The Saudi sovereign wealth fund’s environmental credentials suddenly look a lot less appealing after it was handed an $80 billion stake in the world’s largest oil exporter, just ahead of its planned debut green bond.
The 4% of Aramco that the Saudi government is transferring to the Public Investment Fund will make up about 14% of the $580 billion sovereign wealth fund. That would make it the PIF’s biggest holding by value, according to data compiled by Bloomberg.
Just days before the transfer of Aramco shares, Moody’s Investors Service lavished praise on the Saudi fund for its limited exposure to “the energy and resources sector” or “environmental and social risks.”
The addition of Aramco shares underlines the dilemma facing investors already struggling to reconcile Saudi Arabia’s record on climate with its plans for sustainable financing, as it rolls out ambitious targets to stay relevant amid the energy transition.
The finance industry is meanwhile split over how best to decarbonize, with some shunning fossil fuels altogether while others argue such a move doesn’t tackle the broader problem of forcing the industry to change.
Norway’s $1.4 trillion wealth fund has exited hundreds of companies over the past decade to avoid the environmental, social and governance risk it says they represented. It still holds stakes in some of the largest fossil-fuel companies, including ExxonMobil Corp. and Chevron Corp.
Until now the PIF’s biggest investments have been in Saudi companies including banks and telecom firms. Internationally, it also owns stakes in electric car manufacturer Lucid Group Inc. and video game makers.
For Saudi Arabia’s wealth fund, the picture gets cloudier by lumping Aramco with its other holdings including the planned Neom development, which aims to run entirely on renewable power and to even export green energy.
Investors will have to make a call on whether to back green efforts in a major hydrocarbon-producing state that at least go some way to addressing harmful emissions caused by its main export – or to shun projects there all together.
The sovereign wealth fund received the fifth-highest credit rating from Moody’s ahead of its plans to tap the international bond market for the first time. The designation suggests the PIF wealth fund is closer to achieving aims set by Governor Yasir Al-Rumayyan, who’s also chairman of Aramco, to sell a debut green bond.
Aramco has said it aims to have net-zero carbon emissions by the middle of the century. Still, that target – which means Aramco would participate in enough green projects to offset its own emissions – wouldn’t cover the carbon produced by consumers burning the oil it sells.
While the PIF could earmark proceeds from a bond sale for investments into renewable energy projects and the eco-tourism developments it’s backing, overall the sovereign fund’s portfolio just got a lot less green.