While the decision is based solely on financial considerations and not on the environment or climate change, a divestment by an investor worth more than $1 trillion will undoubtedly be seen as a major blow to polluting fossil fuels.
Oil and gas stocks represented 5.9 percent of equity investments at end-2018, corresponding to about $37 billion, according to fund data.
"The Government is proposing to exclude companies classified as exploration and production companies within the energy sector from the (fund) to reduce the aggregate oil price risk in the Norwegian economy," the finance ministry said in a statement.
The aim of the proposal, initiated by the central bank which manages the fund, is to make the Norwegian government's wealth less vulnerable to a permanent drop in oil prices, now that the fund has increased its exposure to equities to 70 per cent of the fund's value from 60 per cent earlier.
The fund invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate abroad.
It is a major investor in oil firms, holding stakes at end-2018 of 2.45 per cent in Shell, 2.31 per cent in BP, 2.02 per cent in Total, 0.99 per cent in Chevron and 0.94 per cent in ExxonMobil.
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