The Public Investment Fund received a $80 billion stake in Saudi Aramco only days before the company's green bond launch.
The Saudi sovereign wealth fund's environmental credentials have taken a significant hit when it was awarded a $80 billion stake in the world's biggest oil producer, just weeks before it was set to issue its first green bond, according to Bloomberg.
The 4 percent of Aramco that the Saudi government is transferring to the Public Investment Fund will account for around 14 percent of the $580 billion sovereign wealth fund, according to the Saudi government. According to statistics provided by Bloomberg, this would make it the PIF's largest stake in terms of dollar value.
Within weeks of the Saudi fund's transfer of Aramco shares, Moody's Investors Service praised it for its minimal exposure to "the oil and resources industry" as well as "environmental and social concerns." The Saudi fund has received similar acclaim from other rating agencies.
The addition of Aramco shares highlights the conundrum that investors are facing as they attempt to reconcile Saudi Arabia's record on climate change with its plans for sustainable financing at a time when the country is setting ambitious goals to remain relevant in the face of the energy transition.
The financial sector, on the other hand, is divided on the best way to decarbonize, with some advocating for a complete ban on fossil fuels while others say that doing so would fail to address the bigger issue of pushing the industry to adapt.
Over the last decade, Norway's $1.4 trillion sovereign wealth fund has departed hundreds of enterprises in order to avoid the environmental, social, and governance risks that it believes they entailed. Some of the major fossil-fuel corporations, notably ExxonMobil Corp. and Chevron Corp., are still owned by the company.
Until date, the PIF's largest investments have been in Saudi corporations, such as banks and telecommunications industries. It also has investments in electric vehicle producer Lucid Group Inc. and video game developers on the international stage.
It is more difficult to see the whole picture for Saudi Arabia's sovereign wealth fund when Aramco is lumped in with its other interests, which include the planned Neom development, which seeks to operate totally on renewable energy and even export green energy.
Investors will have to decide whether to support green initiatives in a major hydrocarbon-producing state that at the very least contribute to reducing harmful emissions generated by its primary export – or whether to avoid investing in projects in that state altogether.
Moody's has assigned the sovereign wealth fund the fifth-highest credit rating possible, ahead of its aspirations to enter the foreign bond market for the first time in the near future. As a result of the designation, the PIF wealth fund is one step closer to reaching the goals set by Governor Yasir Al-Rumayyan, who is also the chairman of Aramco, to issue a first-ever green bond.
Saudi Aramco has said that it intends to achieve net-zero carbon emissions by the mid-20th century. In spite of this, the objective – which implies Aramco will engage in enough green initiatives to balance its own emissions – will not be sufficient to compensate for carbon emissions caused by people using the oil it sells.
While the PIF has the option of allocating revenues from a bond sale to investments in renewable energy projects and the eco-tourism enterprises it is supporting, the fund's overall portfolio has become much less environmentally friendly.
SOURCE: NEWS AGENCIES
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