OSLO: Norway is expected to overhaul the ethical rules for its US$2.3 trillion wealth fund in response to the findings of a state-appointed commission due on Thursday, a year after it paused divestments in the face of US scrutiny.
The Trump administration had protested against the fund's divestment from Caterpillar shares over the use of the US company's bulldozers in Gaza and the occupied West Bank.
Weeks later, Norway's parliament voted in favour of pausing ethics-based divestments by the world's largest state-owned fund pending the outcome of a review, the findings of which are due to be released at 0700 GMT on Thursday.
The government denied this move was motivated by concerns over consequences of potentially upsetting the US, where more than half of the fund's assets are invested.
Before the suspension, the Council on Ethics, the fund's independent ethical watchdog, made recommendations to divest and sent them to the board of the central bank, which had the final say. The board usually followed the council's recommendations.
Since the suspension, all recommendations have instead been sent to Norges Bank Investment Management, which is the fund's operator, with no divestments made over the period.
Finance Minister Jens Stoltenberg said securing the fund, which finances a quarter of the country's public spending, was "one of the most important things we do in Norway".
"The world is changing and the value chain is becoming more and more integrated. It is difficult to distinguish between civil and military products," he told Reuters on Wednesday.
He also pointed to the concentration of the fund's value in a handful of companies, mostly US tech giants such as Nvidia, Apple and Amazon, with 10 accounting for more than 20% of the value of its share portfolio.
"This type of concentration ... means that individual decisions can have much greater consequences than in the past," said Stoltenberg, a former Nato secretary-general, adding that his priority was for the fund to remain broadly invested.
"We should not do things that can undermine that. At the same time, we must have a good ethical framework," he said in an interview in Norway's parliament.
The commission's proposals will form the basis for the government to make its own as part of an annual white paper on the sovereign wealth fund which is expected in spring 2027.
Defence companies
One possible change concerns the fund's ban on investing in companies making nuclear weapons, or key components, effectively ruling out the world's largest defence companies.
Stoltenberg asked the commission to look at whether nuclear weapons as a deterrent should be taken into consideration.
Should the commission recommend lifting this ban, the fund could invest in the largest defence companies.
Its exclusion list currently cites Lockheed Martin, Boeing, Airbus, BAE Systems, Safran, Thales, BWX Technologies, Northrop Grumman, Fluor, General Dynamics, Huntington Ingalls Industries, Jacobs Solutions, L3Harris Technologies and L&T.
Civil society groups, including the Norwegian Red Cross, say that would legitimise investing in weapons of mass destruction.
"The way Norway invests significant sums contributes to setting standards globally," the Red Cross said in its submission to the commission.
Transparency of the funds
Stoltenberg previously told Reuters the openness of the fund in publishing the reasons why it was divesting posed dilemmas.
Once the fund sold out of a company, the council published its recommendation in full, including its reasoning, based on months or years of investigations, providing a unique source of information for the public and other investors.
The idea that these recommendations might no longer be made public has raised concerns among civil society groups, who say doing so provides a key source of information for the general public and investors alike.
Some activists are also concerned that the Council on Ethics would be removed altogether.