Madeleine Cuff for BusinessGreen.com:
Norway is under mounting pressure to allow its sovereign wealth fund the ability to invest i unlisted infrastructure assets – such as clean energy projects – to boost growth prospects an curb climate risk.
In June this year, Norwegian lawmakers will face a choice – a choice that could not only determin the future financial fortunes of their country, but also have the power to shift global investment markets.
They will be asked to vote on whether the US$880bn Norwegian Sovereign Wealth Fund – the home of Norway’s vast oil wealth and the largest pension fund in the world – should be allowed a mandate to invest up to five per cent of its value into unlisted global infrastructure.
The Norwegian Parliament are, in financial jargon, the fiduciaries of the Government Pension Fund Global (GPFG), but are advised by the its manager Norges Bank alongside Norway’s Finance Ministry. The trouble is, the two bodies can’t agree: Norges Bank is recommending the measure, but the Finance Ministry has been reluctant to approve it, citing concerns over the riskiness of the strategy
In an attempt to break the deadlock ahead of the June vote, yesterday US analysts the Institute for Energy Economics and Financial Analysis (IEEFA) addressed the Norwegian Parliament at a cross-party seminar, presenting the findings of a new report that claims the fund could make strong gains by investing now in renewable energy infrastructure.
The IEEFA paper describes how renewable energy already accounts for roughly 42 per cent of all unlisted infrastructure transactions and is fast becoming a separate investment vehicle. Well- managed investments can generate returns of up to 15 per cent, IEEFA points out, claiming the renewables sector “has entered a long-term growth cycle with a strong outlook driven by low costs, competitive prices, policy advances and rapid uptake”.
In light of this buoyant outlook, IEEFA is recommending the Norwegian Parliament approves the five per cent mandate, as well as expand GPFG’s in-house expertise on the topic and create partnerships with other established investment funds to co-invest in renewable energy. “The opportunity in infrastructure investment is enormous,” it concludes. “The risk is manageable.”
Institutional investors are traditionally slow-moving, cautious entities – but that means that whe they do take action to shift investment strategies the investment world sits up and takes note. This is particularly true for the GPFG, which as a public entity is far more transparent and rigourous in its diligence processes than some other funds, according to Tom Sanzillo, director of finance at IEEFA and lead author of the paper.