- 1 -

WhyandHowtheOilfundshouldinvestinunlistedrenewableinfrastructureatscaleBySonyKapoor,Re-DefineManagingDirector

December2018

- 2 -

ContentExecutiveSummary ...................................................................................................... - 3 -

1:Introduction ............................................................................................................. - 5 -

Climatechangeisuponus ................................................................................................... - 5 -

Presentcommitmentsandfundingfallshort ................................................................... - 5 -

Thiscreatesbusinessopportunitiesforinvestorsinrenewables .................................. - 6 -

Technologicaldevelopmentsandpolicychangescreatebigrisksforfossilfuels ........ - 6 -

AllofthesedevelopmentshaveadirectimpactonNorway’sOilFund .......................... - 7 -

2:ThecasefortheOilFunddivestingfromoilandgas ............................................. - 9 -

TheNorwegianeconomyisheavilyoverexposedtotheoilandgassector ................... - 9 -

Norwayalsohasaverylargefinancialexposuretothepriceofoil ................................ - 9 -

Theimportanceandurgencyofdivestmentcannotbeoverstated .............................. - 11 -

Addressingthepointsraisedbytheexpertgroupagainstdivestment ........................ - 11 -

3:Thecaseforinvestinginunlistedrenewableinfrastructure .............................. - 14 -

WhyNBIMoughttoinvestinrenewableenergy ............................................................ - 14 -

Thediversificationcase .................................................................................................... - 14 -

Theperformancecase ....................................................................................................... - 16 -

Theethicalcase .................................................................................................................. - 16 -

Theopportunitycase ........................................................................................................ - 16 -

WhyNBIMshouldinvestinunlistedinfrastructure ....................................................... - 18 -

Whyunlistedrenewableinfrastructureisaparticularlyattractiveinvestment ........ - 19 -

4:HowNBIMshouldmakeunlistedrenewableinvestments ................................... - 22 -

Environmentalmandatevs.therealestatemandatetemplate .................................... - 22 -

Howbigshouldtheunlistedrenewableinfrastructuremandatebe? .......................... - 22 -

Howshouldthemanagementoftheseinvestmentsbestructured? ............................. - 23 -

WhatapproachshouldbetakentoRiskManagement? ................................................. - 24 -

WhichcountriesshouldNBIMinvestin? ......................................................................... - 25 -

Howshouldthedecisionprocesseswork? ...................................................................... - 27 -

HowwillNBIMensuretransparencyinitsunlistedinvestments? ............................... - 27 -

HowshouldNBIMapproachpartnerships? .................................................................... - 28 -

5Conclusion ................................................................................................................ - 29 -

- 3 -

ExecutiveSummaryThechallengeofclimatechangeClimatechangeisthegreatestchallengethathumankindfaces.Thefasterthedeploymentofrenewablestoreplacefossilfuels,thegreaterthelikelihoodoflimitingwarmingandthenegativeconsequencesofclimatechange.AcasefordivestingfromoilandgasNorwayisbotheconomicallyandfinanciallyheavilyoverexposedtooilandgas.Thisover-relianceposesgreatdangerfortheNorwegianeconomyinthefuture,especiallywithrisingpressurestotackleclimatechangeandtominimizetheuseoffossilfuels.Recognisingthisimminentdanger,in2017NBIMdecidedtorecommenddivestmentfromoilandgasstocksinoppositiontothepositionoftheFinanceMinistry.TheexpertgroupsetupbythegovernmenttoconsiderNBIM’sproposaldidnotfundamentallydisagreewithNBIM’sanalysisbutproposedthattherewereotherpolicyinstrumentsthatmayhaveamuchbiggerimpactondiversifyingoilrisk.Thatisnotwrong,butsuchmeasuresareabsentandnotevenonthepoliticalhorizon.NBIM’sdivestmentisagoodsecond-bestoption,asweshowagaininthisreport.NBIMshouldbeallowedtoinvest5%inrenewableenergyinfrastructureOnepolicymeasurethroughwhichNBIMcouldfurtherreducetheexcessivefossilfuelriskitisexposedto,istodeploythemoneyfreedupfromdivestmentinrenewableinfrastructureinvestments.Thissectorhasbeenshowntobetheonlyonethatperformswellundervariousclimatechangescenarios,evenasfossilfuelinvestmentssufferbadly.Suchastrategywouldthusbegoodfordiversification.Investmentsinrenewableinfrastructurepresentauniquemixofopportunitiesforinvestors,andNBIMitselfhasmadethecaseforbeingallowedtoinvestininfrastructureseveraltimes,startingin2006,andmostrecentlyin2016.Renewableenergyinvestments,inparticular,offerremarkablelong-termgrowthpotential,whichhaslowcorrelationtootherassetclasses,whileofferingenhancedrisk-adjustedreturns.Theyalsoprovidestablecashflowsandmeaningfuldividendyields.ManyofNBIM’speersalreadyhaveinfrastructureallocationsofbetween5%and15%oftheirportfolios.TheParliamentmajorityhassuggestedthatanopeningforrenewableinfrastructureshouldbewithintheso-calledenvironmentalmandate.Thismandateissmalltoday,lessthan1%ofthefund.Weshowwhythisshouldbeexpandedtoatleast5%ofthefund,forittobeinlinewithwhatNBIMitselfandtheexpertgrouponinfrastructurehavebothsuggested,andforthismandatetomakeanyrealimpactontheFunditself.

- 4 -

OpeningupforemergingeconomiesNBIMhassuggestedrestrictinginitialinvestmentstodevelopedeconomies.Thebulkoftheseopportunitieswillhowevercomefromemergingeconomies.AbetterapproachwouldthereforebetoallowNBIMtoinvestinallofthe78marketsthatitcanmakelistedinvestmentsintoday.Thiswouldalsoreflecttherealitythatinnon-OECDcountriespowersectorinvestment,includingrenewables,hasbeendrivenmainlybytheneedtomeetfast-risingelectricitydemand,andnolongerneedsubsidiesthatcreatesapoliticalriskinestablishedmarkets.InvestingalongsideDevelopmentFinanceInstitutionsandmultilateralbankscarriestheaddedadvantageofthepossibilityofriskmitigation,deeplocalexpertiseandsectorknowledgethatNBIMlacks,andeventhepossibilityofpartialpoliticalriskinsurance.SuchinvestmentswouldalsoofferadditionaldiversificationbenefitsinemergingeconomiesforaninvestorsuchasNBIMthatisheavilyconcentratedinslowgrowth,developedeconomies.Thefearofreputationalriskcanbedealtwithbyonlyinvestinginbrownfieldprojectswhererisksfromtheconstructionphasehavealreadybeendealtwith,incountrieswherethisisconsideredachallenge.Themechanicsofturnkeygreenfieldsolarandwindprojectsaresowell-establishedbynowthoughthatgreenfieldinvestmentsshouldnotposeseriousreputationalorotherrisksinmostcountries.RenewableInvestmentsshouldbeexecutedbyanewsubsidiaryThepresentenvironmentalmandatefocusesonlistedequitiesandgreenbonds,whichrequiresaverydifferentskillset,institutionalsetup,humancapacityandriskmanagementapproachcomparedtowhatwillbeneededformanagingunlistedinfrastructure.WethereforesuggestthatNBIMshouldsetupanewsubsidiary,modelledroughlyonitsrealestatesubsidiaryNBREM,NorgesBankRealEstateManagementanditsprotocols.Muchofthelegal,back-officeandotherexpertisecanbesharedbetweenNBREMandan“NRIM”,“NorwegianRenewableInvestmentManagement”.Thiswouldhelpkeepingcostslow.ItmaybeeasierforNBIMtomakeitsfirstinfrastructureinvestmentstogetherwithotherorganizationsratherthanjustonitsownaccount.Asensibleoptionwouldbetoinvesttogetherwithaknowledgeablepartnerandprojectdeveloper,orinstitutionssuchasmultilateralorregionaldevelopmentbanksornationalinfrastructurebanksthathaveexperienceandexpertiseinsuchinvestments.NBIM’sapproachtoriskmanagementshouldcombineconcreteinvestmentrestrictions,thoroughduediligenceaheadofinvestments,andcontinuousfollow-up.Broadlyspeaking,thiscanmirrortheinvestmentprocessusedforinvestmentsinunlistedrealestate.

- 5 -

1:IntroductionClimatechangeisuponusClimatechangeishappeningapace.Year2017sawsomeofthehighestaveragesurfacetemperatureseverrecorded,anditwasthesecond-warmestyearsincereliablerecord-keepingbeganin1880,trailingonly20161.Seventeenoftheeighteenwarmestyearssincerecord-keepingbeganhaveoccurredsince2001.Globalwarmingandextremeweatherissettogetmuchworseasthetemperaturekeepsrising,whichiswhythePariscommitmentto“holdingtheincreaseintheglobalaveragetemperaturetowellbelow2°Cabovepre-industriallevelsandpursuingeffortstolimitthetemperatureincreaseto1.5°C”issoimportant.Thedifferencebetween1.5and2degreewarmingoncropyields,floods,extremeheat,sealevelsanddroughtsisverysignificant,and2degreescouldbemuchworsethanourmodelspredict2.AsthemostrecentIPCCreportshows,the1.5degreeandthe2degreescenariosarea“worldapart”,withmanyoftheworsteffectsofclimatechangeatleasttwiceasworseinthelatter3.PresentcommitmentsandfundingfallshortHowever,currentnationallydeterminedcommitmentsfallfarshortofeventhe2°Cscenario.Evenifallcountriesmeettheirnon-bindingtargetstheyhavepledgedto,someprojectionsestimateglobaltemperaturescouldstillrisebymorethan3°C,andpossiblybyover4°C.Thiswouldhaveadevastatingeffectontheplanet,raisingsealevelsasmuchas1.5metres,puttingcitieslikeAmsterdamandNewYorkunderwaterandcausingwidespreadfamine4.Thefasterthedeploymentofrenewablestoreplacefossilfuels,thegreaterthelikelihoodofstayingunderthe2°Climit,buttheevidenceisnottooencouraging.TheworldislaggingbehindonallrenewableswithSolarPVtheonlyrenewabletechnologyontracktomeetSustainableDevelopmentScenariotargetswithrecord-levelnewdeploymentin20175.Netannualcapacityadditionsforallrenewablesmustincreaseover2017-30,whiletheshareofrenewablesinglobalelectricitygenerationmustreach47%by2030,from25%in2017.Tomeetthe1.5-degreetarget,whereinemissionswillneedtofalltolessthanhalfoftoday’slevelsalreadyby2030,andtozeroby2050,theinvestmentsinrenewableswillneedtogomuchfaster6.AccordingtotheWorldBusinessCouncilforSustainableDevelopment,reachingtheParisgoalwillrequireinvestinganadditional$1trillionperyearuntil2050incleanenergyandothersustainabilityprojects.Yetcurrentinvestmentlevelsarestillfarbelowthattargetlevel7. 1 https://www.nytimes.com/interactive/2018/01/18/climate/hottest-year-2017.html 2 https://www.vox.com/energy-and-environment/2018/1/19/16908402/global-warming-2-degrees-climate-change 3 https://www.wri.org/blog/2018/10/half-degree-and-world-apart-difference-climate-impacts-between-15-c-and-2-c-warming 4 https://www.independent.co.uk/environment/climate-change-model-scenario-rcp85-global-warming-illinios-study-a8353346.html 5 http://www.iea.org/tcep/power/renewables/ 6 https://www.wri.org/blog/2018/10/8-things-you-need-know-about-ipcc-15-c-report 7 https://www.wbcsd.org/Overview/Resources/General/Bridging-the-gap

- 6 -

ThiscreatesbusinessopportunitiesforinvestorsinrenewablesTherenewable-energysectorcanalreadyrelyonproventechnologiessuchaswindandsolarpower,aswellasonastablemarketframework.Thesetechnologiespresentstrongbusinessopportunitiesand“willattractupto60%oftheprojected$11.4trillionthatBloombergNewEnergyFinanceestimateswillbeinvestedinglobalpowergenerationby2040,yieldingstronggrowthandprofitabilityalongtheway8”.Itisnotjusttheamountofinvestmentsthatmatter,butalsowheretheyhappen.Energyneedsaremostacuteindevelopingandemergingeconomies.Thismaytakecompaniesandinvestorsalikeoutoftheircomfortzone,butaccordingtotheWBCSD,“emergingeconomiesofferinterestingprojects,superiorreturns,andinnovativefinancing—andtheyarecrucialtoachievingambitioustargetsforreininginCO2emissions”.TheinsurerAllianzreinforcestheconclusionsfromBloombergNewEnergyFinanceandtheWorldBusinessCouncilonSustainableDevelopmentthatrenewablesofferanattractiveinvestmentopportunityforinvestors.Itbelievesthatinfrastructureinvestingpresentsauniquemixofopportunitiesforinvestors.Specifically,“investmentsinRenewableEnergyInfrastructureofferstronglong-termgrowthpotentialwithlowcorrelationtootherassetclasses,whilealsoprovidingstablecashflowsandmeaningfuldividendyields”9.Allianzalsobelievesthatthebreakneckpaceofgrowthinglobalinfrastructuredevelopment-especiallyinrenewables-willremaininplaceforthelongrun,ascenarioconsistentwiththeongoingenergytransitionandtheneedforthattoaccelerate.TechnologicaldevelopmentsandpolicychangescreatebigrisksforfossilfuelsIfthereisanychanceforustomeetthePariscommitments,globalGHGemissionsmustpeakandbegintofallby2020.Thislimitstheprospectsforfossilfuels,includingoilandgas,whichareresponsibleforthemajorityofGHGemissionsintheworld.Justrecently,WoodMackenzie,ahighlyregardedoilandgasconsultancythatadvisesseveralmajors,broughtforwarditsdateforpeakdemandforoilbyseveralyearsto2036,muchearlierthanwhatoilmajorssuchasBPandExxonconsiderwhilemakinginvestmentdecisions10.Itexpectsdemandforoiltoalreadypeakby2030,drivenbyatectonicshiftinthegrowthofElectricandAutonomousvehicles.Aworkingpaperfrom2DegreesInvesting,athinktank,illustratesthatoildemandcoulddroparoundone-thirdinthenextcoupleofdecades,ifcurrentpromisingtechnologytrendsinartificialintelligence,autonomousdriving,sharingeconomyandotherscontinue.Inanoptimisticscenariowherethesetechnologiesprogressfaster,asmuchashalfofoildemandmaydisappear11.Theresultsaredramaticandstandinstark 8 ibid 9 https://www.wespath.com/assets/1/7/Allianz-July-2017.pdf 10 https://www.ft.com/content/a12af4be-85cf-11e8-96dd-fa565ec55929 11 https://2degrees-investing.org/a-vision-for-the-future-how-breakthrough-technologies-can-reduce-oil-demand-by-50-in-the-next-20-years/

- 7 -

contrasttoabaselinescenarioofincreasingoildemandofaround10-15%,andevenhigherundertheso-called‘CurrentPolicyScenario’oftheInternationalEnergyAgency.However,thebiggestthreattofossilfuelcomesfromtheinexorableriseofrenewables,particularlysolarPVandwind.Thelevelizedcostofelectricity(averagingcostsoverageneratingasset’slifetime)droppedanaverageof15.5%peryearforutilitysolar,and13%forwindinthepasteightyears.Thishasmadethemthetwocheapestsourcesofenergy,providedstorageisnotrequired12.TheInternationalRenewableEnergyAgency(IRENA),analysingtheeffectsoftheenergytransitionuntil2050inarecentstudyfortheG20,foundthatover80%oftheworld’selectricitycouldcomefromrenewablesourcesbythatdate.Solarphotovoltaic(PV)andwindpowerwouldatthatpointaccountfor52%oftotalelectricitygeneration13.Storagecostsalsocontinuetofall,withthecostofstoragein2020expectedtobehalfofthelevelin201714,asdemandforstoragesurges.AllofthesedevelopmentshaveadirectimpactonNorway’sOilFundGiventhisbackgroundofworseningclimatechange,theneedforurgentactiononrenewableinvestments,thesignificantopportunitiesforinvestorsandthethreatstothefutureoffossilfuels,recentdevelopmentsinthepolicydiscussionsontheinvestmentstrategyofthe$1trillionNorwegianOilFundareparticularlyinteresting.Therehavebeenthreemajordevelopmentsintheseinthepastthreeyears.ThefirstwasNBIM’srecommendationtodivestfromalloilandgasrelatedstocksthatwasannouncedinlate201715.TheMinistryofFinance,whichhasopposedsuchdivestmentearlierin2017,appointedanexpertgrouptoconsiderNBIM’srequestfordivestment16.ThisexpertgrouphasrejectedNBIM’srequest17,butNBIMispresentingmoreevidencetobolsteritscase18.ThesecondwastherejectionbytheFinanceMinistryofrecommendationsbyitsownexternalexpertsandNBIMtoallowtheFundtoinvestinprivateequity19andunlistedinfrastructure20.

12 https://qz.com/1125355/solar-and-wind-are-now-the-cheapest-energy-around-unless-you-need-to-store-it/ 13 http://www.irena.org/-/media/Files/IRENA/Agency/Publication/2017/Oct/IRENA_Electricity_Storage_Costs_2017.pdf 14 https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage 15 https://www.ft.com/content/611c2e9e-cad9-11e7-aa33-c63fdc9b8c6c 16 http://www.pionline.com/article/20180216/ONLINE/180219896/group-appointed-to-study-whether-norway-sovereign-wealth-fund-should-divest-energy 17 https://www.ipe.com/countries/norway/norways-sovereign-fund-should-stay-invested-in-energy-stocks/www.ipe.com/countries/norway/norways-sovereign-fund-should-stay-invested-in-energy-stocks/10026360.fullarticle 18 https://www.bloomberg.com/news/articles/2018-10-03/world-s-biggest-wealth-fund-beefs-up-case-for-dumping-oil-stocks 19 https://www.verdict.co.uk/norways-oil-fund-wont-be-allowed-to-invest-in-unlisted-companies/ 20 https://www.ipe.com/news/asset-allocation/norway-rejects-infrastructure-allocation-for-sovereign-fund/www.ipe.com/news/asset-allocation/norway-rejects-infrastructure-allocation-for-sovereign-fund/10018425.fullarticle

- 8 -

ThethirdwastheunanimousvotebytheNorwegianParliament’sFinanceCommitteeinstructingtheFinanceMinistrytopresentaproposalonhowtheFundcouldinvestinunlistedrenewableenergyassets21.WhilethegovernmenthasproposedtolimitthisdiscussiontothenarrowenvironmentalmandatethatamountedtoNOK75billion(lessthan$10billion),whichislessthan1%oftheFund,theFinanceCommitteehassaiditshouldbe“significantlyhigher”.Giventhepresentstateofthisdiscussion,thisbriefpaperhasanarrowfocus.

• Itfirstreinforcesthecasefordivestingfromoilandgas.

• Next,itbuildsacaseforallowingNBIMtomakeinvestmentsinunlistedrenewableenergyassets.

• Last,butnottheleast,itshowshowtooperationalisesuchinvestments.

21 https://www.reuters.com/article/us-norway-swf/norway-parliament-to-debate-next-year-whether-wealth-fund-can-invest-in-unlisted-renewables-idUSKCN1IW1BD

- 9 -

2:ThecasefortheOilFunddivestingfromoilandgasTheNorwegianeconomyisheavilyoverexposedtotheoilandgassectorNorwayisbotheconomicallyandfinanciallyheavilyoverexposedtooilandgas22.ThiswouldinitselfsignaltheneedforNorwaytodiversifyitseconomy.ButasthedevelopmentsdiscussedinChapter1indicate,thepossibilityoffallingdemandforoilandgasinthenearfuturereinforcestheneedforandurgencyfordiversification.ThisoverdependenceonoilwasonfulldisplaywhenNorwegiangrowthgroundtoahaltinlate2015,whenoilpricecollapsedfrommorethan$100inAugust2014tolessthan$30.Morethan50,000peoplelosttheirjobsintheoilsector.ThisledBloombergtosaythatforNorway,oilbelow$50wasworsethanthefinancialcrisisof2008/0923.Thiswasunderstandable,giventhatpetroleumaccountedformorethanhalfofallexports,aboutaquarteroftheGDP,morethanafifthofallinvestments,andasmuchasathirdofallgovernmentrevenue.Thevalueofthestate-ownedoilfields,ortheStateDirectFinancialInterest(SDFI),managedbyPetoro,fellbymorethan$50billion,ornearlyathird24.Equinor,thenationaloilfirm,wentfromreportingnearrecordprofitsintoasharploss,andgovernmentrevenuefromtheoilsectorfellsharply.ThecrisisledtothePrimeMinisteracknowledgingtheneedforchangesaying“Throughtheoilandgassector,wehavebuiltalargeservicessectorthatcanbeusedtosupportothersectorsinthefuture.Inthelong-term,Norwaywillhaveaneconomythatismorediversified,andthatisgreener25”.However,threeyearsdownthelineevidenceofthatchangeisratherthinontheground.Asthecountry’slargestbankDNBputsit,“Basedonthemacrodatathatwenowhavewecan’tsaythattheNorwegianeconomyhasgonethroughamassivetransitioning26.”ResearchersattheBIestimatedthatasmuchashalfofNorway’sGDPisexposedtotheoilandgassectorindirectly27.Atitspeak,morethanhalfoftheexportscomedirectlyintheformofoilandgas.Addancillaryservicesrelatedtothesector,andthissharecanbeasbigastwothirdsofallexports.NorwayalsohasaverylargefinancialexposuretothepriceofoilInitsnoterecommendingthedivestmentfromoilandgas,NBIMacknowledgesthatNorwegiangovernmentpetroleumwealthnaturallyhassignificantexposuretooilpricerisk.Themostsignificantcomponentofpetroleumwealth,intermsofoilpricerisk,isthenetpresentvalueofgovernmentcashflowfrompetroleumactivities.Itattributesthethreemainsourcesofthisexposuretothestate’sdirectfinancialinterest,toitsshareoftaxesonoilrevenuesfromtheNorthSeaandtoitssignificantstakeinEquinor28. 22 “The Norwegian Disease: Why Norway needs to urgently diversify its economy”, (Forthcoming) Re-Define, 2018. 23 https://www.bloomberg.com/news/articles/2015-08-10/for-norway-oil-at-50-is-worse-than-the-global-financial-crisis 24 https://techcrunch.com/2016/06/26/after-oil-norway-looks-to-startups-for-economic-growth/ 25 http://www.bbc.com/news/business-35318236 26 https://www.bloomberg.com/news/articles/2018-01-31/western-europe-s-biggest-oil-producer-is-getting-another-fix 27 https://www.zero.no/wp-content/uploads/2016/06/Nest-Eggs-in-a-Fragile-Basket.pdf 28 https://www.nbim.no/en/transparency/discussion-notes/2017/petroleum-wealth-and-oil-price-exposure-of-equity-sectors/

- 10 -

NBIMestimatedthenetpresentvalueofthegovernment’scashflowfrompetroleumactivitiestobearoundNOK4,000billionandcalculatedthevalueofNBIM’soilandgasstockholdingsandthevalueofthegovernment’sstakeinEquinortobeworthaboutNOK320billioneach.ThefollowinggraphfromNBIMshowshowsensitivethereturnonoilandgasinvestmentsistotheoilpriceandisagoodproxyforthesensitivityofNorwegianoilwealthtothepriceofoil.

Source:NBIMNBIM,usingjustpurefinancialconsiderations,concludedthatitoughttodivestallofitsoilandgasholdings.29NorgesBankbecameconcernedthatanypermanentdropinthepriceofoilwoulddamagetheNorwegianeconomybadly,givenitsoverexposuretotheoilandgassectoronmultiplefronts.TheNorwegiangovernmentnowreliesontransfersfromNBIMforoneineverysixNOKofpublicspending,andsuchaneventwouldincreasetheneedfortransfersfromNBIM.SoanyfallinthevalueofinvestmentsheldbyNBIMwouldbedoublydamagingtoNorway.ItwouldbeveryriskyinsuchaneventforNBIMtoalsobeexposedtooilandgasstocksthatwouldlosevalueundersuchascenario.ItwasinordertodiversifyawaythisdoubleexposuretooilandgasthatNBIMdecidedtorecommenddivestmentfromoilandgasstocksinoppositiontothepositionoftheFinanceMinistry.InthewordsofthegovernoroftheNorgesBank,Norway“neededmorelegstostandon30.”Thestatehasdirectfinancialinterestsin193productionlicences,34producingfieldsandholdingsin15jointventuresthatownpipelinesandonshorefacilities,whichconstitutetheStateDirectFinancialInterest(SDFI).Themarketvalueofthisstakeissomewherebetween$100billionand$150billion.Addthestate’s67%stakeinEquinor,whichhasatotalmarketcapitalisationofaround$85billion,andthevalueofNorway’sstatestakeinoilandgasisalreadyinthe$150-$200billionrange.Thestatealsohas

29 https://www.framtiden.no/aktuelle-rapporter/825-the-promise-of-sustainable-investing/file.html 30 https://www.upi.com/Despite-tough-energy-recovery-Norways-debt-decreases/3431487337658/

- 11 -

largestakesinfirmssuchasAker,whichprovideservicestotheoilandgassector,andthevalueofsuchstakesaddsuptotensofbillionsofdollars.Around50ofthe188companiesontheOsloStockExchange,whichhasamarketcapitalisationofaround$250billion,areenergyfirms31.Bymarketcapitalisation,theshareofoilandgasisevenhigher,assomeofthebiggestfirmsareactiveinthepetroleumsector.Around5%oftheownershipoffirmslistedontheexchangerestswithFolketrygdfondet,thegovernment’sdomesticallyorientedwealthfund32.Thismeansthatthefundownsatleastafewbilliondollars’worthoftheoilandgassectorinNorway.Addinownershipstakesandcreditprovidedbythestate-ownedDNB,Norway’sbiggestbank,aswellasstakesheldbyKLPandotherpensionfundsandinsurancefirms,andthestate’sdirectandindirectfinancialstakeintheoilandgassectorexceeds$200billion,ormorethanhalfofNorway’s$370billionGDPin2017.ExposureintheprivatesectorinNorwayprobablyaddsanotherfewtensofbillionsofdollarstothishugefinancialstake.TheimportanceandurgencyofdivestmentcannotbeoverstatedThediscussionaboveshowsthatNorway’sfinancialexposuretotheoilandgassectoringeneral,andoilpriceinparticular,isevengreaterandmorewidespreadthantheanalysisbyNBIMcaptures.ThisreinforcestheurgencyandimportanceofNBIMdivestingfromalloilandgasinvestments.AllofNBIM’ssignificantholdingsinoilandgas,withtheexceptionofBP,arearound1%orless.NBIMholds2.17%ofBPstock,worthmorethan$3billion33.Thesearenon-strategicminoritystakesandayearisenoughtimetosellthemdowngraduallywithoutanyadversemarketreaction.TheurgencyofthecasefordivestmentisfurtherreinforcedbyfindingsfromWoodMackenziethatdemandforoilmaypeakatanearlierdatethanmanyenergymajorsuseintheirscenarioplanning34.AddressingthepointsraisedbytheexpertgroupagainstdivestmentThereportoftheExpertCommitteeondivestmentcameoutagainstNBIM’sproposals,butthereport’sconclusionswerewidelymisunderstoodtohavebeenagainstdivestmentinprinciple.Infact,thereportacknowledgesNorway’shugeexposuretooilandgas.ItsimplysaysthatitissolargethatNBIM’sdivestmentwouldmakelittledifference.Instead,itsuggeststhatNorwaymaygoformuchbiggerdivestment,includingthroughthereductioninthestate’sstakesinEquinorandthroughareductionoftheStatesDirectFinancialInterest,SDFI35.

31 https://www.oslobors.no/ob_eng/ 32 http://www.folketrygdfondet.no/about-us/category390.html 33 https://www.nbim.no/en/the-fund/holdings/holdings-as-at-31.12.2017/?fullsize=true 34 https://www.ft.com/content/a12af4be-85cf-11e8-96dd-fa565ec55929 35 https://www.ipe.com/countries/norway/norways-sovereign-fund-should-stay-invested-in-energy-stocks/www.ipe.com/countries/norway/norways-sovereign-fund-should-stay-invested-in-energy-stocks/10026360.fullarticle

- 12 -

Sothereport’smainargumentisthatNBIM’ssuggesteddivestmentistoosmallintermsofitsimpactonthereductionoffossilfuelriskforNorway.Thisisnotwrong,aswehaveshownabove.Infact,beyondNBIM,Norwayneedstogomuchfurthertodiversifyitseconomy36,andthetwobestoptionsfordiversificationaredivestmentandgreeninvestments,aswewilllayoutinthisreport.ThesecondconcernraisedbytheexpertgroupisthatthedivestmentwoulddetractfromNBIM’ssuccessfulpassiveindextrackingmodel37.However,thisisapoorstrategyfortheOilFundinthefirstplacethathasledtoNBIMunderperformingitspeergroup38.Also,NBIM,asthenextchapterwillshow,hasalreadystartedmovingbeyondthisstrategyasexemplifiedbyitsunlistedilliquidinvestmentsinrealestate.Italsoexcludesinvestmentsincertainsectorssuchasweaponsofmassdestructionandcoal,basedonethicalconsiderations.Thedivestmentwouldsimplybeyetanothersmalltweaktothemodel,whichisoverdue.Thethirdconcernraisedbytheexpertgrouphasbeenmoreimplied,whichisthatsomehowthedivestmentcouldleadNBIMtounderperform.NBIMitselfhasaddressedthisconcernrecently,asevidencedbytheslidebelow.Itshowsthreedifferentscenarios,inwhichhadNBIMdivestedin2008,in2013orin2015.Inallofthescenarios,itwouldhaveoutperformedthecurrentstrategy.

Source:Bloomberg39NBIM’spresentationofthesenumbersledtoabacklashbysomeacademicsthatcriticizeditsuseofcertaindivestmentdatestoshowoutperformance40.Butthismissesthepoint.NBIM’smotivationforshowingthesewasmeanttoexposethehollownessofthosewhosaydivestmentwillleadtounderperformancebythefund.Itshowsthatit

36 The Norwegian Disease, Why Norway needs to urgently diversify its economy, (Forthcoming) Re-Define, 2018 37 https://www.theguardian.com/business/2018/aug/24/norway-1tn-wealth-fund-urged-to-keep-oil-and-gas-investments 38 https://www.bloomberg.com/view/articles/2017-12-04/how-not-to-run-a-sovereign-wealth-fund 39 https://www.bloomberg.com/news/articles/2018-10-03/world-s-biggest-wealth-fund-beefs-up-case-for-dumping-oil-stocks 40 https://www.bloomberg.com/news/articles/2018-10-03/world-s-biggest-wealth-fund-beefs-up-case-for-dumping-oil-stocks

- 13 -

canhistoricallyequallywellhaveledtooutperformance.Themotivationforthesell-offishowevernotperformance,butdiversificationandriskreduction,whichhasnotbeenchallenged.Coincidently,Re-Definehadrecommendeddivestmentsin2008,2013andthenagain201541.

41 https://www.regjeringen.no/en/dokumenter/nou-2008-14/id525832/sec3

- 14 -

3:ThecaseforinvestinginunlistedrenewableinfrastructureAcaseforNBIMinvestinginunlistedrenewableinfrastructurehasthreepartstoit:1)WhyNBIMshouldinvestinrenewableenergy,2)WhyNBIMshouldinvestinunlistedinfrastructureand3)WhyNBIMoughttoinvestinunlistedrenewableinfrastructure.Weaddresseachinturn.WhyNBIMoughttoinvestinrenewableenergyWhatisclearfromtheaboveanalysisisthatevenafterNBIMdivestsfromalloilandgasstocks,theNorwegianeconomywillremainheavilyoverexposedtooilandgasandsusceptibletoanypermanentdropintheoilprice.ThediversificationcaseAfterall,$40billionofexposureislessthan10%ofNorway’sresidualexposuretooilandgas.AsananalysisfromMercer42shows,oil,utilitiesandmaterialssectorsareparticularlynegativelyaffectedbyclimatechange.Togetherthesesectorsaccountforabout15%ofNBIM’sequityholdings43.

Source:MercerAveryinterestingobservationfromtheMerceranalysisisthatrenewablesistheonlysectorthatperformsstronglywhenstresstestedforclimatechangeandthepolicyactionneededtoaddressit.Also,theperformanceofrenewablesissharplynegativelycorrelatedunderthesescenariostotheperformanceoffossilfuels.

42 https://www.mercer.com/our-thinking/wealth/investing-in-a-time-of-climate-change.html 43 https://www.nbim.no/contentassets/db0b28dc13934aa6a56596d81d47a33a/return-and-risk-2017---government-pension-fund-global.pdf

- 15 -

ThisshowstheadditionaldiversificationbenefitsthatinvestinginrenewablescanbringtoNorway,giventhelargeresidualexposureoftheNorwegianeconomy.Italsohelpsbuildanadditionalfinancialcasefortheoilfundtohaveadedicatedinvestmentwindowforrenewableenergy.Thiscaseisfurtherreinforcedbyasecond,moresophisticatedlevelofanalysisthatexaminestheperformanceofvarioussectorsunderfourdifferentscenarios,ascapturedbythegraphbelow.

Source:Mercer(T:Technology,R:ResourceAvailability,I:PhysicalImpactandP:PublicPolicy)Mercerstress-testedvariousenergyintensivesectorsandalsorenewablestovariousscenariosintheevolutionofclimatechangeandthebattletomitigateit.TheresultslookquitedisturbingforNBIM,withlargenegativeeffectsonsectorsithasanalmost30%exposureto.Butonceagain,renewablesemergeastheclearwinnerthathelpbothdiversifytheexposureandprotectagainsttheworstdownsidesunderthevariousscenarios.InRe-Define’sreportonsustainableinvestinginwhichwerecommendedthattakingthenationalwealthperspectivewouldleadNBIMtodivestalloilandgasholdings,wereasonedthat“theresidualexposureoftheNorwegianeconomytofossilfuelsissolargethattheFundwouldneedtosignificantlyexpandinvestmentsinindustriessuchasrenewables,whicharenegativelycorrelatedtofossilfuels,inordertomeetitsmandateofmaximisingreturnsformoderaterisk44.”

44 https://www.framtiden.no/aktuelle-rapporter/825-the-promise-of-sustainable-investing/file.html

- 16 -

TheperformancecaseLessdirectly,butstillsignificantly,thereisalreadyevidencethatfirmsthatfocusonreducingtheirGHGemissionsperformbetteronstockmarkets.ThishasbeencapturedwellinastudybytheBlackrockInvestmentInstitutethatshowsthatdividedfirmsintoquintilesbasedonchangestotheirGHGfootprintandfoundthatthosewhichwereinthetopquintileperformedmuchbetteronthestockmarket,ascapturedinthegraphbelow.

Source:Blackrock45TheethicalcaseAnotherfactorreinforcingthepoliticalcaseforinvestinginrenewablesisofcoursethefactthataccordingtoasurveyinthenewspaperVårtLand,eightoutoftenNorwegiansthoughtitimportantthattheOilFundshouldnotmakeinvestmentsharmfultotheenvironmentorpeople,65%thoughtthattheFundshouldcontributetodevelopmentinpoorcountries,and72%saidtheywouldlikeittocontributetocleanenergy46.TheopportunitycaseInitsnoteoninvestinginrenewableenergyNBIMnotesthatonecouldarguethatthereisaclimateinvestmentgapof1trilliondollarsperyear.Concernsaboutclimatechangehaveinspiredeffortstoincreasetheshareofenergyproducedfromrenewableenergy

45 https://www.blackrock.com/corporate/literature/whitepaper/bii-climate-change-2016-us.pdf 46 https://www.framtiden.no/aktuelle-rapporter/825-the-promise-of-sustainable-investing/file.html

- 17 -

sources,whichhasgrownmarkedlyoverthelasttenyears,anddevelopmentsintechnologiesandcostsmakeitamarketinconstantchange47.Itstatesthatthis“cancreateinterestinginvestmentopportunitiesforaninstitutionalinvestor.Thebulkoftheseopportunitiesareexpectedtomaterialiseasunlistedinvestments48.”

Foraninstitutionalinvestor,large-scalerenewableenergyinfrastructureprojectsarethemostrelevanttypeofprojectsthatoffermanyoftheattributesof“core”infrastructureassetssuchasdownsideprotection,steadycashflowsandlongduration.Moreover,theinflation-linkedpaymentstreamsthatpowerpurchaseagreements(PPAs),increasinglycommonwithrenewables,canprovidemaybeparticularlyattractiveforinvestors.NBIMacknowledgesthatinvestmentsinrenewableenergyreplaceothermoreconventionaltypesofenergyinricheconomies,whereasinemergingmarketstheseinvestmentsprovidenewgenerationcapacitytorespondtogrowingdemandforenergy.TheIEAhaspredictedthatmostdevelopedcountrieswillhavemoderateorevennegativepowerdemand,whilepowerdemandindevelopingcountrieswilltrebleandthebiggestadditionswillbeinrenewables.AsBloombergNewEnergyFinancedocuments,renewableenergyinvestmentsnowamounttoseveralhundredbillionayear49.Globalsolarinstallationswillbeatleast107GWin2018,upfromthehigher-than-expected98GWlastyear,andnewcountrieswillbecomeestablishedassignificantmarkets.ChinastilldominatesbutLatinAmerica,south-eastAsia,theMiddleEastandAfricawillmakeupameasurablesliceofthetotal.Globalwindinstallations–onshoreandoffshore–weresome56GWin2017,slightlyabove2016’s54GWbutwellbelowtherecordof63GWreachedthepreviousyear,buttheinstallationcapacitywillbreachthatrecordin2019.Recentleapsintechnologyhaveincreasedprofitmarginsforclimateactionprojects,withsolarandwindprojectsspecificallyprovidingannualisedreturnsof10.3percentand17.5percent,respectively50.Withguaranteedlong-termcontractsandpredictableoperatingcosts,theriskprofileforrenewableenergyprojectsputsthemwellwithintheparametersofinstitutionalinvestors51.AccordingtoORF,athinktankthatspecialisesintheenergytransition,thereisa“seeminglyperfectconfluenceofchallengesandopportunities,withdevelopingeconomiesneedingincreasedfundingforrenewableenergyprojectsandinstitutionalinvestorslookingforbetterreturnsinfutureprojects52.”AstheFinancialTimeswrites,thecostofwindturbines,forexample,hasdroppedbyathirdsince2009andthatofsolarpanelsby80%.Countriesaroundtheworldnowhave1,200climatechangelaws,upfromjust60twodecadesago,andrenewablesnow

47 https://www.nbim.no/en/transparency/discussion-notes/2015/renewable-energy-investments/ 48 ibid 49 https://about.bnef.com/blog/runaway-53gw-solar-boom-in-china-pushed-global-clean-energy-investment-ahead-in-2017/ 50 http://www3.weforum.org/docs/WEF_Renewable_Infrastructure_ Investment_Handbook.pdf 51 https://www.orfonline.org/research/great-walls-addressing-domestic-barriers-climate-action-projects-india/ 52 ibid

- 18 -

receivepolicysupportin146countries-nearlytriplethenumberin2004.Alloftheseoffertheprospectofasubstantialupsidetothosewhoinvestinrenewables53.WhyNBIMshouldinvestinunlistedinfrastructureNBIMitselfhasmadethecaseforbeingallowedtoinvestininfrastructureseveraltimes,startingin2006,andmostrecentlyin2016onthebackoftherecommendationsofanexpertgroupcommissionedbytheFinanceMinistry54.Thisexpertgroupconcludedthatthe“theFundshouldbeallowedtoinvestupto10%ofitsassetsininfrastructure,includinginemergingmarketsandcleanenergy55.”In2010,NBIMhadreiterateditsadvicethattheFundshouldbepermittedtoinvestinunlistedinfrastructure,asitwaswell-suitedtosuchinvestments,andthatincreasedinvestmentinrealassetscouldhelpreduceuncertaintyaboutdevelopmentsintheFund’sinternationalpurchasingpower.“InvestorssuchasSovereignWealthFunds(SWFs)havebothunparalleledscaleandlongertimehorizonsthantypicalinvestors.Sotheyholdclearcompetitiveadvantagesinmarketsforlong-term,illiquidassets56.”However,inpracticemanyinvestorsfocustheirresourcesandcapitalongeneratingreturnsoverperiodsthatrarelyexceedtwoyears.SoanSWFwithmuchlongerinvestmenthorizonswill‘naturallyhavealegupinassetclassesforwhichshorter-termrivalsarepreventedfromenteringduetotimehorizon.Oneassetclassthatfitsthisdescriptionisinfrastructure57.’Thedecades-longprofilesforsuchinvestments,whileproblematicforshort-terminvestors,arewellsuitedforfundswithinter-generationalobjectives.Also,while‘liquidityisgenerallyacauseforconcernamongshort-terminfrastructureinvestors,itisnotaconcernforafundthatcanholdaninvestmentforthelifeoftheasset.Inshort,infrastructure’s‘problems’donotappeartobeproblemsatallforthecommunityoflong-terminvestors58.’NBIMitselfpointsoutthatan‘investorcanalsoexpecttoreceivealiquiditypremiumovertime.Thisisapremiumtowhichalong-terminvestorwithnoliquidityneedssuchastheGovernmentPensionFundGlobalshouldbeexposed.’Itgoesontosaythat‘thecombinationofconsiderablefutureinvestmentneeds,pressureonpublicbudgetsandattractiveportfoliocharacteristicsmakeitreasonabletoassumethatprivateventurecapitalwillplayagrowingroleinthefundingofinfrastructureinvestmentsinthefuture.InvestmentopportunitiesinthisassetclassarethereforeconsideredsufficientfortheFundtobeabletobuildupaportfolioofinfrastructureinvestmentsovertime59.’Nowonderthenthattheinfrastructureassetclassisverypopularamongstinstitutionalinvestors.AccordingtoPreqin,86percentofinstitutionalfundsnowinvestin 53 https://www.ft.com/content/44ed7e90-3960-11e7-ac89-b01cc67cfeec 54https://www.regjeringen.no/contentassets/f353169233704a55b3af6b0b36fb3129/ekspertrapport_eiendom_infrastruktur.pdf 55 https://www.reuters.com/article/norway-swf-idUSL8N13X2L920151208 56 http://re-define.org/wordpress/wp-content/uploads/2017/11/Investing-for-the-Future_Report-2013.pdf 57 https://www.kirkensnodhjelp.no/contentassets/c1403acd5da84d39a120090004899173/swf-report_final-version.pdf 58 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1837813 59http://www.nbim.no/Global/Documents/Submissions/2010/enclosure%20to%20the%20letter%2006072010.pdf

- 19 -

infrastructure,andarelikelyorverylikelytoincreasetheirparticipationinthesectorin201760.ThissuitabilityofSWFstomakeinfrastructureinvestmentspromptedIndianPrimeMinisterModitoinviteNorway’sprimeminister,ErnaSolberg,atthe2017G20summitinHamburgtoaskNorwegianpensionfundstoinvestintheNationalInvestmentandInfrastructureFundofIndia61.WhyunlistedrenewableinfrastructureisaparticularlyattractiveinvestmentWithintheunlistedinfrastructureassetclass,renewableinfrastructureisparticularlyimportantforanumberofreasons.NBIM,lookingatthepotentialforsuchinvestments,wrotethat“localpollution,climatechangeandadesiretolimitglobalwarminghaveledauthoritiesinmoreandmorecountriestosettargetsforrenewableenergyasashareofthetotalenergysupply.Annualinvestmentinrenewableenergyproductionhasbeenbetween350and400billiondollarsinrecentyearsandisexpectedtogrow.Mostofthishasbeenfinancedwithprivatecapital62.”“TheriskassociatedwithsuchinvestmentsappearstobesomewhatlowertodaythanwhentheBanklastconsideredthisquestionin2010.Theuseofrenewableenergyhasaccelerated,andcostshavefallensubstantiallyasaresultoftechnologicaladvancesandeconomiesofscale63.”Itconcludedsayingthat“itispossibletoinvestininfrastructureforrenewableenergywiththesamerequiredrateofreturnasfortheGPFG’sotherinvestments64.”Whenaskedwhatthefocusofitsinfrastructureinvestmentwouldbe,NBIMCEOhassaidthatthefundwouldfocusontheenergytransitionandrenewableenergy65.Clearly,thisoffersalargeopportunityset.AccordingtotheIEA,netannualcapacityadditionsforallrenewablesmustincreaseover2017-30,whiletheshareofrenewablesinglobalelectricitygenerationmustreach47%by2030,from25%in201766.AstheIEEFAwrites,“renewableinvestmentshavebeencapturinganincreasingshareofinfrastructureinvestment.Renewable“fundsaredesignedtoachievethesamelong-termreturns—10to15%annually—astraditionalinfrastructure67.”Itcontinuessayingthat“renewableenergyisdrivingthegrowthoflistedandunlistedinfrastructuremarkets”,withacombinedmarketvalueofabout$5trillionandrising.

60 http://docs.preqin.com/reports/Preqin-Special-Report-Infrastructure-Fund-Manager-Outlook-H2-2017.pdf 61 https://www.business-standard.com/article/economy-policy/g20-summit-2017-pm-modi-invites-norway-pension-funds-to-invest-in-india-117070800417_1.html 62 https://www.nbim.no/contentassets/d4dc0aaf69ba4f73b9112da6bef259c0/nbim_discussionnotes_4-15.pdf 63 https://www.nbim.no/en/transparency/submissions-to-ministry/2015/government-pension-fund-global--investments-in-infrastructure/ 64https://www.nbim.no/contentassets/e2fa918bf88642a5abe3f07cd6034c11/2015-12-02-nb_gpfg---investments-in-infrastructure.pdf 65 ibid 66http://www.iea.org/tcep/power/renewables/67http://ieefa.org/ieefa-report-norway-sovereign-wealth-fund-stands-gain-investing-now-renewable-energy-infrastructure/

- 20 -

AccordingtoPreqin,adataprovider,itisincreasinglycommon,asin2017,toseethatalmosthalfofallinfrastructuredealsworthhundredsofbillionsareinrenewableenergynow68.2016,forexample,saw1,772renewableenergydealsworth$645billion,with42%ofthetransactionsinrenewableenergy.BloombergNewEnergyFinancesees$11.5trillionbeinginvestedgloballyinnewpowergenerationcapacitybetween2018and2050,with$8.4trillionofthatgoingtowindandsolarandafurther$1.5trilliontootherzero-carbontechnologiessuchashydroandnuclear69.Box:FromRenewableEnergyOwnershipStrategies70Allianz,theassetmanagerandinsurancegiant,hasbeeninagreementwiththefindingsofWoodMackenzie,bywritingthat“investmentsinRenewableEnergyInfrastructureofferstronglong-termgrowthpotentialwithlowcorrelationtootherassetclasses,whilealsoprovidingstablecashflowsandmeaningfuldividendyields71.”Box72:ThemanybenefitsofinvestinginunlistedrenewableenergyinfrastructureInvestmentsinrenewableenergyinfrastructureoffersignificantadvantagestoinstitutions,includingstrongexpectedgrowthrates,portfoliodiversificationderivedfromalowcorrelationwithotherinvestmentassets,stablecashflows,potentialprotectionfrominflation,andcompliancewithEnvironmental,Social,andGovernance(ESG)standards.Attractivegrowthrates:Renewableinfrastructureassetsstandtobenefitdramaticallyoverthecomingdecadefromthesolidexpectedrateofgrowthfortheassetclasswitharesultingbeneficialimpactonvaluations.LowCorrelationtoOtherPortfolioAssets:Renewableenergyinfrastructure’slowcorrelationofinvestmentreturnswithothermajorassetclassescanallowforattractivediversificationandenhancedrisk-adjustedreturns.Simplyput,whathappensinequity 68https://d3k9pt3r5jsyv9.cloudfront.net/docs/quarterly/inf/Preqin-Quarterly-Infrastructure-Update-Q2-2017.pdf69https://about.bnef.com/new-energy-outlook/#toc-download70https://www.woodmac.com/reports/power-markets-renewable-energy-ownership-strategies-13270 71 https://www.wespath.com/assets/1/7/Allianz-July-2017.pdf 72 ibid

Wood Mackenzie, a specialised energy consultancy finds that institutional investors play an important role in the deal flow associated with renewable projects. They “have made renewable energy assets a primary opportunity set over the past few years.” This role will “continue to grow and it is likely that private capital and unlisted funds will dominate renewable energy asset ownership over the long term1”. The consultancy also surveyed institutional investors asking which asset class provided the best opportunities 2017 and onwards. Fully 64% investors said it was “renewable energy”, compared to 43% energy, 34% transport, 21% telecom, 21% utilities, 17% social and 9% waste management. It explains that because renewable energy has megatrends of decarbonization and portfolio greening behind it, so should emerge as a clear winner.

- 21 -

andotherfinancialmarketshasnoimpactonthesunshineorwindthatdrivesmostoftheperformanceandreturnsinrenewables.StableCashFlows:Thestructureofrenewableenergyinfrastructureprojectsandthecompositionofarenewablesportfolioaredesignedtodeliversteadycashflowsandpotentialrobustdividendyields.Thisconsistentresultcanbeattributedtoacombinationofgeographicandtechnologicdiversificationwithintheportfolio,andtotheimpactofthelong-termPowerPurchaseAgreements(PPA)thatunderlierenewablesprojects.PowerproducedbyportfoliocompaniesissoldatapricedeterminedbysetformulasthroughPPAslastingupto15to20years.ThegraphbelowreinforcesthemessageofthelowcorrelationofrenewableinfrastructurethatemergesfromAllianz.

Source:AllianzNearlyhalftheinfrastructuredealsintheUSsince2011havebeeninrenewableenergy.ThesizeanduniquenatureoftheopportunitysetisoneofthemanyreasonswhyAllianzbelievesthat“investorslookingtoparticipateinthisvibrantassetclasswillbenefitfromaninvestmentapproachfocusedexclusivelyonrenewables,asopposedtostrategiesincludingrenewablesaspartofabroaderfocusoninfrastructure73.”ThisprovidesasolidlogicalunderpinningtothedecisionoftheNorwegianparliamenttoasktheOilFundtoopenuptoinvestinginunlistedrenewables.

73 https://www.wespath.com/assets/1/7/Allianz-July-2017.pdf

- 22 -

4:HowNBIMshouldmakeunlistedrenewableinvestmentsAgoodstartingpointtodiscusshowNBIMshouldoperationaliseapossiblemandatetoinvestinunlistedrenewableinfrastructureistolookatitsownrecommendationsandbuildonthem.Thisiswhatwedointhissection,whileincorporatingsuggestionsforimprovementandlessonslearntfromotheractors.Environmentalmandatevs.therealestatemandatetemplateThefirstthingtoclarifyisthatthecurrentcontextofthediscussionistoallowNBIMtomakesuchinvestmentsaspartofitsNOK75billionenvironmentalmandate.Evenifrenewablesmayformallyfallwithinthismandate,intermsofactuallyoperationalisingsuchinvestments,itisimportanttorememberthatthereislittleincommonbetweenthepresentenvironmentalmandateandmakinginvestmentsinunlistedrenewables.First,theenvironmentalmandateissmall,lessthan1%ofthefund.Theproposedrenewablemandateislikelytobeatleast5%ofthefund,forittobeinlinewithwhatNBIMitselfandtheexpertgrouponinfrastructurehavebothsuggested,thepathfollowedbythemandatetomakerealestateinvestmentsandforthismandatetomakeanyrealimpactontheFunditselfandontherealworld.Second,theenvironmentalmandatefocusesonlistedequitiesandgreenbonds,whichrequiresaverydifferentskillset,institutionalsetup,humancapacityandriskmanagementapproachcomparedtowhatwillbeneededformanagingunlistedinfrastructure.Third,theenvironmentalmandatesitswithinNBIM,ithaslittlededicatedstaffcapacityandismostlymanagedexternallybyasetoffiveexternalmanagers.Thisisverydifferentfromthesetupforinvestmentsinrealestate,whicharedonethroughasubsidiary,havededicatedstaffandaseparateapproachtoriskmanagement.Investinginunlistedinfrastructureislikelytoresemblethatsecondapproachmuchmorethanthepresentapproachundertheenvironmentalmandate.Basedonouranalysis,aswellastherecommendationsfromNBIMitself,itwouldseemthatagoodstartingpointforoperationalisingunlistedrenewableinvestmentswouldbetoolookattheset-upofthepresentrealestatemandateforNBIM.Howbigshouldtheunlistedrenewableinfrastructuremandatebe?Thereareseveralwaysofarrivingathowbigthetargetshouldbe.AnexpertgroupcommissionedbytheMinistryofFinancetoconsiderwhetheritmadesenseforNBIMtobeallowedtomakeinvestmentsinunlistedinfrastructurerecommendedthatthefundshouldbeallowedtoinvestupto10%ofitsassetsininfrastructure,includinginemergingmarketsandcleanenergy74.NBIMitselfhasaskedforaninfrastructuretargetofamaximumof5%ofitsassets75.

74 https://www.reuters.com/article/norway-swf-idUSL8N13X2L920151208 75 https://www.nbim.no/en/transparency/submissions-to-ministry/2015/government-pension-fund-global--investments-in-infrastructure/

- 23 -

Anestimateofhowbigthepresentmarketinunlistedinfrastructureisputitatwellaboveatrilliondollarsinmid2016already,andithasbeengrowingfast76.Itislikelythatby2019thismarketwouldbeworthatleast$1.5trillion.NBIMitselfhasdrawnattentiontoaclimateinvestmentgapofatrilliondollarsayear77.ManyofNBIM’speershaveinfrastructureallocationsofbetween5%and15%oftheirportfolios78.Ashighlightedearlierinthisreport,nearlyhalfofthenewinfrastructureinvestmentshappeningnowadaysareinrenewableenergy.NBIMisexpectedtodivestfromabout4%ofitsportfoliothatispresentlyinvestedinoilandgasstocks.Letusconsiderwhatthesemeanforwhatagood-sizedunlistedrenewableinfrastructurewindowwouldbe.Takethe10%maximumtargetsuggestedbytheexpertgrouponallinfrastructures,andcombinethatwiththefactthatabouthalfofallnewinvestmentsareinrenewableenergy,anda5%maximumtargetforinvestinginunlistedrenewableslooksreasonable.ThisalsomatchesthetargetoriginallyproposedbyNBIMitself.Butatmorethan$50billion,couldthisprovetobetoolargeaproportionofthetotalestimate$1,500billionunlistedinfrastructuremarket,ofwhichroughlyhalf,around$750billion,islikelytoberenewables?Thatamountsto6.6%ofthemarket,whichissignificantlyhigherthantheaverageequitystake,butwellwithinreasonablelimits.GiventheslowpaceofNBIM’sbuild-upofitsrealestateinvestments,weexpectthatNBIMwillonlybeabletodeploythefull5%bythetimethemarketitselfisfarbigger,sothedangersofexcessiveconcentrationandpoordealqualityarelimited.Anotherlogicalwayofthinkingaboutit,inamannerthatreinforcesthediversificationargumentsmadeearlier,isthatthemoneymobilisedfromthedivestmentofalloilandgasstocksshouldbeearmarkedfortheenvironmentalmandate,includingunlistedrenewables,althoughthepaceofaccumulationwouldbefarslowerthanthepaceofdivestment.Thisalsopointtoasizeofaround5%tobeginwith.Ourrecommendationistoincreasethesizeoftheenvironmentalmandateto5%oftheoilfundfornow,buttoleaveittoNBIMtodeterminethepaceofthebuild-up.Howshouldthemanagementoftheseinvestmentsbestructured?Werecommendthattheseinvestmentsfollowthemodeloftherealestateinvestmentstowhichtheybearthemostresemblance.Thoseinvestmentsaredonebyasubsidiary,completewithitsmanagementteamandin-houseexpertise.NBREM,NorgesBankRealEstateManagementhasmorethan150employeesmanagingmorethan$27billionacross775propertieswithanaveragesizeofabout$35million. 76 http://www.rareinfrastructure.com/wp-content/uploads/PLSA-Article-Only.pdf 77 https://www.nbim.no/en/transparency/news-list/2015/discussion-note-on-renewable-energy-investments/ 78 http://www.ifswf.org/

- 24 -

Likewise,NBIMshouldsetupa“NRIM”,NorgesBankRenewableInfrastructureManagementsubsidiaryandstartbuildingstaffcapacity.Becauseinfrastructuredealsarelikelytobesignificantlybigger,upwardsofatleast$100million,andfewer,theyarelikelytorequirefarlessemployees,perhapsnomorethan50.NBIMisconfidentitsexperienceinrealestatewillhelpitwithunlistedinfrastructureinvestmentssayingthatthe“experiencefrombuildinguprealestatemanagementatNorgesBankhasbeenpositivetodate.UnlistedrealestateinvestmentsneedtobemanagedinadifferentwaytotheFund’sotherinvestments.TheFund’srealestateactivitieshavegiventheBankrelevantexperienceofinvestmentsinunlistedassets,theoperationalchallengesthiscanentail,andthedemandsthismakesoftheorganisation79.”Likewithrealestate,NBIMdoesnotwantunlistedrenewableinfrastructureinvestmentstobepartofitsbenchmarkindexbutwantstheminitsinvestibleuniverse.Thisiscritical,asitgivestheexpertsatNBIM,ratherthanthearm’slengthoverseersattheMinistry,controlofwhenandhowtomakesuchinvestmentsandatwhatpace.“TheBank’sviewisthatunlistedinfrastructureinvestmentswillnotformpartofthebenchmarkindexbutwillbeincludedinthelimitfortrackingerror80.”“Atthesametime,givenstrictlimitsonthetrackingerrorofjust1.25%,thisallowstheMinistrytoensurethatNBIMdoesnottakeonexcessiveriskandthatitsperformanceremainswithinacceptableparameters.”Webelievethatthetrackingerrorshouldbeincreasedto2%astherenewableinvestmentsrampup.Theverynatureofriskdiversificationandlowcorrelationthatsuchinvestmentsofferwillmeanthatthedeviationfromtheindexwillbehigherfromyeartoyearevenasportfoliovolatilityisreducedandreturnsarepotentiallyhigher.WhatapproachshouldbetakentoRiskManagement?NBIM’speersthatmakesimilarlargeallocationstounlistedinfrastructurefollowamulti-prongedapproachtoriskmanagement.Theycombineconcreteinvestmentrestrictions,thoroughduediligenceaheadofinvestments,andcontinuousfollow-up.NBIMshouldfollowthatsameapproach.Oninvestmentrestrictions,NBIMsuggestsusingthepresentrestrictionsonunlistedrealestateasastartingtemplate.ItalsosuggeststhatsuchrestrictionsshouldbeputinplacebytheboardofNorgesBank,nottheFinanceMinistry,inlinewiththeregulationandoversightofunlistedrealestateinvestments81.NBIM’scurrentapproachisexploredbelow.

79 https://www.nbim.no/en/transparency/submissions-to-ministry/2017/review-of-norges-banks-management-of-the-government-pension-fund-global/ 80https://www.nbim.no/contentassets/9d5fb76898594146a3dda54f3aaaaca0/2016-12-20-nb_gpfg-investments-in-unlisted-infrastructure.pdf 81 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/

- 25 -

WhichcountriesshouldNBIMinvestin?Oncountries,NBIMassertsthefollowing:“theoperationofinfrastructureassetsisnormallysubjecttopublicregulation.Unexpectedchangesinregulatoryconditionscanaffectthevalueoftheseinvestments.OnepossiblestrategyforreducingtheriskthispresentsfortheFundistolimitinvestmentsinunlistedinfrastructuretojurisdictionswithwell-functioninglegalsystems,wheretheauthoritieshaveexperienceofprivateownershipofinfrastructure.ItmaythereforebeappropriatetolimittheuniverseforunlistedinfrastructureinvestmentstothemostdevelopedmarketsinEurope,NorthAmericaandOceania82”.Furthermore,initslatestlettertotheministry83,NBIMsuggeststhatitshouldbeginsuchinvestmentsindevelopedmarkets.Withregardtoprojecttypes,NBIM’sreasonsthefollowing:“theriskinaninfrastructureprojectwillvaryaccordingtowhetheritisagreenfieldorabrownfieldproject.Inthedevelopmentandconstructionphase,theremayberisksinareassuchaspermissions,rightsandcontractnegotiationsaswellasconstructionrisksandgeneraluncertaintyaboutdemandfortheserviceinquestion.Tobeginwith,itwillbeappropriatetolookatinvestmentsininfrastructurewherethereisahighdegreeofconfidenceaboutfutureincome84”.WeagreethatNBIM’sapproachtoriskmanagementshouldcombineconcreteinvestmentrestrictions,thoroughduediligenceaheadofinvestments,andcontinuousfollow-up.WedisagreehoweverwithNBIM’saskforrestrictinginitialinvestmentstodevelopedeconomies.AbetterapproachwouldbetoallowNBIMtoinvestinallofthe78marketsthatitcanmakelistedinvestmentsintoday.Infact,NBIMshouldconcentrateitsrenewableenergyinfrastructureinvestmentsinthe38developingeconomiesitpresentlyinvestsinalready.Furthermore,itshouldseektoexpandtheuniverseofcountriesittargets.Thisbetterreflectstherealitythatinnon-OECDcountriespowersectorinvestment,includingrenewables,hasbeendrivenmainlybytheneedtomeetfast-risingelectricitydemand,whichhasgrownatanaverageannualrateof6.5percentoverthepastdecade-severalpercentagepointshigherthanthesluggishgrowthindevelopedeconomies.TheIEApredictsthatdevelopingeconomiesarelikelytoadd2-3timesmorerenewableenergythandevelopedeconomies,sothatiswherethebestopportunitiesmaylie.Themaindriverbehindpowercapacityadditionsinthesemarketsoverthenext25yearswillbeconsumptiongrowth,whichstemsfromtheircurrentlowelectrificationrates,growingpopulationandeconomicexpansion,agoodframeworkforgeneratingprofits.InOECDcountries,thegrowthinrenewableenergyinvestmentshasbeenlargelydrivenbygovernmentpoliciesandincentives.Thiscreatesmorepolicyriskinotherwisestablemarkets.Inlessmaturemarkets,however,investmentsinrenewableenergyhavebeen

82 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/ 83 https://www.nbim.no/en/transparency/submissions-to-ministry/2018/investments-in-unlisted-renewable-energy-infrastructure-in-the-government-pension-fund-global/ 84 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/

- 26 -

drivenbygrowthindemandforenergy85.Thismeansthatinvestinginlessmaturemarketsinrenewablesmaynotberiskieroverall,butthattheriskprofilemaybedifferent.TheexpertgrouponinfrastructureinvestmentsetupbytheFinanceMinistryexplicitlyaskedforNBIMtobeallowedtoinvestinemergingeconomies,bysaying“werecommendthattheMinistryopenupforunlistedemerging-marketinfrastructureinvestmentsinthemanagementmandatetoNorgesBank86”.Expandingitspresentlyminimalexposuretodevelopingeconomies,whichalreadyconstitutealmost60%ofglobalGDPandanevenlargershareofglobalgrowth,willalsohelpNBIMdiversifysomeofthestructuralandsystemicrisksitfacesbybeingoverexposedtoslowgrowthageingOECDeconomies.NBIMadmitsthat“Intheory,suchinvestmentsincreaseliquidityriskforNBIM”.However,theystatethatthe“likelihoodoflargeunexpectedwithdrawalsfromtheFundislimited,andeventhenmostoftheFundwillstillbeinvestedinassetsthatcanbesoldquickly.ThechancesofasituationarisingwhereNBIMisforcedtoselloneofourinfrastructureinvestmentsarethereforesmall.”Theirconclusioninthusthat“TheFundisidealforinvestingininfrastructureassetswithalonglifespan”87.OnemajorargumentfromtheMinistryofFinanceagainstinvestinginunlistedinfrastructureingeneral,andinemergingmarketsinparticular,hasbeenafearofreputationalrisk,consideredespeciallyharmfulforastate-ownedfund.Theconcernsmaybeunderstandablee.g.inaconstructionphaseoflargerscalehydro-orwind-projects,wherelandrightsandpossibleprotestsmaycauseconflicts.Thismayhowevereasilybeavoidedforexamplebyonlyinvestinginbrownfieldprojectsincountrieswherethisisconsideredamajorrisk,wheretheserisksfromtheconstructionphasehavealreadybeendealtwith.Bybuyingoutinvestorsthatarelessriskaverse,e.g.DFIslikeNorfund,NBIMcouldfreeuptheircapitaltoinvestinnewprojects.Inanycase,investinginlistedOECDcountrysecurities,astheFundmostlydoes,alsoexposesittoreputationriskasbecameclearinthecontroversyregardingPOSCO,aSouthKoreansteelmaker88.Listedfirmsalsomakelargeinvestmentsthatcomeupagainstcontentiousissuesofland,waterandindigenouspeoplerights.SotheFundalreadyhastograpplewithandmanagereputationalrisksfromitsmanyexistinginvestmentsandiswellplacedtobeabletohandleadditionalonesthatmightariseincleaninfrastructure.

85 https://www.nbim.no/contentassets/d4dc0aaf69ba4f73b9112da6bef259c0/nbim_discussionnotes_4-15.pdf 86 https://www.regjeringen.no/en/aktuelt/investments-in-real-estate-and-infrastructure-in-the-government-pension-fund-global-gpfg/id2466252/ 87 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/ 88 https://www.reuters.com/article/norwayfund-posco/oecd-monitor-criticises-norway-wealth-fund-on-ethical-investment-policy-idUSL5N0E80QE20130527

- 27 -

Howshouldthedecisionprocesseswork?Thedecisionprocessforunlistedrenewableinfrastructureshouldmirrorthatusedforinvestmentsinunlistedrealestate.AccordingtoNBIM,theseare“governedbyinvestmentmandates,committeemandatesandjobdescriptions”,and“boardsandcommittees,consistingofbothinternalandexternaladvisers,meetregularlytoconsiderrelevantinvestments”,andthey“takeaccountofinvestmentsinunlistedassetsbeingcostlytoreverse”89.InlinewithNBIM’sownsuggestions,weagreethatinareassuchasthedraftingofpartnershipagreements,valuation,accounting,riskmanagementandreporting,NBIMwillbeabletodrawonexperiencefromrealestatemanagement.ThisisinlinewiththeMinistry’sassertionthatitwouldbebesttobuildexperienceinunlistedrealestateinvestmentsbeforealsopermittingothertypesofunlistedinvestment90.NBIMalsohasextensivemanagerevaluationskills,practicalexperiencefromunlistedrealestateinvestments,andexperienceofmanagingthetotalriskintheportfoliowithinacomprehensiveframework91.Furthermore,NBIMhasarguedthatunlistedinvestmentsshouldnotservetoincreasethecomplexityofmanagementsignificantlybeyondthatwhichalreadyfollowsfrompartsoftheFundbeinginvestedinunlistedrealestate92.Initsannualpresentation,NBREMassertsthattheorganisationforinvestinginunlistedrealestatehasbeenbuiltupatlowcost.Totalcostsasashareofaverageassetsundermanagementhavetrendeddownwardssinceinception,from0.91percentin2011to0.65percentin2016.Similarly,internalcostsfellfrom0.57percentin2011to0.25percentin201693.Thisisagoodsignthatthecostsofmanagingunlistedrenewableinvestmentsshouldalsobereasonable,andcanbedefinitelykeptbelowthe1%,andeventhe0.5%mark,astheseinvestmentswillrequirefeweremployeesandlessfrequentbiggerdeals,eveniftheexpertiseneededmaybemoreexpensivethanwhatisnecessaryinrealestate.HowwillNBIMensuretransparencyinitsunlistedinvestments?NBIMhasbeenclearthatit“attachesgreatimportancetoopennessaboutthemanagementoftheFund”94”.Since“Lessinformationispubliclyavailableonunlistedinvestmentsthanonlistedones”,NBIMhasastrongerresponsibilitytoensureasmuchtransparencyaspossibleonitsinvestments,risks,costs,practicesandpartners.IntheFund’sunlistedrealestateinvestments,NBIMsaystheirexperiencehasbeenthatthey“havegoodaccesstoinformationasaninvestorandthereisnoreasontothinkthatthiswouldnotbethecaseinunlistedinfrastructure.”

89 https://www.nbim.no/en/transparency/submissions-to-ministry/2017/review-of-norges-banks-management-of-the-government-pension-fund-global/ 90 https://www.regjeringen.no/contentassets/d0f08d6b04ac4b6b9f4efba17b4acff8/en-gb/pdfs/stm201020110015000en_pdfs.pdf91 ibid 92 https://www.nbim.no/en/transparency/submissions-to-ministry/2018/government-pension-fund-global--unlisted-equity-investments/ 93 https://www.nbim.no/en/transparency/reports/2017/real-estate-investments-2017/ 94 https://www.nbim.no/contentassets/e4ecdbe3a0844c61a907a43de42bc516/2018-01-08-gpfg---unlisted-equity-investments.pdf

- 28 -

Webelievethatinvestorsinunlistedinfrastructurehaveaccesstoafargreatersetofinformationabouttheprojectsthanthetypicalinvestorinalistedcompanydoes.However,someofthisinformationmaybeboundbyconfidentialityagreements.ThatiswhyNBIMwillhavetoreportonunlistedinfrastructureinamannerthathelpsoutsidersassesstheperformance.Asithassuggestedforunlistedequity,NBIMshouldprioritiseaccesstoinformationandtherighttosharethisinformationwithothers.Thesearefactorsthatcanbeincludedwhendraftingtheagreementsitentersinto95.Unlistedinfrastructure’scontributiontoexcessreturncouldbereportedonseparately.Returnsonunlistedinfrastructureshouldbecomparedwithrelevantreturnmetrics,butshouldalsotakeaccountofthefactthatthereturnoninvestmentsinafundmaybeuncertainuntilthetheyarefullymature.DrawingontheexperiencewithNBREM,NRIMshouldfollowtheestablishedpracticeforthefund’sunlistedrealestateinvestments.ManagementcostscouldbereportedinsuchawaythattheycanbecomparedwiththosefortheFund’slistedinvestments.Anoverviewofpartnersandexternalmanagersshouldbeincludedintheannualreporting,andholdingsofunlistedinvestmentsshouldformpartoftheholdinglistspublishedeachyear96.Initsownwords,“NBIMwillaimtopaintthebroadestpossiblepictureofthedriversofreturnsoninfrastructureinvestmentsandthetypesofrisktheseinvestmentsexposethefundto.97”.Theyhavealsopromisedto“providethesamedetailedinformationontheFund’sinvestmentsinunlistedinfrastructureasontheFund’sotherinvestments98.”HowshouldNBIMapproachpartnerships?InNBIM’sownwords,“itwillnotbenaturalforNBIMtomakeitsfirstinfrastructureinvestmentsonitsown,butitwouldseekpartnershipsinstead”99.OneapproachmaybetoinvesttogetherwithcompaniesNBIMalreadyknowsthatareconsideringsourcingprivatecapitaltofinanceindividualprojects.Anotherpossibilitymaybetoinvesttogetherwithotherinvestors,financialinstitutionsordevelopmentbanks.Partnershipsofthiskindareoftenusedforlargeinfrastructureinvestments100.Aninvestorcangointoapartnershiporformajointventurewithamoreexperiencedinvestor–anotherinstitutionalinvestororabank,managerorindustrialplayer.Partnershipsmeanthatinvestorscanpoolsomeinvestmentcosts,whileretainingcontrolovertheinvestmentdecision.Anotheralternativeisaco-investment,whereafundmanagerallowsfundinvestorstoinvestdirectlyinthefund’sunderlyingassets.Surveyssuggestthemajorityofinstitutionalinvestorshaveusedco-investingasanalternativetosolodirectinvestment101. 95 https://www.nbim.no/en/transparency/submissions-to-ministry/2018/government-pension-fund-global--unlisted-equity-investments/ 96 ibid 97 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/ 98 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/ 99 https://www.nbim.no/en/transparency/submissions-to-ministry/2016/investments-in-unlisted-infrastructure-in-the-government-pension-fund-global/ 100 ibid 101 https://www.oecd.org/finance/OECD-Pooling-Institutional-Investors-Capital-Unlisted-Equity-Infrastructure.pdf

- 29 -

NBIM’speergroupofsovereignwealthfundsaresignificantlymorelikelytomakedirectinvestmentsininfrastructurethancomparableinvestors.42%ofsovereignwealthfundsinvestininfrastructuresolelythroughdirectholdings,whileafurther49%combinedirectandunlistedfundinvestment102.Partneringwithmoreexperiencedinvestors,infrastructurespecialist,OEMsuppliersforsolarandwind,reputableprojectdevelopers,developmentfinanceinstitutionssuchasNorfundortheIFC103,orstrikingupstrategicpartnershipswithdestinationcountrygovernmentsareallgoodoptionsthatcanbeusedinparalleltodeployNRIM’scapitalquickly,efficientlyandeffectively.TheIndiangovernment’srecentannouncementofaroadmapto100GWsolarpowerroadmap,togetherwithPMModi’sinvitationtoPMSolbergtogetNorway’sSWFtoinvestinIndianinfrastructurecreateagoodopportunityforastrategicpartnership104.AbsenttheavailabilityofcapitalfromsourcessuchasNBIM,Indiaislikelytoburnasmuchas50%morecoalby2030,somethingthatwouldcertainlymeanthatthelimitsagreedundertheParisagreementsimplycan’tbemet105.InvestingalongsideDFIsandmultilateralbankscarriestheaddedadvantageofthepossibilityofriskmitigationforinvestmentsindevelopingeconomies,localexpertiseandknowledgethatNBIMlacks,andeventhepossibilityofpartialpoliticalriskinsurance-allofwhichcanmakesuchapartnershipespeciallyattractive.

5ConclusionOurconcludingrecommendationsbasedontheanalysisabove,arethusthefollowing:

1. NBIMshouldbeallowedtodivestfromoilandgas2. NBIMshouldbegivenamandatetoinvestatleastupto5%inunlisted

renewableinfrastructure.3. TheinvestmentsshouldnotberestrictedtoOECD-countries,butespeciallyseek

totakeadvantageofthemuchmorepromisinggrowthopportunitiesinemerginganddevelopingmarkets.

4. NBIMshouldestablishasubsidiaryforrenewableinfrastructuremanagementbasedonthemodelofNBREMandbuildexperiencebypartneringwithotherinvestors.

102 http://docs.preqin.com/newsletters/ra/Preqin-RASL-May-16-Feature-Article.pdf 103 http://re-define.org/sites/default/files/sites/default/files/images/ReDefineReportonNorwaySWF.pdf 104 http://blogs.worldbank.org/ppps/strategic-investment-funds-and-government-innovations-infrastructure-development 105 https://www.economist.com/asia/2018/12/08/why-india-is-one-of-the-most-polluted-countries-on-earth?fsrc=scn/fb/te/bl/ed/whyindiaisoneofthemostpollutedcountriesonearthpoisonallaround