AILSA CHANG, HOST:
Norway has the world's largest sovereign wealth fund, but it's facing a public dilemma over its own ethics rules. Should the fund's investments include companies that directly or indirectly contribute to this ongoing war between Israel and Hamas? Our colleagues Maria Aspan and Wailin Wong at The Indicator report.
MARIA ASPAN, BYLINE: Sovereign wealth funds are basically a government's way of investing a country's riches. Most of the countries with big funds have a lot of oil money, like Abu Dhabi and Kuwait. So they reinvest that money to help fund the government and have lower taxes.
WAILIN WONG, BYLINE: Norway's been doing this for decades, and today, its sovereign wealth fund makes up almost 20% of the government's annual budget.
ASPAN: And it's a hugely powerful investor outside of Norway. The fund now owns a small percentage of about 7,000 companies. That includes pretty much every big stock you've ever heard of - Nvidia, Apple, Amazon, et cetera, et cetera, et cetera.
WONG: That gives Norway some serious power in corporate America.
ASPAN: But despite its power, Norway's sovereign wealth fund usually tries to be pretty boring, or what investors call passive. It mostly invests in stocks and bonds tracking the broader market like a global index fund.
KARIN THORBURN: It's really a passive fund, but the discussion is always around the active choices.
ASPAN: I hopped on an international Zoom with Karin Thorburn. She's a finance professor at the NHH Norwegian School of Economics.
THORBURN: The best way to achieve the highest possible risk-adjusted expected return on a portfolio is to include all stocks.
WONG: But here's the problem - Norway can't do that. Unlike most sovereign wealth funds, Norway follows the guidance of an independent ethics committee, which tells it not to invest in some companies.
ASPAN: We're talking tobacco companies like Philip Morris, coal miners, nuclear weapons companies and even big defense contractors like Boeing and Lockheed Martin.
WONG: And we saw this during the heyday of ESG when investing for environmental, social or governance reasons was popular. Ethical investing is always a tricky balance, but it got a lot more complicated for Norway after Hamas attacked Israel and Israel declared war.
ASPAN: Last August, Norway's fund said it would divest from some but not all of its Israeli stocks at the recommendation of its ethics committee. It also said it would diivest from the U.S. company Caterpillar because the Israeli government was using Caterpillar bulldozers to destroy Palestinian homes in Gaza.
WONG: This started a crisis for Norway, became a big issue in last year's elections with some Norwegians saying the fund wasn't divesting enough from Israel. As our Norwegian finance expert Karin points out, this decision also opened the door to questions about what other big companies are involved with the war in Gaza and whether Norway should divest from all of them.
THORBURN: It's a very fine line to decide which companies assist in the war. You could say that Apple is useful because soldiers may communicate by cellphone. Then the question is, where do you set that limit?
ASPAN: This all came to a head in November when Norway's parliament voted to suspend part of the ethical guidelines governing the fund. Norway's influential Minister of Finance Jens Stoltenberg told the Financial Times the suspension would help the fund avoid having to sell out of big-tech companies.
WONG: Wailin Wong.
ASPAN: Maria Aspan, NPR News. Transcript provided by NPR, Copyright NPR.
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