Norway’s sovereign wealth fund—the largest of its kind in the world at more than $1.3 trillion—has made some 10,000 investments across the global economy.

Yet, it has made just three investments in renewable energy projects.

The Norwegian government, which first created the fund more than 30 years ago and controls its mandate, only adjusted the rules in 2020 to even allow direct investments into renewable energy infrastructure.

Prices for such investments have been relatively high, making it difficult to find good ones, said Nicolai Tangen, the fund’s CEO.

“That is not an easy one to square,” Tangen told Cipher on the sidelines of the Oslo Energy Forum in Oslo, Norway, earlier this year. “It is in our mandate we can invest money in that field, but it has to stack up.”

The fund’s first, second and third investments are highlighted in the graphic below. In its first quarter update published in April, the fund lost the most in those investments, although its returns last year on its first such investment were positive, a spokesperson said.

Source: Norges Bank Investment Management press releases • Data complete through May 2, 2023.

The fund invests in many renewable energy companies but direct investments into infrastructure are—so far—rare. A majority (nearly 70%) of the fund is invested in equity in all kinds of companies, while 2% of the fund can invest directly in renewable energy projects (other categories are bonds and real estate).

The fund invests the nation’s considerable oil and gas revenue on behalf of the Norwegian people and is wealthier than virtually everyone else on the planet. Because it’s owned by a government steeped in oil and gas wealth and expertise, the fund may be a stark example that mirrors the fossil fuel industry more than other institutional investors.

For this reason, the fund’s actions offer an acute illustration of two overlapping trends: A confluence of economic headwinds are dragging down renewable energy profits, and when compared to oil and gas—the sources renewables are seeking to replace—their profits are more abysmal.

High interest rates, supply chain and regulatory bottlenecks and inflation are weighing down what are already relatively low but stable profit margins for renewable energy projects, said Kevin Book, a managing director at ClearView Energy Partners, a Washington, D.C.-based independent research firm.

Tangen’s comments are echoed by other investors who say they are not making (enough) money in renewable energy to justify more investments, especially on the massive scale needed to tackle climate change.

“From our vantage point, what’s holding this back isn’t the lack of private capital but a dearth of investible projects,” said Ian Simm, chief executive and founder of Impax Asset Management Group, one of the world’s biggest investment portfolios in low-carbon assets, in an interview with Bloomberg in late March.

In an interview with Cipher, Jason Grumet, president and CEO of the American Clean Power Association, which represents companies developing renewables in the United States, acknowledged the headwinds and said it’s a sign of how the industry has reached scale.

“There’s no question that the supply chain challenges, inflation and higher interest rates are now a big deal,” Grumet said.

Compared to oil and gas, “we’ll never garner the returns nor the losses,” said Grumet. “It’s a fundamentally different investment proposition.”

Despite record-breaking profits last year, the world’s biggest oil and gas companies are not heeding calls to invest those windfalls into clean energy.

Some companies are being financially rewarded for promising to increase their oil production. BP, which posted record 2022 profits, said in February it was scaling back an earlier commitment to curtail oil production in future years, and its stock price went up.

“When you pull back on your plans to shift away from oil and gas, and your stock price goes up 11%, that’s a reflection of where the market and investors think the best returns are going to come from,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy.

“The most important thing is to change those expectations by demonstrating more policy stringency and by driving down the cost of clean energy technologies,” said Bordoff, who is also co-founding Dean of the Columbia Climate School.

We are at the dawn of a historic period of U.S. investment into clean energy, led by a trifecta of recently passed laws that pour nearly $80 billion a year into clean energy, dwarfing any past federal spending in this area. The laws are prompting similar moves in the European Union.

Would the Inflation Reduction Act, which alone is responsible for nearly half that spending, change the Norwegian fund’s outlook on renewable energy? “We shall see,” Tangen responded. “It is a gamechanger, but we shall see.”

The U.S.-headquartered BlackRock, one of the world’s largest investment firms, cites these government moves among the reasons it predicts future growth in clean energy, despite the current economic challenges. It made its first investment in renewable energy projects in 2012 and now has $10 billion under management.

“You’re going to be missing the boat if you’re not going to be investing into the transition,” David Giordano, managing director and global head of climate infrastructure at BlackRock, told Cipher.

Norway’s fund bought more stocks in some of the world’s biggest oil and gas companies at the end of 2021, which ended up being a lucrative move. “We thought they were very cheap,” Tangen said.

A couple months later, Russia invaded Ukraine and sparked an energy crisis that sent oil and gas prices—and the stock prices of petroleum producers—sky-high.

The move helps position the fund to advocate internally with these companies to shift their business models, Tangen says: “We are a stronger voice in advocating for the transition than most others.” Its move in late April voting against tougher climate targets at BP prompted criticism of the fund’s stated climate leadership, though.

Ultimately, the persistent reign of profits raises questions about whether legacy and incumbent companies are suitable to lead the transition, or whether new companies will eventually succeed at scaling clean energy, Bordoff said.

Back in Norway, an emerging entity offers another way for the nation to tap into climate tech.

In 2017, in response to the 2015 Paris Climate Agreement, the government launched a fully state-owned climate investment company called Nysnø Climate Investments.

It’ll likely take decades to determine the success of Nysnø, which faces the same problem as most climate and energy projects: they simply need more time.

The U.S. government is just now releasing rules to guide the implementation of the Inflation Reduction Act and the European Union’s efforts are still coming together.

“We’re still in the early days in a lot of ways,” says Book of ClearView. “I’m always prone to being cautious about things that have a long lead time. Could it [these policies] juice up returns in a way that could get a lot of attention? It might.”