Norway’s state pension fund has announced that it will withdraw all of its investments from Russia. It would be 2.5 billion euros that would flow out as soon as this is possible. A strong signal that comes at the right time.
This is not just any fund. With 1.16 trillion euros, Norway has one of the largest sovereign wealth funds in the world. He invests the income from the country’s oil and gas business for the benefit of future generations – and has always followed high ethical and ecological standards.
There are certainly two reasons for the fund’s decision: firstly, to protect the invested capital from further losses in value. The prices of Russian stocks and bonds have already come under massive pressure due to Western sanctions.
But the decision is also to be understood politically. Divestment is when institutional investors sell stocks or bonds on a large scale for ecological or ethical reasons in order to bring about change. Something new is happening here: in this case, the Norwegian sovereign wealth fund outlaws warmongering.
Experts disagree on whether divestments are always effective in achieving their goals. In this case, however, one can probably say: Yes, the message gets through. The withdrawal of one of the world’s largest sovereign wealth funds from Russia has strong symbolic meaning. It shows that after the attack on Ukraine, the country is being sorted out by a major player in the financial market: both morally and in terms of returns.
So far, divestment has been discussed primarily in the ecological context. The movement is big. The Norwegian pension fund is also a pioneer here. All in all, there are hundreds of donors, foundations and funds that want to encourage industries and companies to act more ecologically and protect the climate by withdrawing large sums of money.
The powerful financial services provider MSCI is also considering excluding Russian stocks
Opponents of this strategy like to call it a blunt sword, because after all, for every seller there is a buyer of the sold shares. It could therefore not matter to the criticized company. The demonstrative sale of securities faded away in the large space of the markets.
It is true that there are usually buyers for the sold securities. But if a chain reaction occurs and many investors follow suit and demand is then lower than supply, then prices will fall. And no company can ignore that. And if it hits an entire nation, no country either. Because that has concrete consequences: You can only finance yourself on poorer terms if you issue new shares or bonds.
It is doubtful whether Russia will find international investors to fill the gap. It’s far more likely that more funds will pull out altogether as soon as they can. The financial service provider MSCI is currently examining whether to remove Russian stocks from its stock indexes. MSCI is one of the market leaders of such products. Millions of people are invested there.
After the occupation of Crimea in 2014, international investments in Russia roughly halved. Much more money will now flow out. Fund expert Ali Masarwah assumes that investments in Russia will not be an option for the next ten years this time. The money leaves Russia. And that will hit the country, its elites and its big companies like Gazprom, Sberbank and Lukoil.
Yes, if the Norwegian sovereign wealth fund withdraws 2.5 billion euros, that’s not a lot of money compared to the sums that are moved on the global financial markets. But it could be a rock that starts an avalanche. Especially since the divestment does not stand alone. In combination with the numerous economic and financial sanctions that have now been implemented, it can create a major pull.
It could be the beginning of the fact that when it comes to investing, ethical criteria mean more than pretty garlands of words. Of becoming a serious force that acts on the market – and punishes the corrupt and warmongers.