Sept. 3 (Bloomberg) -- Norway excluded Elbit Systems Ltd. from Europe’s largest sovereign wealth fund, citing the Israeli company’s involvement in the barrier being constructed in the West Bank on Palestinian Territories.

The “investment in Elbit constitutes an unacceptable risk of contribution to serious violations of fundamental ethical norms,” Norway’s Finance Ministry said today. Bans on investing in France’s Thales SA and South Africa’s DRDGold Ltd. were rescinded as part of a review of ethical investments for its Government Pension Fund - Global, known as the Oil Fund.

Elbit, based in Haifa, makes surveillance systems used by Israel on the wall the country started building on the West Bank in 2002. Palestinians say the system of walls, fences and trenches is an attempt to occupy land before an agreement can be reached on a Palestinian state, while Israel says it’s required to prevent suicide bombers from attacking its citizens.

“The International Court of Justice has ruled that the building of this barrier violates international law and the Norwegian authorities have expressed the same opinion,” Finance Minister Kristin Halvorsen said at a press conference. “The decision to exclude this company is not on the background of its nationality. The surveillance system Elbit delivers to the Israeli authorities is a central component of this separation barrier, or wall.”

Ambassador Summoned

Dalia Rosen, senior director of communications for Elbit, declined to comment.

Elbit climbed as much as 1.90 shekels, or 0.8 percent, to 245.50 shekels, and traded at 246.50 shekels at 4:23 p.m. in Tel Aviv. Johannesburg-based DRDGold rose 6.7 percent to 602 rand. Thales, based in Neuilly-sur-Seine, rose 55 cents, or 1.7 percent, to 32.6 euros.

“Foreign Ministry Director-General Yossi Gal summoned in the Norwegian ambassador and expressed Israel’s protest over the announcement by the Norwegian Finance Ministry,” Foreign Ministry Spokesman Yigal Palmor said today in a phone interview. “Israel will weigh any future steps.”

Norway, the world’s fifth-largest oil exporter, divested its holding as of Aug. 31 after a decision on June 30. The 2.47 trillion-kroner ($400 billion) fund, the world’s third-largest sovereign wealth fund, set up an ethics council in 2004 to ensure it doesn’t invest in companies with activities that breach human rights, involve corruption or create environmental damage.

Calls Rejected

Israel Prime Minister Benjamin Netanyahu in July rejected a call by the United Nations to dismantle parts of the barrier, saying it’s a critical component of security. The UN Office for the Coordination of Humanitarian Affairs on July 8 urged the country to comply with the International Court of Justice’s 2004 call for parts of the barrier to be taken down and reparations paid to affected Palestinians.

The government said it rescinded a ban on investing in Thales, Europe’s biggest maker of military electronics, because the company had stopped making cluster munitions. DRDGold was reinstated after the company stopped its involvement in a gold mine in Papua New Guinea, which was responsible for environmental damages to a river system.

Other Companies

The Finance Ministry decides whether to exclude any of the 8,000 companies the fund invests in, based on recommendations from the ethics council. Before today, it had excluded 30 companies, including Wal-Mart Stores Inc. A decision to ban a company is made public after shares are sold.

Halvorsen said the fund had also looked into excluding other companies whose services had been used on the barrier, including Caterpillar Inc. The companies had not been banned because their products could be employed elsewhere.

Earlier this year, the Finance Ministry barred the fund from investing in Dongfeng Motor Group Co. Ltd. and put its holding in Siemens AG under observation. It has also proposed to exclude tobacco producers.

Only Abu Dhabi, with $627 billion, and Saudi Arabia, which has $431 billion, have bigger sovereign funds, according to the Roseville, California-based Sovereign Wealth Fund Institute.

To contact the reporters on this story: Marianne Stigset at mstigset@bloomberg.net; Josiane Kremer in Oslo at Jkremer4@bloomberg.net.

Last Updated: September 3, 2009 10:26 EDT