UPDATE 3-Norway wealth fund to ramp up renewable energy investments
* Government says fund should invest more in renewable energy
* Says sum should rise to between $5-8.3 billion
* Critics say ramp-up is inadequate
* Plans to get rid of fund's independent ethics council
* Government may struggle to win consensus on ethics reforms (Adds reactions)
By Camilla Knudsen and Gwladys Fouche
OSLO, April 4 (Reuters) - Norway's $860 billion oil fund should scale up its investments in renewable energy and weigh the risk to future returns posed by climate change, the finance ministry said on Friday, a shift green groups said was insufficient.
The switch is part of government reforms of the fund - the biggest of its kind in the world - that also include changes to its ethical guidelines and a review of its activities in emerging markets.
It has undershot its 4-percent return-on-investment target since it was established in its current form in 1998.
"The increased scope we give on green investments will help the fund's ability to actively manage investments in this area," Finance Minister Siv Jensen told reporters.
But critics said the rise in renewables investments - to a range of between $5-$8.3 billion from $3.3-$5 billion currently - was insufficient.
"It's incredibly disappointing," Samantha Smith, head of the WWF conservation group's global energy and climate initiative, told Reuters. "It's peanuts relative to the overall size of the fund."
She said the government, a coalition of the centre-right Conservatives and the populist Progress Party, had raised expectations by putting investments in renewables on its joint political platform.
Critics also question a second planned change that would see the fund take over responsibility from an independent ethics council for excluding firms that break its investment mandate, which they argue might undermine its ethical commitments.
"I am very sceptical about the closing down of the ethics council," Christian Democrat Hans Olav Syversen, who heads the legislature's finance committee, told Reuters.
That suggests the government, which announced the reform of the fund when it took office in October, may struggle to win consensus support for its proposals in parliament, where it has a minority and relies on the support of the Christian Democrats and a second small centrist party, the Liberals.
The finance ministry decides the mandate of the fund, which invests Norway's surplus tax revenues from oil and gas production and is managed by a division of the central bank.
Other commentators responded more positively to the ministry's pledge on renewables.
"Siv Jensen wants to expand green investments a little, which we applaud," said Janne Stene, head of climate change policy at Norwegian green group Bellona. "But there is a long way to go before our oil money will contribute to the green shift our planet needs."
Jensen did not propose letting the fund invest in unlisted assets or infrastructure, despite expectations in some quarters that she would give the fund more tools on top of its equity, bond and real estate portfolio.
But the ministry did propose appointing a panel of experts to assess the fund's stance on ethical investments.
Both the Christian Democrats and the Liberals have told Reuters the fund might need to tighten its regulatory framework, following discussions about its investment in Formula One, which its chief has acknowledged has been problematic.
The fund has excluded 63 companies for not meeting its ethical mandate, including Walmart, Boeing, Rio Tinto and Lockheed Martin. Exclusions were recommended by the ethics council.
Removing the council was problematic, said Sony Kapoor, a close observer of the fund, who is a senior visiting fellow at the London School of Economics.
"It is right for the government to strengthen the ethical oversight capacity within NBIM (the fund's management) so fewer inappropriate investments will be made in the first instance," he said. "But that is not a substitute for an independent outside body."
Another reform will see the appointment of a panel that will examine whether the fund - which invests exclusively outside Norway - should exit its investments in foreign coal, oil and gas companies.
That measure was announced earlier to defeat a parliamentary motion put forward by the opposition, and backed by a majority of parties, to make the fund quit its investments in coal firms.
"The fuzzy mandate of the expert panel misses the elephant in the room, which is the fact that the majority of the increase in the fund by 2030 will come from the sale of oil and gas," said Kapoor. (Additional reporting by Nerijus Adomaitis, Alister Doyle and Balazs Koranyi,; Editing by John Stonestreet)