Norway’s oil fund and its Israel-Palestine dilemma
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The protesters outside Norway’s central bank last month were blunt: the world’s largest sovereign wealth fund should sell out of Israel. Norway’s $1.7tn oil fund was holding a conference with some of the world’s most prominent asset managers on how to be a better investor. “Stop investing in companies that contribute to genocide and occupation,” suggested one protester.
Norway has the biggest sovereign wealth fund — and, unlike many other countries with similar investment vehicles, it is also a democracy. The debate on Israel is perhaps the most acute demonstration of the pressures this can bring.
The giant Norwegian fund — which on average owns 1.5 per cent of every listed company worldwide — has largely avoided big geopolitical problems over its 28-year existence. But there are rising concerns within the fund and linked bureaucracy that it could become ensnared by a bitter conflict such as that between Israel and Palestine or even a political backlash in the US.
“The pressure is just going up and up. There is no way to do this in a way that pleases everybody. It’s incredibly difficult,” says one Norwegian official.
It is not a problem many other large sovereign wealth funds have. Most of the top 20 such funds are in the Middle East or China, meaning that investment decisions are often overlaid with political or geopolitical factors.
Norway is insistent that its fund is not a foreign policy tool, merely a financial investor. But the speed with which Oslo froze its investments in Russia in 2022 — in a decision taken by the government rather than the fund — has opened up possibilities for activists to try to push it to tackle other geopolitical issues.
As things stand, Israel itself accounts for just 0.1 per cent of assets in the fund. It has holdings in 76 Israeli companies, worth a total of $1.5bn.
Norway, which helped broker the Oslo accords in the 1990s between Israel and the Palestine Liberation Organization, has been one of the most vocal European critics of Tel Aviv in the current conflict. On Wednesday, it was also one of three European countries to recognise Palestine as a state.
Despite the modest level of its investments in Israel, the oil fund has become a lightning rod for protesters with trades union, some politicians and campaign groups urging it to divest from Israeli companies.
Under the fund’s complicated governance model, it does not decide these matters itself. An independent council of ethics examines whether companies break the fund’s ethical guidelines. The council has looked closely at companies involved in the occupied Palestinian territories, and nine Israeli groups have subsequently been excluded from the fund.
Since Hamas’ terror attack on Israel in October and Israel’s subsequent incursions into Gaza, the council of ethics has said its threshold for recommending the exclusion of companies operating in the occupied Palestinian territories has been lowered. But there have been no new recommendations yet, much to the frustration of some in the oil fund, who feel the brunt of the protesters’ ire.
The worry inside the Norwegian system is that it may be forced to decide between local demands for tough action on Israel, and requirements by some allies such as the US to support Tel Aviv. Should the fund be seen to act too aggressively against Israel, some even wonder if its activities in New York could be at risk because of the state’s anti-boycott laws.
The fund and the council of ethics declined to comment. Talking to the Financial Times as the protesters were outside his office, Nicolai Tangen, head of the fund, said: “I think it’s great that people use their ability to voice their concerns.”
Speaking more generally, he said the fund needed to “very careful” to avoid being caught in the growing backlash in the US against investors using environmental, social and governance criteria. “You need to be pick your fights. You want to be less vocal on some things,” he added.
Those fights and the resulting dilemmas are only expected to intensify for the Norwegian fund. Another could revolve around the Norwegian parliament’s decision to stop the fund investing in companies involved in producing parts for nuclear weapons, meaning it does not own groups such as Boeing, Airbus, and Lockheed Martin even though it benefits from Nato’s nuclear shield. “It’s finance meets geopolitics and national politics,” says the former fund official. “I don’t know who wins.”
Twitter: @rmilneNordic
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