Ethical compromise in the interest of stability

The Norwegian Government Pension Fund — one of the most influential financial institutions in the world — has made significant adjustments to its investment policy. Against the backdrop of rising geopolitical tensions and increased market volatility, the government decided to temporarily relax the strict ethical restrictions that govern the fund’s portfolio. This move has sparked widespread debate: some see it as a necessary step to protect future pension payments, while others interpret it as a signal of moving away from responsible investing principles. At the heart of the decision is the desire to prevent a mass sell-off of high-yield assets, especially in the technology sector, whose share of the fund’s total profits continues to grow.

Why ethical standards were questioned

Until recently, the Norwegian Government Pension Fund Global (GPFG) was considered one of the most responsible investors worldwide. Its ethical code, developed in the early 2000s, required excluding companies involved in military conflicts, human rights violations, or environmental destruction. The Ethics Council had the authority to recommend such exclusions, and the Ministry of Finance generally followed these recommendations — even if it involved companies generating significant profits.

However, the recommendation to divest from Caterpillar — due to its equipment being used in a conflict zone — raised serious concerns among the authorities. The issue is that similar arguments could potentially be applied to dozens of other companies, including major tech giants whose products or components are indirectly involved in complex geopolitical situations. The Ministry of Finance stated that strictly adhering to current rules would force the sale of assets worth tens of billions of dollars, undermining the fund’s long-term returns. Considering that the fund finances about 20% of the national budget, this risk was deemed unacceptable.

How the fund will be managed during the transition

The temporary regime does not eliminate the ethical agenda entirely but introduces a more flexible approach to its implementation. Instead of automatically excluding companies based on rigid formal criteria, decisions will now be made considering the scale of risks, the degree of involvement, and the strategic value of the asset. A working group, including representatives from the Finance Ministry, independent experts, and Ethics Council members, has already begun reviewing the standards, focusing on their adaptation to the new reality.

Particularly important is the emphasis on maintaining the fund’s technological core. Today, investments in the IT sector — from semiconductors to generative AI — account for about 40% of the fund’s annual returns. Any abrupt movements in this segment could trigger not only internal losses but also market reactions, given GPFG’s scale. Key measures that will be implemented in the coming months include:

• Revision of company exclusion procedures. Instead of automatic decisions, companies will be evaluated with input from both financial and ethical experts.
• Introduction of a «responsibility gradient.» Companies can offset risks through transparent reporting, compensation programs, or public stances.
• Flexibility regarding indirect involvement. For example, supplying components to conflict regions will be assessed separately from direct participation in hostilities.
• Creation of an «ethical buffer.» Part of the profits from controversial assets will be allocated to human rights or environmental projects.
• Regular review of sensitive positions. Reviews will occur every six months — rather than every few years — to allow for rapid adjustments to new challenges.

These measures aim to help the fund remain effective while operating under an updated understanding of ethics — not as a rigid set of prohibitions, but as a dynamic system of responsibility.

Risks and global consequences

Losing technological assets would be catastrophic not only for revenues but also for the fund’s strategic autonomy. The five largest IT companies account for almost 12% of the total portfolio — roughly $240 billion at market value at the end of 2024. These include not only Apple and Microsoft, but also less obvious yet crucial players for digital infrastructure, such as TSMC, ASML, and NVIDIA. Selling even a portion of these assets during periods of low liquidity could trigger a «domino effect» across markets.

Beyond financial risks, influence was also at stake. GPFG is one of the few investors whose votes at shareholder meetings genuinely affect global corporate policies. In 2023, for example, the fund successfully prompted several energy giants to publish detailed emissions reduction plans. A withdrawal from the market would have eliminated this leverage, along with the ability to constructively influence corporate behavior from within.
Experts warn that a chain reaction may follow in the coming years. Already, Switzerland and Canada are exploring how to rebalance their sovereign funds between ethics and sustainability. Five potential long-term consequences of Norway’s initiative include:

• Shift from «black-and-white» ethics to a «grey zone.» Other funds may follow suit, introducing graded assessments instead of binary decisions.
• Increase in «ethical arbitrage.» Companies may actively position themselves as «moderately responsible» to remain in major investors’ portfolios.
• Intensified pressure on regulators. International bodies, such as the UN or OECD, may standardize responsible investment criteria.
• Growth in the role of ESG auditors. Independent sustainability checks may become mandatory for inclusion in investment indices.
• Development of compensation mechanisms. For example, allocating part of profits to «ethical restoration funds» could become standard practice for state investors.
• The focus is shifting from exclusion to engagement — rather than selling shares, the fund will actively participate in management to influence corporate policies.

The Ministry of Finance emphasizes that the goal is not to abandon values, but to modernize them. As one official put it, «Conscience should not become an obstacle to survival.» The final version of the updated code is expected by autumn 2026. Until then, the fund will operate with heightened responsibility — and heightened flexibility.