to stay competitive.

We'll get a good picture of the ways in which government and business can work together along those lines this fall, when the U.S. hosts its second Global Impact Economy Forum. The forum is designed to promote public-private clean energy investment by showcasing success stories in the U.S., and we'll be interested to see if and how Norway contributes to the effort.

Image (screenshot): Courtesy of Invest in Norway.

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