Norway's sovereign wealth fund, the world's largest, expects to divest from more Israeli companies as part of its ongoing review of investments in the country over the situation in Gaza and the West Bank, it said Tuesday.

The fund announced on Monday that it was terminating contracts with external asset managers handling some of its Israeli investments and had divested parts of its portfolio in the country over the worsening humanitarian crisis in Gaza.

The review began last week following media reports that the fund had built a stake of just over 2% in an Israeli jet engine group that provides services to Israel's armed forces, including the maintenance of fighter jets.

The stake in the company, Bet Shemesh Engines Ltd., has now been sold, the fund announced on Tuesday.

Norway's wealth fund, also known as the oil fund as it is fuelled by vast revenue from the country's energy exports, is the biggest in the world with a value of around $1.9 trillion, with investments spanning the globe.

Norges Bank Investment Management (NBIM), an arm of Norway's central bank that runs the fund, which held stakes in 61 Israeli companies as of June 30, in recent days divested stakes in 11 firms, including BSEL. It did not name the other companies.

"We expect to divest from more companies," NBIM CEO Nicolai Tangen told a press conference on Tuesday.

The fund is now taking a closer look at the remaining 50 Israeli companies in the portfolio and will report back to the Finance Ministry by an Aug. 20 deadline.

"There is good reason to believe that there will be further sell-outs," Deputy CEO Trond Grande told Reuters, without saying how many companies could be affected.

The government has repeatedly ruled out divesting from Israel as a whole on the grounds that it would mean the fund was divesting from these companies for being Israeli.

'Should have been quicker'

The fund began investing in BSEL in November 2023, about one month after the war in Gaza began, via an external investment manager, Tangen said. The fund declined to name the external portfolio manager.

Since then, NBIM has held quarterly meetings with Bet Shemesh Holdings, but the war in Gaza was not raised as a theme.

"We had discussions about their business in the United States, not about the war in Gaza," Tangen said, adding that the fund had rated BSEL as a "medium risk" stock with regard to ethics concerns.

BSEL was later reviewed as a high-risk stock in May. That change should have been quicker, Tangen said, adding that NBIM should have had a tighter overview of these investments earlier.

"We should have been quicker in taking back control of the Israeli investments," he said.

In the last year, the fund sold its stakes in an Israeli energy company and a telecoms group over ethics concerns, and its ethics watchdog has said it is reviewing whether to divest holdings in five banks.

Norway faces a general election on Sept. 8 and multiple politicians have called on Tangen to resign in light of the Israeli investments.

He ruled out stepping down, saying he had carried out the fund's mandate, as decided by parliament.

"I haven't even thought about it," he said in an interview. "We (at the fund) have not made any kind of formal mistakes. We have ended up in a situation that has been unfortunate, but we are executing on the mandate."

The fund, which invests the Norwegian state's revenues from oil and gas production, is one of the world's largest investors, owning on average 1.5% of all listed stocks worldwide. It also invests in bonds, real estate and renewable energy projects.

Separately, the parliament's constitutional and control committee was meeting on Tuesday to discuss what to ask Finance Minister Jens Stoltenberg regarding the fund's Israeli investments. It is expected that Stoltenberg will have a week to answer the questions, public broadcaster NRK reported.

External portfolio managers

The fund's use of external portfolio managers has also been under scrutiny. NBIM is now looking through its procedures regarding all external portfolio managers and the risk of relationships with Politically Exposed Persons (PEPs), Tangen said.

One immediate lesson, he said, is that "if we have a country that goes into war, we would probably take the asset management back very quickly." He did not say if the fund would make additional changes.

For non-Israeli companies with business in Israel and the occupied Palestinian territories, the fund would continue to monitor the ethical risk they may pose and grade them in different risk categories, Grande said.

That work would be done with the fund's ethical watchdog, the Council on Ethics, which makes recommendations for divestments if the companies are deemed to breach ethical guidelines set by the Norwegian parliament.

On Tuesday, the fund reported a 698 billion Norwegian crowns ($68.28 billion) profit for the first half of the year, earning an overall return of 5.7% in line with its benchmark index.

"The result is driven by good returns in the stock market, particularly in the financial sector," Tangen said in a statement.