Norway’s Ethical Divestment from Paz Retail and Energy: A Shift in ESG Priorities

Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, has taken a bold step in its ethical investing strategy by divesting from Israel’s Paz Retail and Energy PAZ. The move, announced in 2025, marks the fund’s latest action against companies operating in Israeli settlements in the occupied West Bank—a decision rooted in evolving interpretations of international law and growing pressure to align investments with environmental, social, and governance (ESG) principles.

The Ethical Rationale: Settling on Ethics

The fund’s Council on Ethics, which oversees its adherence to Norway’s ESG guidelines, cited Paz’s ownership and operation of nine gas stations in the West Bank as the primary reason for the divestment. These stations supply fuel to Israeli settlements, which the International Court of Justice (ICJ) ruled in 2024 are illegal under international law due to their role in perpetuating occupation and displacing Palestinians. The council’s stance reflects a broader shift in its approach, formalized in August 2024, which targets companies directly enabling infrastructure or services that support settlements.

This decision follows Norway’s 2024 divestment from Bezeq, Israel’s largest telecom firm, for similar reasons. Both moves underscore the fund’s alignment with the ICJ’s findings, despite Israel’s rejection of the rulings as “fundamentally wrong.” The council’s updated policy, detailed in a letter to Norway’s finance ministry, explicitly states that businesses aiding settlements risk exclusion from the fund’s portfolio.

Paz’s Dilemma: Between Profit and Principle

Paz Retail and Energy, Israel’s largest gas station operator, has long defended its West Bank operations under the 1994 Oslo Accords, which permitted Israeli control in Area C of the West Bank. However, the fund’s council argues that Oslo’s framework is obsolete in light of the ICJ’s 2024 ruling and the escalating conflict in Gaza. Paz’s stock, which peaked at ₪12.50 (≈$3.50) in early 2023, plummeted to ₪7.80 by mid-2025—mirroring the broader decline in Israeli equities amid geopolitical risks.

The divestment’s financial impact on the fund is minimal: Israeli holdings represented just 0.1% of its $1.8 trillion portfolio as of 2024. Yet the symbolic significance is profound. The fund has now divested from 11 companies linked to settlements since 2023, including infrastructure and surveillance firms, signaling a strategic pivot toward stricter ethical benchmarks.

A Broader Trend in ESG Investing

Norway’s actions reflect a growing European trend to disentangle from companies tied to contested Israeli activities. Post-Gaza war, European financial entities—from pension funds to insurers—are reassessing risk exposure in the region. The Norway fund’s stance has emboldened civil society groups, such as Norway’s Trade Union Confederation (LO), which petitioned the government to expand divestments to all companies operating in occupied territories.

For investors, the move highlights the evolving calculus of ESG risks. While Paz’s operations may comply with local laws, the fund’s interpretation of “illegal under international law” sets a precedent. Companies in sectors like energy, construction, and technology in the West Bank face heightened scrutiny, even if their activities are legally permissible under Israeli law.

Conclusion: The Costs of Complicity

Norway’s divestment from Paz and Bezeq underscores a critical truth: ESG frameworks are no longer static. As geopolitical conflicts reshape legal and moral boundaries, investors must adapt to avoid reputational and regulatory risks. The fund’s actions have already triggered ripple effects:

• Paz’s stock: Down 37% since 2023, reflecting both geopolitical and ethical concerns.
• Regional investments: The fund’s $2.12 billion in Israeli holdings (0.1% of its portfolio) now face renewed due diligence, with 65 companies under review.
• Global norms: The ICJ’s rulings have catalyzed similar moves by European pension funds, amplifying pressure on firms to exit settlements.

For Paz and others, the cost of operating in contested territories now includes not just diplomatic tensions but also capital flight. As ESG evolves into a tool for enforcing international law, companies in volatile regions must reckon with the paradox of profit and principle. Norway’s decision is a harbinger of a new era in responsible investing—one where ethics and geopolitics are inseparable.