Investments in Israel have emerged as a central campaign issue in Norway's upcoming election, triggering an unprecedented public debate about how the world's largest sovereign wealth fund should operate.

This controversy could influence which party forms Norway's next government, as the September 8 election is exceptionally competitive.

According to average polling data for August compiled by Norwegian polling aggregation site pollofpolls.no, the right-wing coalition—comprising the Conservative Party, Progress Party, Liberal Party, and Christian Democratic Party—is currently projected to secure 85 parliamentary seats, just one more than the 84 needed for a parliamentary majority.

The left-wing Socialist Left Party has pressured the ruling Labour Party this week, stating it would only support Labour in forming the next government if Labour commits to "divesting all investments in companies involved in Israel's illegal war in Gaza."

Labour has rejected this demand, but may find it difficult to dismiss such calls after the election.

"Most Severe Crisis Ever"

"This is the most severe crisis I have ever experienced," the fund's CEO Nicolai Tangen told Swedish business publication Dagens Industri on Friday.

"The current situation is extremely serious because it concerns public trust in the fund."

In an interview with Reuters last week, Tangen made it clear he would not resign, stating he had fulfilled the fund's responsibilities according to parliamentary decisions.

Since June 30, following media reports that the fund held shares in a jet engine company providing maintenance services for Israeli fighter aircraft, the fund has divested from 23 Israeli companies.

Prior to the current conflict, the fund had only divested from 2 Israeli companies.

According to fund data, as of August 14, it still holds shares in 38 Israeli companies valued at 19 billion Norwegian kroner (approximately $1.85 billion), spanning sectors including banking, technology, consumer goods, and industry.

Norwegian Finance Minister Jens Stoltenberg stated on August 18 that the fund is expected to divest from additional Israeli companies.

Supporters of divestment from Israeli-related investments argue that Norway's investment in companies operating in occupied Palestinian territories amounts to facilitating violations of international law.

They also point out that the fund's formal divestment process, which must follow ethical guidelines established by parliament, takes too long; while supporters of the current process argue it is necessary to ensure fairness.

However, opponents of divestment maintain that the formal process is indispensable, and that targeting a specific country could violate the fund's ethical guidelines.

Traditionally Low-Profile, Now in the Spotlight

The fund invests Norway's oil and gas revenues overseas to prevent domestic economic overheating. Its $2 trillion size equates to approximately $355,000 for every Norwegian citizen, regardless of age.

The fund's daily operations and adjustments typically maintain a low profile, but it can no longer sustain this approach.

Traditionally, Norway's four major parliamentary parties reach consensus on fund-related adjustments through an "absolute majority" mechanism to prevent frequent operational changes when governments change.

"The fund currently invests in nearly 9,000 companies globally... The higher its international exposure, the greater the reputational risk," said opposition Conservative Party MP Mahmoud Farahmand, who serves on the parliamentary finance committee overseeing the fund.

Concerns About "Hostile Interpretation"

While fund officials claim they can handle current public scrutiny, they remain privately concerned.

A meeting minutes document from December 6 last year, obtained by Reuters through a freedom of information request and not previously reported, reveals discussions between the fund's operator Norges Bank Investment Management (NBIM), the Ethics Committee, and the Finance Ministry about "how to maintain ethical investment principles while avoiding their misinterpretation as hostile government actions."

The minutes note that the Ethics Committee believes "working with state-controlled enterprises presents challenges and risks politicizing the fund."

"For such companies, (the fund's) related recommendations could more easily be viewed as direct criticism of the host country's government. This could occur in both Europe and emerging markets."

The document's header lists participant names, with statements attributed to the three participating institutions.

"Norges Bank noted... that in the future, countries with corporate ownership (especially authoritarian regimes) could pose challenges to the fund."

Both the Ethics Committee and NBIM declined to comment on this matter, and the Finance Ministry did not respond to requests for comment.

Public Disputes

In public, Finance Minister Stoltenberg faced unusually harsh criticism for his inadequate response to inquiries from parliament's highest oversight body—the Standing Committee on Scrutiny and Constitutional Affairs.

Committee Chair and opposition MP Peter Froelich told Norwegian Broadcasting Corporation: "This is the most arrogant response I've seen in my four years on the committee."

"The Finance Minister didn't answer substantive questions, instead delivering lengthy lectures on matters the committee already knew well."

Ethical Guidelines: Adherence and Controversy

The fund's ethical guidelines were introduced in 2004 by then-Conservative Finance Minister Per-Kristian Foss and implemented by his left-wing successor Kristin Halvorsen.

The guidelines explicitly state that the fund cannot invest in "companies that seriously violate human rights in war or conflict," among other restrictions.

"Public support for this special savings method depends on whether ethical guidelines are observed," Halvorsen told Reuters. "If people don't believe the money is being properly managed, public support for the fund will decline."

Conservative Party leader Erna Solberg, who served as Norway's Prime Minister from 2013 to 2021, stated that maintaining political neutrality in fund investments has long been a priority.

"For us, adhering to the principle of 'investment free from political interference' is crucial," she said during an August 6 meeting with foreign correspondents.

This month, Finance Minister Stoltenberg told a town hall meeting in the southern Norwegian city of Arendal that the fund constantly faces challenges.

"We inevitably encounter challenges sometimes. This was true in the past, is true now, and will be true in the future."

"For 30 years, we have achieved what other countries can hardly match: preserving all natural resource revenues and only using the investment returns from these funds (for public spending)."