Inside Norway's sovereign wealth fund dilemma to divest from Israel

Karen Thorburn (0:01)

N-P-R.

Wailin Wong (0:06)

Norway, it's one of the happiest countries in the world. Maybe because it's also one of the wealthiest.

Darian Woods (0:12)

Can't hurt. It's a top producer of oil and gas, and since the 1990s, Norway's government has reinvested its oil money in a sovereign wealth fund.

Wailin Wong (0:22)

Ooh, buzzwords.

Darian Woods (0:23)

Love a buzzword. As Indicator listeners know, sovereign wealth funds are so hot right now, and Norway has the largest one in the world. It's currently worth around $2.3 trillion.

Wailin Wong (0:35)

But with more money, come more problems. For the past year, Norway's fund has been facing a public global crisis over its investments in Israel and its own ethical rules.

Darian Woods (0:47)

That's become a third rail for a lot of people these days. Most companies and investors don't want to talk politics of any kind right now, but the Israeli Hamas war and the resulting humanitarian crisis in Gaza is especially fraught.

Wailin Wong (1:01)

Ida Voldenbacke, the head of Norway's Central Bank, in February acknowledged that the war has created what she calls dilemmas about responsible investment.

And she's not the only one struggling with this. Just ask Ed Sheeran.

Darian Woods (1:20)

I don't think he wants any more questions about that topic. This is The Indicator from Planet Money. I'm Waylon Wong, and back with me is friend of the show, Maria Aspin. Hey, Maria.

Wailin Wong (1:30)

Hey there, Waylon. Today on the show, how the world's largest sovereign wealth fund is struggling with the ethics of investing in Israel.

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.

Darian Woods (1:57)

And sometimes they get creative. Remember Saudi Arabia's attempts to create a new international golf league?

Wailin Wong (2:03)

Maybe that's part of why President Trump wants to start a US sovereign wealth fund. He does like to golf.

Darian Woods (2:09)

Oh, I did an episode on it. But Norway's been doing this for decades. And today its sovereign wealth fund makes up almost 20 percent of the government's annual budget.

Wailin Wong (2:18)

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, Google, JP Morgan Chase, etc., etc., etc.

Darian Woods (2:35)

That gives Norway some serious power in corporate America.

Wailin Wong (2:39)

The fund's CEO, Nicolai Tangen, can even get CEOs like Dario Amadei and Elon Musk to appear on his own business podcast.

Darian Woods (2:48)

Hey, competition for us?

Wailin Wong (2:50)

What?

Some Norwegian competition. 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.

Darian Woods (3:07)

And you won't find any big golf leagues or other boondoggles here. Norway's fund isn't even allowed to invest in more mainstream alternative investments like private equity. And only a very small percentage of its money goes to active managers making judgment calls.

Wailin Wong (3:22)

But the active choices can still cause big problems.

Karen Thorburn (3:26)

They're extremely passive. It's really a passive fund. But the discussion is always around the active choices.

Wailin Wong (3:33)

Last week, I hopped on an international Zoom with Karen Thorburn. She's a finance professor at the NHNorwegian School of Economics. And she's also served on government committees about the Sovereign Wealth Fund's investing strategy.

Karen Thorburn (3:47)

If you look at research, the best way to achieve the highest possible risk-adjusted expected return on a portfolio is to include all stocks.

Darian Woods (3:59)

All stocks. 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.

Wailin Wong (4:11)

We're talking tobacco companies like Philip Morris, coal miners, nuclear weapons companies, and even big defense contractors like Boeing and Lockheed Martin.

Darian Woods (4:21)

Seems like there were always some inherent ethical contradictions in this model for an oil fund.

Wailin Wong (4:27)

Right. Making money from oil, that's fine. But investing in coal, oh no.

Darian Woods (4:32)

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.