The agreement, reached at a meeting of the Norwegian parliament's finance committee on Wednesday evening, will require Norges Bank Investment Management (NBIM), which manages the fund, to sell shares in all companies in its portfolio which generate more than 30 percent of their revenues or 30 percent of their power production from coal.
According to Norwegian Finance Minister Siv Jensen, the ban could apply to as many as 75 companies in which the fund has invested some 35 billion kroner ($4.5 billion). Companies sitting above the threshold include power companies RWE, SSE and Duke Energy.
"Investing in coal companies poses both a climate risk and a future economic risk," the seven parties said in a statement announcing the move.
"This is a great victory for the climate," said Torstein Svedt Solberg from Norway's Labour Party, who acted as the rapporteur for the negotiations. "Coal is in class of its own and is the source responsible for the largest emissions of greenhouse gases."
He said that the deal had been reached after long and detailed discussions, meaning there was little chance of serious disagreements between the parties as the government draws up the new guidelines for NBIM, which will be implemented on January 1 next year. The decision will be formally adopted by parliament on June 5.
Rasmus Hansson, from Norway's green party, said the move was significant given the push for a new global deal on the climate in Paris later this year.
“Parliament is now sending a very important signal into negotiations on a global climate agreement in Paris in the autumn, namely that Norway will not invest our savings in destroying the earth's climate,” he told Norway's E24 financial newspaper.
Tom Holthe, an MP for the Progress Party, which had traditionally been sceptical of many environmental measures, emphasised to E24 that the party had won some major concessions, limiting the abruptness with which the oil fund would have to make its disposals.
He noted that the instructions to NBIM would allow the fund to temporarily continue to invest in companies where coal represented more than 30 percent of revenue, so long as they demonstrated an ambition to bring themselves below the threshold.
The fund has already been reducing its holdings of pure-play coal mining companies, revealing at the start of the month that it had cut its investment in the sector by two fifths since the start of the year.