is strictly commercial : to maximise returns within the guidelines defined by the government. all investment decisions are made by norges bank investment management, a separate division within the central bank. neither norges bank ’ s executive board nor the ministry of finance is involved in any individual investment decisions. this governance structure was set up to ensure that the fund was not used as an instrument of foreign policy. the purpose of the fund is to ensure that future generations receive their fair share of norway ’ s petroleum wealth. to achieve this, the fund was designed to be invested for the long term. size and a long investment horizon are the fund ’ s two key characteristics. together, they form the backbone of the fund ’ s investment strategy : • first, the fund ’ s long investment horizon implies substantial risk - taking capacity. we are able to act as a countercyclical investor. • second, the fund ’ s size makes it possible to take advantage of investment opportunities worldwide, in a number of asset classes. • thirdly, a fund owned by the government must be highly transparent, not only to the norwegian public but also in an international context. let me elaborate on these aspects. in the early summer of 2007, the fund ’ s strategic equity share was raised from 40 to 60 percent. from summer 2007 to 2009, the fund bought equities worth usd 180 billion in international markets, equivalent to 0. 5 percent of all globally listed equities. the largest volume of transactions was carried out in the midst of the financial crisis of 2008 and 2009. the long - term horizon also enables us to invest countercyclically, by rebalancing asset classes : if the equity share increases by more than 4 percentage points from the target weight of 60 percent, we will sell equities and buy bonds. conversely, if the equity share drops below 56 percent, we will sell bonds and buy equities. the capacity to withstand market turmoil was demonstrated during the financial crisis in 2008 and 2009. for a period of 18 months, the fund ’ s losses totalled roughly usd 120 billion – more than 25 percent of norway ’ s gdp. the losses did not go unnoticed. they led to lively public debate on the fund ’ s investment strategy. however, the conclusion drawn was that the strategy was robust, and the government remained committed to it. 10 norway would have to accept that the fund ’ s capital would fluctuate, sometimes dramatically, given the high equity share. indeed,

' speeches fund with an investment portfolio diversified across equities, bonds and real estate around the world. the overall risk, including climate risk, has been reduced. the norwegian economy is also exposed to abrupt changes in operating parameters for oil and gas production through spillovers from offshore activities to the wider economy. we have long known that norway ’ s offshore petroleum activities would be gradually reduced. if global climate policy proves to be stricter than currently expected, the decline in offshore activity may occur sooner and more rapidly than previously assumed. this will have consequences for norway ’ s industry structure. even though it is likely that the biggest changes in oil - related industries lie some years ahead, climate risk may also have an effect on the oil sector in the short term. there are perhaps signs of this effect in recent years ’ oil stock prices. chart : valuation of oil stocks the price - to - book ( p / b ) ratio is lower for international oil companies than the average p / b ratio in the stock market, and this gap has widened in recent years. there may be several reasons for this, but we know that investors ’ climate risk awareness has increased in the same period. measures to influence industry structure are not within norges bank ’ s remit. however, if the decline in the oil - related sector were to occur abruptly, the spillovers to the wider economy could be considerable. monetary policy is adjusted to changes in output, employment and inflation and can therefore support overall activity and employment in a period of restructuring. the responsibility for the restructuring itself lies elsewhere, not least with the business sector. the norwegian banking sector and climate risks norges bank promotes stability in the norwegian financial system. we have recently published our annual financial stability report. the report includes an analysis of adaptation to climate risk in the financial system. economic losses resulting from changes in the regulation of greenhouse gas emissions, new climate - friendly technology or new consumption patterns must primarily be borne by the individual firm and its owners. in the event of very substantial losses, the firm's lenders will also be affected. in norway, these lenders are largely banks. climate risks, and transition risk in particular, may thus be a source of credit risk for banks. norwegian banks'exposures reflect the norwegian economy and industry structure. i have already touched upon the substantial importance of the oil and gas industry to norway ’ s economy. lending to this industry is a possible source of transition risk for banks. chart : oil - related exposures