The decision by the Norwegian sovereign wealth fund to halt its investments in companies operating in West Bank settlements has caused concern among Israel's top political and economic policymakers.
Norway's fund has not yet divested from Israeli companies in which they are currently invested but there have been recent indications that this may soon happen, following demands that Israeli companies clarify their activities. Sources close to the matter have told "Globes" that the Ministry of Foreign Affairs is working together with company executives to compose detailed answers on the matter, with assistance from Israeli and international legal advisors.
The responses from the Israeli companies address objections to the legal status of Judea and Samaria, as well as to the very operations of the companies, in attempts to refute arguments that this represents a violation of the human rights of the Palestinians. Estimates at the diplomatic level are that a final decision by the Norwegian fund, which will be made individually regarding the companies and banks to which it has applied, will be published during the first two months of 2023.
Despite its critical stance towards Israel, the Norwegian sovereign wealth fund has invested in the largest and most influential companies in Israel's economy. It manages about $1.5 billion of investments in industrial companies such as ICL and Israel Corporation, financial services companies such as Bank Hapoalim, Mizrahi Tefahot Bank, Isracard, Israel Discount Bank, Phoenix, Clal Insurance and First International Bank. The fund also has investments in real estate companies such as Bayside, Melisron, Azrieli Group, Amot, G City and Reit 1, as well as retailers such as Shufersal, Victory, Rami Levy and textile company Delta.
However, with the exception of Delek Group and Bezeq, where it holds stakes of about 3%, the Norwegian sovereign wealth fund has small stakes in most of the Israeli companies in which it has invested. On average it holds about 0.5% of most of the Israeli companies in its investment portfolio. It has slightly higher holdings in some of its tech investments including Hilan Software (1.69%), Radware (1.47%) and Taboola (15). It also has holdings in Matrix and NICE Systems.
Although in the past it exited Norway's sovereign wealth fund has divested from real estate development and infrastructure company Shapir Engineering and Industry due to its activities over the green line, the fund now seems to be undergoing a facelift in recent weeks with the aim of changing the nature of its investments to companies in line with ESG (environment, social and governance) requirements. The fund wants its portfolio companies to prove they are not harmful to the environment, conduct transparent corporate governance, and operate for social diversity and against discrimination.
Even if the holdings are small, the Israeli companies may suffer a blow if the fund decides to continue divesting from Israel. "If main sale of the shares by the Norwegian wealth fund is ahead of us, there is no doubt that this will create pressure on the Israeli capital market," says an expert in the capital market who asked to remain anonymous, "if only due to the fact that there are currently no buyers. Mutual funds are seeing withdrawals and the provident and pension funds are cutting their losses."
The Norwegian sovereign wealth fund does not reportedly invest in privately-held Israeli tech companies or venture capital funds. Matrix and NICE declined to comment. Hilan said, "We do not comment on changes in stakes of shareholders unless it is about changes required by reporting by law."
The process began with the UN list in 2020
The opening shot of the steps being taken by the Norwegian sovereign wealth fund could be heard in February 2020 when the UN published a list of 112 companies, organizations and institutions operating in Judea and Samaria, which according to the UN were in violation of international law. The list included Israel's largest banks, Bezeq and Delek Group.
Later in 2020, the Norwegiuan fund announced the sale of its shares in Shapir and Mivne Real Estate because of their involvement in construction of Jewish settlements. Since then Israel has acted diplomatically and economically against continued investigations of Israeli companies by the fund.
The Norwegian sovereign wealth fund is not the only fund that has invested major amounts in Israeli companies. In September, "Globes" reported that giant Swedish fund EQT, which had recently raised €2.2 billion, had said that it was targeting "leading tech companies" in Israel and Europe. The share of Israeli companies is not yet clear but the size of individual investments will be between €50 million and €200 million.
Israel can also draw encouragement from large investments from outside of the West. First and foremost the UAE, which last year increased its investments in Israel and in May 2022 unfroze its $10 billion investment fund in Israel, and recently reported a deal by the Abu Dhabi sovereign wealth fund ADQ to buy a controlling stake in Phoenix, Israel's biggest insurance company for NIS 2.3 billion. In addition, investments from China and India are growing with both countries increasing their economic, trade and commercial ties with Israel.
This month, the sovereign wealth fund of Qatar even made its first investment in Israel, when it invested in cybersecurity company Snyk, which is managed from the US but was founded by Israelis and has a large development center in Tel Aviv. The Singapore sovereign wealth fund GIC has invested in Israeli startups like Trax, Monte Carlo and Israeli venture capital funds like Pitango, and JVP, according to IVC Research.
If Prime Minister elect Benjamin Netanyahu achieves his aim of bringing Saudi Arabia into the Abraham Accords there will be massive economic repercussions. But even without such a major development, the Saudi sovereign wealth fund will begin investing in Israel through the venture capital fund of Jared Kushner, Donald Trump's son-in-law. The Saudi fund already invests in Israeli companies through the US office of the Liberty Fund led by Steve Mnuchin, another close confidante opf Donald Trump.
According to a publication in Oman's official news agency, the Consultative Assembly is seeking to change the boycott law on Israel, apparently following Israel's successful request to allow planes to fly over the country's skies to and from Israel.
The Norwegians mark the extremities, we must prevent drifting towards
A senior diplomatic source told "Globes," that estimates are that there could be more European funds and companies that will begin to raise difficulties and even halt investments in Israeli companies. "The Norwegians are considered the extreme marker but their sweeping decision could also influence other companies and every effort must be made to avoid any drift." The diplomatic source added that the Norwegian decision is not connected to the change of government in Israel but if there will be a significant expansion of Jewish settlements in Judea and Samaria, this might provoke similar measures by others.
Israeli cybersecurity company AU10TIX CEO Ron Atzmnon, one of the signatories on a petition by tech executives against the anticipated changes in the justice system, said. Cancelling the clause in the new coalition agreement that will allow racist expression might set off a chain reaction. Laws that support racism will provide ammunition for pro-Palestinian and BDS organizations to persuade sovereign wealth funds and other private funds not to invest in Israel."
RAD Group founder Zohar Zisapel who also signed the petition is less concerned. "The Norwegian sovereign wealth fund was always an extreme marker regarding Israel and its policies in the territories. That's why I don't see how the toughening of its attitude towards Israeli companies will drag other funds along. I also doubt that the new government will actually enact laws that will encourage racism, but if so - this may cause a chain reaction, and not necessarily in high-tech, since it is one of Israel's stronger and more independent sectors."
Published by Globes, Israel business news - en.globes.co.il - on December 26, 2022.
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