Norway wealth fund should invest in top arms makers, commission says in ethics overhaul

By Gwladys Fouche

OSLO, Oct 15 (Reuters) - Norway should allow its $2.3 trillion wealth fund to invest in major Western defence groups that are currently banned from its portfolio due to their involvement in nuclear arms production, a government-appointed commission recommended on Thursday.

Civil society groups criticised the proposal and other suggestions by the commission as a watering down of the fund's ethical rules, which would set a regressive precedent likely to be followed by other international investors.

The proposed change on defence companies, part of a major overhaul of the ethics rules governing the world's largest sovereign fund, could lead to investments of tens of billions of dollars in weapon-makers if adopted by Norway's parliament.

The fund's current rules prevent it from buying stakes in the likes of Airbus, Boeing, BAE Systems and Lockheed Martin on the grounds that they contribute to the making of nuclear weapons.

But the proposed new rules would make an exemption for companies that are domiciled in a nuclear-weapon state under the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) and which are allied with NATO-member Norway.

"This means that several British, French and American weapon companies can be reinvested in," commission head Svein Gjedrem told a press conference.

The Norwegian Red Cross, among others, condemned the suggestion. "By investing in such weapons we are sending a signal to the whole world: these weapons are acceptable. This endangers lives," its chief Grete Herlofson said in a written statement to Reuters.

Finance Minister Jens Stoltenberg, a former NATO secretary general, had asked the commission to review the ethics rules, citing changes to the global security situation and Norway's reliance on NATO's nuclear umbrella.

Other defence groups on its exclusion list are Safran, Thales, BWX Technologies, Northrop Grumman, Fluor, General Dynamics, Huntington Ingalls Industries, Jacobs Solutions, L3Harris Technologies and L&T.

Exclusions could still be upheld on other ethical grounds, but the commission also recommended altering the procedures under which that could take place. The proposal comes a year after US President Donald Trump's administration criticised the fund for divesting from US company Caterpillar over the use of its bulldozers in Gaza and the occupied West Bank.

Should the minority Labour government adopt the commission's proposal, it would have enough support in parliament to pass. The finance ministry is expected to make its own suggestions in spring 2027. 

ETHICAL REASONING CAN BE KEPT QUIET UNDER THE PROPOSALS

Norway's parliament last year paused ethics-based divestments by the state-owned fund, weeks after the Trump administration's criticism, pending the outcome of the review presented on Thursday.

More than half the fund's assets are invested in the US, with the 10 largest companies in the portfolio being tech companies such as Nvidia, Apple and Amazon, accounting for over 20% of the value of the fund's share holdings.

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.

Once the fund had sold out of a given company, the rationale was published in full and many leading global institutional investors followed suit.

On Thursday, the commission said that, while the council should continue to exist, it should no longer advise on a course of action, only give analyses of ethical breaches by companies.

It would be up to the central bank, which operates the fund, to decide whether to divest from a company, whether to publish the watchdog's assessments, when to do it and in what format.

Special care should be taken of the largest companies since a divestment would have a bigger impact on the fund's overall value, it added.

Tale Hungnes, leader of advocacy group Future in Our Hands, told Reuters the commission's proposal would make the ethics watchdog "toothless".

"International law and fundamental human rights cannot become less important simply because a company is profitable, politically sensitive, or difficult to divest from," she said.

COMMISSION HEAD SAYS FUND IS NOW MORE VULNERABLE TO THREATS

Gjedrem, the commission's head, said the fund, by becoming bigger, had become more visible abroad, at a time when the geopolitical situation is more fragmented and more transactional between nations, making the fund more vulnerable to threats.

"The fund is met with reactions abroad and there is a greater risk of countermeasures," he said. He did not mention the US, nor any other big power.   

Trump ally and Republican US Senator Lindsey Graham had suggested tariffs and visa revocations in retaliation for the Norwegian sovereign wealth fund's Caterpillar divestment.

Stoltenberg previously told Reuters the openness of the fund in publishing the reasons why it was divesting posed dilemmas.

On Thursday, he said the question was not whether the fund could be ethical or not. "It will continue to be ethical, but it's a question of how we are ethical in a changing world," he told Reuters.

(Reporting by Gwladys Fouche in Oslo, Editing by Alexander Smith and Philippa Fletcher)