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Sovereign wealth fund rules out pumping gas profits back into fossil fuel industry

Yarom Ariav tells Knesset committee that fund ready to start investing first billion shekels from energy extraction in exchange-traded notes, won’t put money in oil and gas firms

Sue Surkes is The Times of Israel's environment reporter.

An aerial view of the Tamar gas-processing rig off the southern coastal city of Ashkelon, June 23, 2014. (Moshe Shai/Flash90)
An aerial view of the Tamar gas-processing rig off the southern coastal city of Ashkelon, June 23, 2014. (Moshe Shai/Flash90)

A sovereign wealth fund set up by Israel for proceeds from offshore gas extraction will not invest the money back into oil and gas companies, the official in charge of the fund said Tuesday.

The board of the Israeli Citizens’ Fund has decided to “avoid direct investment” in companies involved in the extraction and production of oil or gas, Yarom Ariav told the Knesset committee that oversees the fund. He said the fund was now worth nearly $350 million.

Speaking for himself, Ariav said the impetus for the ban on fossil fuel investments was a mixture of ethics and economics.

The fund was set up in recent years following the discovery of natural gas to invest the expected energy windfall as well as proceeds from the extraction of other natural resources, such as minerals and stone.

It began to operate on June 1 — long after initial predictions — after passing the required income threshold of NIS 1 billion.

The committee was told that NIS 1.14 million had entered the fund and had already been converted into just under $342 million.

No further proceeds are expected until May.

Ariav, an economist, a former Finance Ministry director-general, and former President and CEO of ICL Fertilizers Europe, is required to report on the fund’s activities to the Knesset every three months. Tuesday’s meeting was the first since the fund began to operate.

Yarom Ariav. (Lisa Molko, CC BY-SA 4.0, Wikimedia Commons)

He said the fund’s steering panel will seek 40-year investments to limit risk and fulfill the law’s aim of benefiting future generations.

To avoid exchange rate fluctuations, it will use dollars to make investments, although it could also invest in other currencies.

Until the long-term investment strategy is worked out, the committee will take a conservative approach to the money already in the fund and will invest it in exchange-traded notes in Europe and the US, Ariav said.

The fund will be entering the market as it has been convulsed with deep losses stemming from rocketing inflation, shifting high-flying Wall Street into a bear market posture.

To hedge risks, money already in the fund will be invested slowly, with weekly investments over four months, he added.

The fund is slated to have an operational budget of NIS 3 million ($865,000) annually in 2022 and 2023, said Amir Katznelson, a senior adviser to Finance Minister Avigdor Liberman, who chairs the fund’s investment board.

ICL will have to pay its share into the sovereign wealth fund for the exploitation of minerals in the Dead Sea. (Oded Rahav)

A Bank of Israel representative said that the funds were already with the Federal Reserve System and that work was ongoing to open an account with the Bank of New York and complete paperwork for operations such as bank transfers by SWIFT.

On investment transparency, an economist from the Knesset Research and Information Center said he had reviewed the policy for similar funds in Australia, South Korea, Singapore, and Norway.

Norway reported on the 20 companies that received the biggest investments, he explained, with the other three reporting how the money had been invested, but not where.

The Knesset passed a law setting up the fund in 2014 as it prepared to become an energy exporter thanks to gas finds in the eastern Mediterranean.

View of the Israeli Leviathan gas field gas processing rig as seen from Dor Habonim Beach Nature Reserve, on January 1, 2020. (Flash90)

The law determined that the fund’s capital could only be invested overseas, in foreign currency, to protect the stability of the shekel and that only up to 3.5 percent of investment income could be spent annually on social, economic, and educational projects for the first nine years. It also set up a council to approve investments and larger strategy moves.

The seven-member council must include representatives of the Prime Minister’s Office, the Finance Ministry, and the Bank of Israel, as well as economists and expert public appointees. Its role includes determining overall investment policy and overseeing implementation, providing the Finance Minister with an annual proposal on how to spend the funds, and appointing the director of a department within the Bank of Israel to carry out the day-to-day work.

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