Norway’s sovereign wealth fund is to introduce a criteria-based exclusion policy to divest from companies that make an “unacceptable” contribution to greenhouse gas emissions, the government has announced.

Adopting the recommendations of a report and consultation, the Norwegian Finance Ministry said the exclusion policy would work alongside a strengthening of its engagement.

The NOK6.4trn (€706bn) Government Pension Fund Global (GPFG) will introduce a “conduct-based exclusion criterion” that looks at the acts and emissions of a company that consist of greenhouse gases, divesting when it becomes unacceptable.

“The criterion is broad in scope,” the Ministry said, “and not limited to specific sectors or types of greenhouse gases. It will also accommodate norm changes within this field over time.”

Following the report’s recommendations, the Ministry said there would not be a product-based exclusion policy, meaning no direct impact on the fund’s fossil fuel company holdings.

The fund holds large equity holdings in oil companies, with oil and gas accounting for more than 8% of its equity holdings at the end of September 2014.

“The government agrees with the professional assessment of the expert group that ethically motivated exclusion of all coal and petroleum companies based on their products would not be appropriate,” the Ministry said.

Minister of finance Siv Jensen said she had taken note of the report’s view and agreed using the oil fund as a policy tool on climate change was inappropriate.

“The measures introduced are premised on the broad consensus concerning the role of the fund as an investor, which has facilitated the robust long-term management of our savings,” she said.

However, the government will ask Norges Bank Investment Management (NBIM), the fund’s asset manager, to review the risk in portfolio holdings where coal extraction, power generation or coal-based energy represented a large part of the business.

This will be alongside its policy, as set by the Ministry, of taking climate issues into the general risk assessment of portfolio companies.

Sony Kapoor, a critic of the GPFG’s investment strategy and managing director of think tank Re-Define, said the policy would not lead to any “earth-shattering” divestments.

He said the new criteria-based policy could see divestments of around 1-2% of the fund’s equity holdings but that these would be the obvious and worst offenders.

“The policy fundamentally ignores the sound financial management [of divestment from fossil fuels],” Kapoor said.

He said the fund’s policy to hold such an exposure to oil and gas while revenues were also generated from oil sales was “financially illiterate” and that the GPFG has missed an opportunity to make a strong statement on climate change as a leading global investor.

Kapoor also dismissed statements from the GPFG over the strengthening of its engagement policy, suggesting the fund had a poor record on engagement generally.

When the report backing this policy was published in December 2014, it said engaging with firms would see the fund actively manage the climate change-related risk exposures.

The report committee, chaired by economist Martin Skancke, chairman of the UN-backed Principles for Responsible Investment, urged NBIM to engage with regulators and standard-setters.

Yngve Slyngstad, head of NBIM, has previously said more rationality was needed in the sustainable investment debate, with data underpinning investment decisions, and ethics left to the politicians.

The oil fund returned 7.6% over 2014, with strong returns from its property portfolio protecting a slump in revenues due to a crash in the oil price.