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Norway wealth fund should not include Saudi stocks in reference index, says finance ministry

The stocks should be excluded due to environmental, social and corporate governance risk, parliament is advised
Norway's minority government must win the support of other parties in parliament to pass its proposals (AFP)

Norway's $1.3tn sovereign wealth fund, the world's largest, should not include Saudi Arabian companies in the reference index governing the fund's investment, the Norwegian finance ministry said on Friday.

Saudi stocks should be excluded due to environmental, social and corporate governance (ESG) risk, the ministry said in its annual recommendation to parliament.

The benchmark used by Norway’s wealth fund, now built on the FTSE Global All Cap index, needs to be adjusted to ensure the investor does not end up holding stocks that do not live up to its criteria, according to the white paper.

The proposal is based on guidance from a government-appointed ethics commission, which has previously flagged concerns about the benchmark.

The fund should also trim the size of its global company reference index by between 25 percent and 30 percent, to around 6,600 firms, primarily by removing small cap stocks, the government proposed.

The fund currently holds stakes in around 9,100 companies, and a smaller reference index could, over time, lead to a cut in the number of companies owned.

The minority government must win the support of other parties in parliament to pass its proposals.