The fund has grown to be the biggest sovereign wealth fund in the world since the first allocation to it in 1996, with its value topping $US850 billion at the start of October this year.

Norges Bank, which manages the fund, was a pioneer in adopting climate change risk as a specific focus area in its exercise of ownership, integrating environmental, social and governance factors in the fund's management.

While environmentalists like the Climate Spectator ran with the first paragraph of Norway's Ministry of Finance press release where it said, "we propose a mechanism whereby the worst cases of climate offenders can be excluded from the Fund on a case-by-case basis", the main thrust was clearly supporting fossil fuels which the panel said would undeniably "remain part of the energy mix for decades to come".

The panel - comprising economist Martin Skancke, Professor Elroy Dimson, Professor Laura Starks, Professor Michael Hoel, Dr Juris, Gro Nystuen and research director Magdalena Kettis - also insisted that the Norwegian Government Pension Fund Global should not be used as a "climate policy instrument".

While the panel believed that exclusions where there was an "unacceptable risk that the company contributes to or is responsible for acts or omissions, on an aggregate company level, are severely harmful to climate", they emphasised that "we do not think climate issues can effectively be addressed through automatically excluding all coal or petroleum producers from the fund".

"In our view, fossil fuel companies' energy production, energy use or carbon dioxide emissions cannot per se be said to be contrary to generally accepted ethical norms," the report stated.

"Such products and activities constitute an important basis for our society, and fossil fuels - both petroleum and coal - will remain part of the energy mix for decades to come.

"The average investor must thus by definition be an owner of fossil fuel companies. The question is thus not whether investors will own these companies, but which investors are "good" owners of these assets from a financial and ethical perspective.

"As a large, long-term owner with a clearly articulated active ownership and engagement strategy towards climate change and the clout and perseverance to implement it, the fund has every opportunity to be a ‘good' owner in this sense.

"It is also hard to see how a general coal and/or petroleum exclusion criterion could be consistent with other Norwegian policies and commitments, including the government's role in the production of both petroleum and coal."

Finally, the panel does not believe the concept of "stranded assets" was an appropriate guide to investment strategy for the pension fund.

"As a baseline, one should assume that asset prices, by and large, provide a reasonable compensation for investment risk on an ‘ex ante' (before the event) basis," the report stated.

"This has so far been the basis for investment decisions made by the Ministry of Finance as the fund's formal owner, and there is no reason to make an exception for fossil fuel related investments.

"This is, however, not the same as stating that the issue of stranded assets is immaterial to investors or that one should be indifferent to the issue. We discuss some of these issues in this report, in particular the possible links to ownership strategies."

The World Coal Association's acting CEO Benjamin Sporton said the report was a "useful contribution to the current debate about fossil fuel divestment" and "a clear blow to global divestment campaigns".

"This report is a strong endorsement for a more engaged and cooperative approach to tackling climate change, with responsible investors working with fossil fuel companies to reduce carbon dioxide emissions through technology," he said.

"Divestment campaigners have tried to wish away the role of fossil fuels. Yet coal plays a vital role globally, not only providing 40% of electricity but also as an essential input for building modern infrastructure.

"Forecasts show that even in 20 years, coal will still provide a quarter of global primary energy, as it has for most of the past 30 years.

"Rather than turning its back on coal, the report recognises that for a responsible investor ‘ownership efforts should be the primary tool' for engaging with fossil fuel companies. This effectively acknowledges the importance of investing in cleaner fossil fuel technologies.

"Importantly, the expert group also said that it did not believe the concept of ‘stranded assets' should be an appropriate guide to the investment strategy for the GPFG."

He called on the Norwegian government and parliament to now recognise the "important contribution this report makes to policy setting for the fund".

"The report also sends an important signal to other large institutional investors by saying ‘we believe the use of the fund as a climate policy instrument beyond what is compatible with its role as a financial investor would be both inappropriate and ineffective'," Sporton added.