The nation will be "less vulnerable" to a drop in oil by not being invested in stocks of companies in the industry, the Oslo-based fund said Thursday.
While Norway has built much of its sovereign wealth through oil and gas development in the past-six percent of the fund is invested in fossil fuels-it's now home to a fast-growing solar power sector, with solar installations rising by 366 percent from 2015 to 2016.
"It is not surprising that we see the world's largest sovereign wealth fund managers no longer prepared to take the increasing risk associated with oil and gas assets, which do not have a long-term future", he said.
The fund's biggest oil and gas holding at the end of 2016 was $5.36bn in Anglo Dutch firm Shell, followed by $3.06bn in ExxonMobil, $2.04bn in fellow U.S. oil firm Chevron, $2.02bn in the UK's BP, and $2.01bn in France's Total.
Owning close to 1.5% of global stocks, the Norwegian fund largely follows indices, but is allowed some active management of its portfolio. It also has shares worth more than $1bn in oil services firm Schlumberger and Italy's Eni, whose share price slumped 0.86%. It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas. The fund's exposure to fossil fuel markets is now double that of a standard global fund, the Central Bank said.
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Norway's largest private pension by value said that if the fund did ditch oil and gas stocks, the action could influence other investors.
Government finances in Norway have been hit hard by the drop in oil prices in recent years.
"This is the biggest pile of money on the planet, most of it derived from oil - but that hasn't blinded its owners to the realities of the world we now inhabit". "The straight answer is that all other sectors would be weighted up in proportion".
Norwegian Minister of Finance Siv Jensen said the issues raised by Norges Bank "are complex and multifaceted" and its advice requires a thorough assessment. The Government aims to conclude on this matter in the fall of 2018.
If it decides to back the central bank's proposal, the country's parliament would be able to vote on it in June 2019 at the earliest.
"It's great to have that luxury, isn't it?"