The trading floor of Norges Bank Investment Management, Norway’s oil fund, which is trying to position itself as one of the most ethical investors in the world © REUTERS

Norway’s $1tn oil fund has sold out of some of the biggest names in commodities and utilities including Glencore, Anglo American and RWE after the world’s largest sovereign wealth fund decided they breached its guidelines on the use of coal.

Exclusions by one of the world’s biggest shareholders — the fund owns on average almost 1.5 per cent of every listed company in the world — are often closely followed by other investors.

The fund also sold out of Brazilian mining company Vale due to “severe environmental damage” from a dam burst and placed miner BHP, and utilities Enel, Uniper and Vistra Energy on an observation list for possible sale later over their use of coal.

New criteria that stop the fund from investing in companies that extract more than 20m tonnes of thermal coal or use more than 10,000MW of power from coal led to the exclusions of commodities groups Glencore and Anglo American, utilities RWE and AGL Energy, and petrochemicals company Sasol early on Wednesday.

The oil fund, which always sells its entire stake in companies before announcing its exclusions, said it had taken longer than normal to do this since making its decision because of the recent market turmoil caused by coronavirus.

The fund owned 1.2 per cent of Glencore, 2.4 per cent of Anglo American, 0.6 per cent of RWE and 0.5 per cent in Vale, making it a leading shareholder in all.

It also has a 5 per cent stake in BHP, the world’s biggest mining company, which it increased from 3.8 per cent in March.

Even though BHP produces more than 20m tonnes a year of thermal coal it has not been excluded by the fund because the Anglo-Australian group is trying to find a buyer for its stake in Colombian miner Cerrejón.

Heffa Schücking, director of German environmental campaign group Urgewald, welcomed the fund’s divestments but expressed disappointment that companies including BHP was not on the exclusion list.

“BHP, which in 2019 produced 27.5m tonnes of thermal coal clearly lies far above the fund’s absolute criteria of 20m tonnes annual coal production,” she said. “While the observation list sends a warning signal to the industry, it does not prevent ... new and additional investments in the companies on the list.”

Norway’s parliament has in recent years tightened the rules about what the oil fund can invest in, adding big coal extractors and users to producers of tobacco, nuclear weapons and cluster bombs to those excluded.

The government added a small number of oil and gas companies, those classified as pure exploration and production groups such as Lundin Energy, Marathon Oil, and Cairn Energy, last year but the fund has yet to announce their formal exclusion.

The fund estimates that such product-based exclusions lower its investment returns but bans based on conduct, such as that for Vale, lift them.

The fund is therefore not allowed to invest in some of the world’s best-known companies such as Airbus, Boeing, British American Tobacco, Honeywell and ZTE.

However, it is able reverse exclusions if companies react and reduce their exposure to coal. Anglo American announced last week plans to spin off its South African thermal coal business in two to three years via a demerger on the Johannesburg stock exchange.

The oil fund also announced on Wednesday that it had for the first time sold out of companies due to unacceptable greenhouse gas emissions as it excluded Canadian Natural Resources, Cenovus Energy, Suncor Energy, and Imperial Oil due to the production of oil from oil sands.

It also barred Egypt’s Elsewedy Electric due to its participation in a hydropower project in Tanzania that it classed as “severe environmental damage” and Brazil’s Eletrobras for “systematic human rights violations” due to the construction of a power plant. These exclusions, along with Vale’s, were based on recommendations from the independent Council of Ethics.

Norway has tried to position the oil fund as one of the most ethical investors in the world and its decisions are followed by many other shareholders.

But other investors have taken more action on fossil fuels in recent years, particularly coal and increasingly oil and gas, as they worry about them becoming “stranded assets”, raising the pressure on Norway to respond.

Additional reporting by Neil Hume in London

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