When it first proposed dumping its oil and gas investments in November 2017, Norway’s sovereign wealth fund said its motivation was to reduce the nation’s financial exposure to petrochemicals rather than for environmental considerations. But make no mistake: Friday’s government decision to partially back the divestment strategy marks a big victory in the battle against climate change.

The $1 trillion Norwegian fund has about $37 billion at stake in more than 340 oil and gas companies around the world. The decision means the fund’s $7.5 billion shareholdings in oil and gas exploration and production companies will be offloaded gradually; its investments in integrated companies, including its biggest holding in Royal Dutch Shell Plc, won’t be affected for now.

The decision should resonate throughout the debate about the need to address climate change. Norway’s move highlights the risk that energy producing countries will be left with so-called stranded assets – petrochemical reserves that the world no longer needs as countries embrace cleaner energy sources.

About a fifth of Norway’s gross domestic product comes from oil and gas revenue through the government’s ownership of offshore fields and its stake in Equinor ASA, formerly known as Statoil ASA. A study published in December by the country’s Climate Risk Commission calculated that phasing out fossil fuels globally would slash the value of Norway’s oil and gas deposits to less than $230 billion, compared with more than $1 trillion if the current status quo remained in place.

It’s a shame that Norway hasn’t fully adopted the fund’s proposal to dump all of its gas and oil shareholdings. Last month, Total SA’s Chief Executive Officer, Patrick Pouyanne, told my Bloomberg News colleague Mikael Holter that companies which include refining, trading and selling oil-related products offer a buffer when oil prices slump because those other businesses improve their margins when raw material costs decline. That argument appears to have been acknowledged in the decision.

Moreover, the government’s move at least partly overrules the August findings of a commission it appointed, which argued that barring the fund from buying energy stocks would do little to defend the nation from a drop in oil prices while either depressing the fund’s returns or increasing its market risk.

The point about reducing potential income for the fund looks increasingly archaic. There’s little point in maximizing returns if there’s no planet left to enjoy the money in. The world of investment is slowly but surely reassessing its obligations to allocate capital, and is finding room for safeguarding the planet as well as its own bottom line.

The next step for Norway’s fund is obvious. I argued last month that the world’s sovereign funds have been too slow to use their combined $8 trillion of financial firepower to back renewable energy projects, which the United Nations Environment Program puts at less than 0.2 percent of their total assets.

The world’s biggest sovereign wealth fund should take the lead in allocating the money it raises from selling the shares of oil and gas producers to investments that offer greener solutions to meeting the world’s energy needs. Where Norway leads, others will follow.

To contact the author of this story: Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

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