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Norway is to debate whether the world’s largest sovereign wealth fund – funded by petroleum revenues – should stop investing in oil, gas and coal companies.

The two governing centre-right parties and two of their allies have agreed to set up an expert group to look into the $840bn oil fund’s investments in fossil fuels and report back in a year’s time.

Any decision to stop investing in fossil fuel-related companies would send shockwaves through markets where the oil fund’s actions are closely followed.

Oil and gas companies represent 8.4 per cent of the fund’s equity investments, or about $44bn, according to its annual report. Three of its top 10 holdings are in oil companies: Royal Dutch Shell, BG Group, and BP.

The debate over fossil fuel investments started when the opposition Labour party proposed last autumn that the oil fund exit all its coal investments, despite the fact that Norway runs several coal mines.

The ruling Conservative and Progress parties – together with their allies in parliament, the Liberals and Christian Democrats – headed off that threat early on Friday morning by agreeing to set up the expert group.

“The expert group shall consider whether the best strategy to address climate questions as an owner of fossil-fuel related investments is to make influence through ownership – as we do in many companies now – or by finding responsible criteria for exclusions,” Svein Flåtten, the Conservative MP and spokesman for financial affairs, told the Financial Times.

Yngve Slyngstad, the oil fund’s chief executive, told the FT: “This is the people’s money. It’s the people’s representatives in the parliament who decide the main aspects of the fund and decide what they ultimately do or do not want to be invested in.”

The oil fund was set up to channel Norway’s oil and gas revenues into long-term investments that would benefit future generations. Its assets have increased fivefold in the past decade and it has become one of the world’s most closely watched investors, owning 1.3 per cent on average of every listed company. But as it has grown in size it has become an attractive target for politicians.

Shortly before taking power last autumn, the Conservative party floated the idea of splitting up the fund. Its partner in the minority coalition, the Progress party, in turn proposed setting up three smaller funds to invest in renewable energy and in developing countries.

Most of the debate on fossil fuel investments has, however, come from outside the government. Environmental groups and some investment experts have found common cause by arguing that Norway was taking on too much risk by putting money gained from oil and gas activities into fossil fuel investments.

Storebrand, one of Norway’s largest private investors, has excluded many fossil-fuel related companies from its funds on sustainability grounds and has urged the oil fund to do the same.

Mr Flåtten argued the review would protect the fund’s image as a serious, long-term investor. “If the proposal from the Labour party had got [a majority], it could have created uncertainty in the market and troubled our respect as an effective and serious investor. But I will underline that this is an important political issue in Norway and in most of the world: how to address climate questions and how to contribute to better changes in the future.”

The oil fund is already excluded from investing in industries such as tobacco and companies such as Walmart.

Øystein Olsen, governor of Norway’s central bank, which manages the oil fund, said: “We have no problems with exclusions made so far. But if the fund is used more generally and more broadly, and exclusions really become extensive that could hurt the returns and risk profile of the fund.”

The setting up of the expert group came as the oil fund reported its second-best year ever for returns, supported by a strong performance from global stock markets.

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