The World’s Largest Funds Are Turning on Israel — And This Is Just the Start

Right, so Israel has always liked to sell itself as a start-up nation, the place where Silicon Valley meets the Bible, where you can invest with one hand while the other pretends not to see all the rubble and destruction in Gaza. For decades, that trick worked: politics was dirty, finance was clean, and Tel Aviv could count on the world’s pension funds to bankroll its immunity. Not anymore. Following on from increasing divestment from Israel by the world’s largest sovereign wealth fund in Norway and a multibillion Danish pension pot has declared Israel unfit for investment too, citing war crimes and international law. That is not student protestors or stereotypical hairy activists; that is the guardians of global capital calling time on Israel’s “safe haven” myth. When the grey men in suits of Scandinavia say you’re a risky investment, you’re in far deeper trouble than you might care admit.
Right, so Israel, amongst the many myths it has propagated around itself, has always wrapped itself in one in particular. Not the myth of military invincibility, secured by American weapons and European silence as there are so many stories floating around about right now, but the myth of financial immunity. For decades, Tel Aviv’s pitch to the global markets was simple: whatever you think of our politics, your money is safe here. Put your capital in our bonds, our banks, our tech start-ups, and let diplomats and activists shout themselves hoarse over Gaza and the like, the mainstream media won’t bother us either. The implication was that Israel’s economy was insulated from politics, a fortress of innovation and stability where finance could continue humming even as the bombs fell a few miles away. That myth, in the last few months especially, is now being torn apart. The first blows are not coming from radical street protests, but from the cautious, grey-suited boards of northern European pension funds.
The latest blow in that regard clobbered Netanyahu and Co just this week. Denmark’s AkademikerPension, I daresay you could hazard a guess from that name as to who it represents, which manages roughly twenty-five billion dollars on behalf of teachers and university professors, announced that it would withdraw from all Israeli state-owned and state-controlled assets. So this was not a boutique protest by a niche activist fund. It was a mainstream, fiduciary institution making a public declaration that Israel’s war in Gaza and the continued expansion of settlements in the West Bank were, in their words, “not compatible with humanitarian principles and international law.” Those words carry the weight of law. They transform Israel from a supposedly safe investment into a reputational liability. And the move did not come out of nowhere. It followed just weeks after Norway’s Government Pension Fund Global — better known as the oil fund, and at 1.7 trillion dollars the largest sovereign wealth fund on the planet — announced it was selling stakes in eleven Israeli companies, excluding six others, and severing contracts with Israeli asset managers, all on the grounds of Israel’s humanitarian violations. When the largest fund in the world calls you a human rights risk, and when a mainstream Danish pension fund validates that judgment by following suit, the story ceases to be about money in or out. It becomes about legitimacy, about the crumbling of this myth of immunity that Israel has built up for decades.
To grasp the scale of this shift, it is worth pausing on what Norway actually did. The oil fund is famous for its conservatism. It invests Norway’s petroleum wealth, its oil wealth, for future generations, guided not only by parliamentary consensus but strict ethical rules as well, their Council of Ethics. It has excluded companies before — those tied to coal, tobacco, corruption, or brutal regimes — but rarely does it target a Western-aligned state. Last month, it made an exception. It dropped Caterpillar from its portfolio, explicitly citing the role of its bulldozers in demolishing Palestinian homes. It sold stakes in eleven Israeli companies, including state-linked banks and infrastructure firms. It announced the exclusion of six more Israeli companies on the grounds of their entanglement in West Bank settlements and Gaza operations. And it terminated contracts with Israeli asset managers, signalling that even indirect financial exposure was too risky. This was not the language of radical politics. It was the dry, legalistic assessment of a fund that calls genocide a fiduciary risk.
The consequences were immediate. Washington declared itself “very troubled” by the decision to blacklist Caterpillar, underlining how politically sensitive even corporate exclusions become when Israel is involved. Israeli banks and firms saw their valuations wobble, not because the Norwegian fund’s stakes were irreplaceable, but because when a behemoth like this pulls out, others take notice too. The reputational contagion spreads faster than the capital outflow. Markets, after all, are made of perception aren’t they? It’s all about optics and risk. Once perception shifts from “Israel is safe” to “Israel is tainted,” the damage multiplies.
So then comes Denmark. AkademikerPension’s decision was smaller in numerical scale but larger in symbolic weight. This was not a targeted exclusion of bulldozer manufacturers or tourist booking platforms. This was a wholesale declaration that Israeli state assets — the bonds that finance its government, the companies it owns or controls — are uninvestable. The fund linked its decision not only to the occupation of the West Bank, as many had done before, but explicitly to the ongoing war in Gaza. The Gaza war is not a temporary crisis, they implied; it is a structural violation that renders Israel incompatible with responsible investment. The message was blunt: the state itself is the problem.
Israeli media tried to spin the story, with some outlets claiming the fund was withdrawing over twenty billion dollars in Israeli assets. That number was inflated — it implied that nearly the entire portfolio was invested in Israel, which was not the case — but in a way the exaggeration betrayed the anxiety. If it was really trivial, no one would need to inflate the sums. The truth is more damaging: the actual financial impact may well be very modest, we don’t actually know the real figure here, but the symbolic effect is enormous on its own without that knowledge. For Israel, the stigma is more dangerous than the cash loss.
Denmark’s move also needs to be set against the backdrop of a Scandinavian pattern unfolding. Norway’s KLP, the country’s largest municipal pension fund, excluded Caterpillar last year, again because of its role in demolitions. Before that, KLP had divested from sixteen companies tied to settlements. Danish Pædagogernes Pension dropped Booking.com, Expedia, and Airbnb for promoting settlement tourism. These were smaller steps, but they built a moral trajectory. Scandinavia has done this before. In the 1980s, Norwegian and Swedish funds were among the first to divest from apartheid South Africa. They were early to blacklist tobacco, coal, and weapons. They led on climate divestment. Scandinavia is the region where ethical investing is not an afterthought but the governing principle behind it.
Why Scandinavia? Partly it is structural. These funds are member-owned, not detached institutions. Teachers, professors, municipal employees have direct influence, and they do not want their retirement money tainted by complicity in war crimes. Partly it is political culture. Scandinavia has strong civil societies where grassroots campaigns, unions, and NGOs can push fund boards without being drowned out by accusations of antisemitism. In Germany or Britain, a pension fund divesting from Israel would trigger a storm of political and media backlash. In Oslo or Copenhagen, it is consistent with established practice. And partly it is precedent. Once you have divested from Myanmar, Sudan, or fossil fuels, it is easier to divest from Israel. You already have the template: identify the violation, apply the ethical guidelines, exclude the company or the state.
The question then becomes: what damage does this do to Israel? Not in immediate dollar terms, but in long-term structural terms. The first layer of damage is reputational. Israel has built its global brand on being the start-up nation, a hub of innovation. Every divestment reframes that brand as occupation, settlements, and Gaza. Investors start to ask not, “what return will I get?” but, “what reputational risk am I taking?” The second layer is precedent. Norway’s oil fund did it. Denmark followed. Each move lowers the threshold for the next fund. If you are a Dutch or British pension board, you now have to explain why you are more tolerant of human rights violations than Scandinavia is. The burden of proof flips. The third layer is financial. If state bonds and state-linked companies are labelled toxic, Israel will face higher borrowing costs. Investors will demand a risk premium. In a wartime economy already straining under military expenditure, that is no small thing. The fourth layer is strategic. Israel’s foreign policy has been to wall off politics from economics — you may disagree with us, but you will still trade with us. Divestments puncture that wall. They show that Gaza cannot be quarantined from investment decisions. And the fifth layer is psychological. Each exclusion emboldens activists. AkademikerPension did not invoke the word BDS, but its action was indistinguishable from a boycott. For Israel, which has waged diplomatic war against the BDS movement, this is a nightmare.
And here is where Israel’s reaction becomes telling. Officially, it shrugs. Ministers call these exclusions symbolic, irrelevant, the work of hostile activists masquerading as fiduciaries. But every shrug looks less like confidence and more like a flinch. Because if it truly were irrelevant, why bother to sneer at all? Why did the government not ignore AkademikerPension completely? Why did Washington feel compelled to denounce Norway’s exclusion of Caterpillar as “very troubling”? Israel knows the truth: symbols become precedents, precedents become cascades, and cascades become crises. Behind the mask of indifference is the unmistakable sound of a state rattled.
And there will be a domino effect. The Netherlands is the obvious next front. ABP and PFZW, two of Europe’s biggest pension funds, have long faced campaigns over their Israel holdings. They argued that engagement was better than divestment. But now activists can point to Norway and Denmark and say: why are you lagging behind? In Sweden and Finland, church and union funds will be pressed to follow their neighbours. In Britain, local government and teachers’ pensions are ripe targets. Even in Germany, where political taboos run deepest, the reputational pressure will mount. The burden of proof has shifted. The question is no longer “why divest?” but “why haven’t you?”
This is the South Africa parallel. In the 1980s, apartheid Pretoria shrugged off the first exclusions. It called them symbolic. It insisted its economy was resilient. And for a while, it was. But as more funds divested, the stigma grew. By the late 1980s, South Africa could barely roll over its loans. Its borrowing costs soared. Banks refused to lend. The financial squeeze became unbearable. What began as symbolic ended as existential. Israel is not there yet, but the trajectory is eerily familiar.
The deeper questions that flow from this are uncomfortable for Israel’s defenders. Do markets now enforce international law when governments fail? Pension funds are not courts, but by excluding Israel they are declaring its actions unlawful in practice. What does fiduciary duty mean in this context? If being complicit in genocide exposes members to reputational and legal risk, then divestment becomes not a political choice but a financial responsibility. What contradictions does this expose in Europe, where Scandinavian funds divest while Brussels maintains trade agreements? How long can elites insist on business as usual while grassroots institutions pull the plug? And what of Israel’s tech sector? If state assets are stigmatised today, tomorrow it could be venture capital and start-ups. That would cut into Israel’s economic crown jewel. There are also legal collisions on the horizon. In the US, anti-BDS laws penalise institutions that boycott Israel. What happens when mainstream funds divest on human rights grounds? Do states sue their own pension boards for fulfilling fiduciary duty? The contradictions are explosive.
So the conclusion is inescapable. Israel’s financial immunity is broken. Norway cracked the wall. Denmark just widened the breach. Each new divestment will deepen the fissure. This is not about modest sums trickling away. This is about the slow collapse of an illusion. Every exclusion shatters the myth that Israel is a safe financial haven. Every withdrawal of capital bleeds credibility from the state. This is how it ends: one divestment at a time, the financial edifice is stripped bare, until Israel stands where South Africa once stood, a pariah with no shield left. The only question is not whether this trajectory exists, but how long Israel can pretend its shrugs are not really flinches as the wall around its financial immunity falls apart around them.
For more on Norway’s divestment from last month, showing the speed with which divestment is beginning to spread on Scandinavia and the scale of it as well, check out this video recommendation here as your suggested next watch.
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