Several European and American defence companies excluded from Norway's Government Pension Fund Global (GPFG) due to their involvement in nuclear weapons production could become eligible for investment again under proposed changes to the fund's ethical framework.

The reforms would narrow the scope of the fund's longstanding nuclear-weapons exclusion and place greater emphasis on engagement rather than divestment when addressing ethical concerns.

The proposals matter beyond the immediate question of which companies may re-enter the portfolio. They could shift how one of the world's most influential institutional investors balances ethical restrictions, stewardship and national security considerations, potentially influencing debates across the wider investment industry.

The recommendations come from a government-appointed committee reviewing the GPFG's ethical framework. Alongside changes to the nuclear-weapons criterion, the committee proposes making engagement the fund's primary response to ethical concerns and removing the Council on Ethics' role in recommending exclusions or other interventions. The recommendations have not yet been adopted and will now be considered by Norway's finance ministry.

The review follows the Norwegian Parliament's decision last year to pause ethics-based divestments pending its findings, shortly after criticism of the fund's approach from the Trump administration. The finance ministry is expected to publish its own recommendations next spring.

A narrower boundary on nuclear weapons

The nuclear-weapons proposal represents the most significant substantive change under consideration.

Rather than removing the exclusion entirely, the committee recommends narrowing its application. Defence companies involved in nuclear-weapons production could become eligible for investment where they are domiciled in a nuclear-weapon state recognised under the Nuclear Non-Proliferation Treaty and aligned with Norway. The committee says the change could make several currently excluded European and American defence companies eligible for reinclusion.

The proposal reflects what the committee sees as a changed security environment, shaped by Russia's invasion of Ukraine, higher defence spending across NATO countries and a renewed focus on deterrence. It also acknowledges that many modern defence contractors operate across both conventional and nuclear-related activities, making the distinctions underpinning earlier exclusion decisions increasingly difficult to draw.

For responsible investors, the broader question is whether national security considerations warrant a reassessment of long-standing weapons exclusions. If the world's largest sovereign wealth fund adopts a more permissive approach toward allied nuclear-weapons producers, other investors may face growing pressure to revisit similar policies.

The debate sits within a wider reassessment of the relationship between sustainability objectives, security priorities and defence investment. Minerva explored these themes in its briefing Beyond the Defence Headlines: Is ESG the Problem?

Engagement moves to the forefront

Beyond defence-related exclusions, the review proposes a broader change in how the fund responds to companies associated with serious ethical risks.

Norges Bank, Norway's central bank, manages the GPFG through its investment management arm, widely known as Norges Bank Investment Management (NBIM) under a mandate set by the finance ministry.

Ownership activities would generally become the preferred first response, with Norges Bank expected to pursue dialogue, voting and other stewardship tools before exclusion is considered. Exclusion would remain available, but engagement would become the default approach rather than an alternative option.

This proposal is distinct from the changes to the nuclear-weapons criterion. One affects which companies are eligible for investment, while the other changes how ethical concerns are addressed once companies are held in the portfolio.

The committee argues that the fund's holdings in more than 7,000 companies and its increased access to boards and senior management give it greater opportunities to influence corporate behaviour than when the ethical framework was originally established. From this perspective, continued ownership can create leverage that exclusion would remove.

The challenge for investors is whether engagement can deliver measurable outcomes in cases involving serious ethical concerns. A stewardship-first approach may keep companies in the portfolio for longer, increasing the importance of clear escalation pathways and credible thresholds for exclusion when engagement fails to generate change.

Greater discretion for Norges Bank

The review also recommends changes to the governance of the ethical framework, concentrating more responsibility within Norges Bank.

At present, the independent Council on Ethics assesses companies and provides non-binding recommendations on potential courses of action. Under the proposed model, the Council would continue identifying and assessing risks of serious norm violations, but would no longer recommend whether companies should be excluded or subject to another intervention. Responsibility for determining the response would rest solely with Norges Bank.

Importantly, the Council has never had decision-making authority over exclusions. The proposed change concerns its advisory role rather than ultimate control over outcomes. Under the new structure, the Council would continue providing independent assessments, while Norges Bank would assume greater responsibility for determining how those findings are acted upon.

The committee argues that ethical concerns, stewardship opportunities and long-term investment objectives increasingly need to be considered together. Supporters may see greater flexibility and consistency. Critics may question whether reducing the Council's advisory role and making engagement the default response could weaken the practical impact of the exclusion framework. Either way, Norges Bank would face increased expectations to explain its decisions and demonstrate the effectiveness of continued ownership.

A further recommendation would formally incorporate broad diversification into the fund's management mandate, placing portfolio construction objectives more explicitly alongside ethical considerations and recognising that exclusions can limit exposure to global markets.

What remains undecided

The proposals would not eliminate exclusions or abandon the GPFG's ethical objectives. They would, however, narrow the nuclear-weapons restriction, make engagement the preferred response to ethical concerns and reduce the Council on Ethics' role in shaping intervention decisions. The overall effect would be a framework that relies more heavily on Norges Bank's judgement and stewardship capabilities.

For other large asset owners, the implications extend well beyond the possible return of excluded defence companies. Norway's eventual decision may become an important test of how investors reconcile national security priorities with ethical investment commitments, and of how much evidence is required before engagement is viewed as a credible alternative to exclusion.