The proposed changes to the fund's ethics committee were criticised both by banks and non-governmental organisations.
"The more independent the council on ethics is, the better," Øystein Dørum, the chief economist at DNB Markets, told Reuters. "In other words, it should not be made into a section of the Norwegian central bank. If anything, a less independent ethics council could lead to more conservatism - i.e. fewer exclusions."
"We as NGOs are losing out on the complaint mechanism we have. You are risking losing some accountability,” said Svend Søyland of Bellona, an environmental pressure group.
The report marks the biggest shake-up in a decade to Norway's Government Pension Fund, known popularly as the Oil Fund.
It argued that bringing the ethical committee within the central bank, which already manages the oil fund, would speed up decision-making.
“Applying a more unified and holistic approach will give the fund a more powerful and influential responsible investment strategy,” the report said.
Norway's finance ministry, which has the final say on ethical investments, once took 18 months to overrule a council decision to bar Petrochina.
The ethical committee, which is staffed mainly by Norwegian professors and led by prominent lawyer, has barred the company from investing in 60 companies, including British American Tobacco, Rio Tinto, Vedanta, EADS, Boeing, and Walmart.
The report comes as Norway's Labour opposition has proposed banning the fund from investing in coal producers.
Siv Jensen, Norway's finance minister, said that she would shortly decide both on whether to accept the recommendations of the committee and on whether to exclude coal producers.