Norway's $2.3 trillion oil fund could soon invest in Western defense companies after years of being frozen out of much of the sector by state ethics guidelines.

The sovereign wealth fund is currently worth around 21.8 trillion Norwegian kroner, or $2.3 trillion, making it the largest fund of its kind in the world. With stakes in around 1.5% of the world's publicly listed companies, the fund is one of the biggest investors in the stock market worldwide.

In November 2025, a review was ordered into the ethical guidelines governing how Norges Bank invests, following controversy over divestments from some Israeli and American firms.

On Thursday, the independent Gjedrem Committee submitted the review's findings to the Norwegian Ministry of Finance. It included a recommendation for radical change to the fund's approach to defense investments, arguing that "Norges Bank must be prepared for situations where conflicts escalate into war."

Current ethical rules prohibit the fund from making investments in companies including Airbus, BAE Systems, Boeing, BWX Technologies and Lockheed Martin, as they contribute to the manufacturing of nuclear weapons. The fund does hold some defense stocks, including a 2.3% stake in Germany's Rheinmetall, and a 1.5% stake in Italy's Leonardo.

The Gjedrem Committee said Thursday that although the nuclear weapons criterion should be retained, "its scope should change."

"The Fund is not to be invested in companies that produce nuclear weapons, unless the company is domiciled in a nuclear-weapon state under the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) that is allied with Norway," it said in its report. "Several European and American companies that produce components for nuclear weapons can therefore be reincluded."

It added that potential investment should include companies producing weapons that Norway needs for its own defense, and proposed removing the requirement for arms-makers to be assessed for whether their products are being used by nations in accordance with international humanitarian law.

The committee noted that alongside rising geopolitical instability, wars in the Middle East and Ukraine, and energy security concerns, the fund's capital and influence meant it was "timely to reassess the ethical framework."

"The Fund's size and reach give better access to company management and boards than the Fund had in 2003," it said. "In a time of a more demanding political situation abroad, this provides opportunities of which the management should make use."

"The liberal, rules-based international order is in decline," it added. "Economic policies are increasingly used as instruments of foreign policy. Cooperation between countries has become more transactional and negotiation-driven in recent years."

It warned that in this environment, other governments can "more readily perceive ethically motivated exclusions as the policy of the Norwegian government."

Norway's oil fund was set up in the 1990s to invest revenues from the country's oil and gas industry. While Norway's finance ministry and central bank are involved in the governance of the fund, investment decisions are made by Norges Bank Investment Management (NBIM), with exclusion recommendations historically put forward by its independent Council on Ethics.

"There have been reactions and threats of countermeasures," the Gjedrem Committee said in its report on Thursday. "Retaliatory measures could hit the Fund and other Norwegian interests."

U.S. backlash

In September last year, the U.S. State Department told CNBC it was "very troubled" by NBIM's decision to exit positions in American machinery manufacturer Caterpillar and five Israeli banks, accusing the fund of basing its decision on "illegitimate claims."

NBIM had cited "unacceptable risk" that the companies were contributing to rights violations in Palestinian territories when it divested. Norway's finance minister, Jens Stoltenberg – former secretary general of NATO – said at the time that it was "not a political decision."

The Gjedrem Committee noted on Thursday that the risk of further backlash to NBIM's investment choices was also rising as public finances came under greater pressure in many countries.

"High government debt can jeopardize economic stability in countries, but can also give an incentive to look to foreign investors' interest and dividend income as a revenue base for the state," it warned.

The committee members concluded that although the guidelines underpinning the fund's ethical framework still have broad support, they had come under pressure against the political backdrop.

"The conditions for exercising ownership have become more restrictive, in the U.S. among other places," they said.

The Gjedrem Committee recommended that the Council on Ethics should continue to operate, but that it should no longer advise NBIM on taking action over ethical concerns. Instead, it should be limited to delivering analysis on breaches of the ethical guidelines by companies, the committee added.

No new companies will immediately be included in or excluded from the fund's portfolio as a result of the report's recommendations – but the recommendations pave the way for the fund to invest in some American and European defense companies that are currently barred under the fund's ethics rules.

Norway will now hold a public consultation on the recommendations made in the report, with the central bank due to submit its response in January. The finance ministry will propose a new ethics framework in a white paper in the spring, with Norway's parliament expected to vote on the changes in mid-2027.

Until then, the fund's current ethical guidelines and exclusion framework remain unchanged.

"The Council on Ethics has just received the Gjedrem Committee's report," Svein Richard Brandtzæg, chair of the wealth fund's Council on Ethics, said in an emailed statement on Thursday morning. "We will study the report carefully. We will then hold thorough discussions within the Council and submit our response in the upcoming public consultation."

Until November 2025, the Executive Board of Norges Bank decided whether companies should be excluded from the fund's investment portfolio or placed on an observation list. These decisions were informed by the Council on Ethics, an independent body appointed by Norway's Ministry of Finance.

But, pending the Gjedrem Committee's review, temporary guidelines were put in place, under which Norges Bank could no longer make those decisions. The temporary guidelines stipulated that the board may only revoke previous decisions on excluding a company or putting it on the observation list.

Meanwhile, the Council on Ethics was stripped of its ability to recommend observation or exclusion at least until the ethical framework review is finalized.

The temporary guidelines will remain in place until the 2027 parliamentary vote on the Gjedrem Committee's review.

'Other investors pay attention'

The Gjedrem Committee's report was met with backlash from some human rights groups, who argued decisions made in Norway could have implications for international investment trends.

John Peder Egenæs, secretary general of Amnesty International Norway, said in a statement on Thursday that the proposals "risk weakening accountability and integrity and dismantling key human rights protections."

"When the world's largest sovereign wealth fund changes its standards, the consequences do not stop at Norway's borders," he said. "Other investors pay attention, and companies do too."

Grete Herlofson, secretary general of the Norwegian Red Cross, said in a statement that investing in producers of nuclear weapons would be "ethically and humanitarianly completely incomprehensible."

"Opening up investment in nuclear weapons would be a dangerous change of course that weakens the international stigma against these weapons and reinforces the perception that they are an acceptable weapon," she said. "This increases the risk that they could be used."