If you met Knut Kjaer on the Oslo tram that he rides to work, you would never suspect that he is one of the most powerful men in international finance. You would probably put him down as an accountant or an academic.

Even if you saw his discreetly plush office on the fourth floor of the Central Bank of Norway — blue carpet, beech panelling and a wall of sloping glass — you would still need convincing that this mild, unassuming economist controls one of the two or three largest pots of investment money. But he does. Since 1998 Mr Kjaer, 50, has been the executive director of the Norwegian Pension Fund, into which the Norwegian Government is pouring the revenues from its vast oil and gas reserves.

He has been remarkably successful. The fund grew by $62 billion last year — more than $1 billion a week. It has grown by a further $63 billion in the first ten months of this year. By the end of October it was worth $293 billion (£150 billion). That is more than the GDP of most mid-sized countries, 0.3 per cent of the global capital market and the equivalent of $63,000 for each of this rugged country’s 4.6 million citizens.

Last year the fund achieved an 11.1 per cent return. Since 1998 Mr Kjaer and his team of 140 in Oslo, London and New York have consistently out- performed the markets, achieving an average real return of 4.5 per cent depsite a government mandate that 60 per cent of the fund be invested in fixed-income instruments.

“Structural analysis shows that for every year now it’s less probable that it’s only luck, so it must be something in the way we organise the management,” Mr Kjaer said with a modest smile. The fund is divided into more than 100 tightly focused sub-portfolios, each delegated to an individual specialist with a defined target or to an external manager. Four fifths of the fund is managed in-house.

A disproportionate amount of the fund’s vast wealth is invested in Britain — 17 per cent of its equity holdings and 9 per cent of its fixed-income portfolio. It has stakes in about 326 British companies. But the fund is distinguished not only by its sheer size, or even by its success. It is also remarkable for its uniquely Scandinavian sense of moral rectitude.

The overriding purpose of the fund is to ensure that the fabulous wealth of the world’s third-largest oil exporter and Europe’s leading gas exporter is used to benefit future generations of Norwegians. The Government is allowed to spend only 4 per cent of the fund each year (about $11 billion next year), meaning that the capital remains untouched. Norway has no foreign debt, minimal unemployment and inflation and a thriving technology sector, as well as the highest per capita income in the world. No other country — certainly not Britain — has invested its oil revenues so sagely.

Yet Mr Kjaer is obliged to observe the strict ethical guidelines laid down by the Norwegian parliament in 2004. Fittingly for the home of the Nobel Peace Prize, these bar him from investing in companies that make certain types of weapons, violate human rights or cause serious environmental damage. After some debate, the parliament declined to blacklist tobacco firms.

Companies are investigated by a five-strong ethics council that comprises a philosophy professor, two lawyers, an economist and an engineer. The council reports to the Finance Minister, who has ordered Mr Kjaer to disinvest from 20 companies to date. In June he sold a $416 million holding in Wal-Mart, the world’s largest retailer, which stood accused of “serious and systematic” abuses of labour rights. Last December, despite vigorous American protests, he sold stakes worth $500 million in seven companies — including BAe Systems — involved in the production of nuclear weapons. They included several companies from which the Norwegian Government itself buys arms.

Other companies have been excluded from the fund’s “investment universe” for producing landmines and cluster bombs. Last summer a US mining company was blacklisted for polluting a river in New Guinea. In each case the announcement is delayed for up to two months so that the fund can sell the shares quietly without distorting the market.

Mr Kjaer’s fund also uses its stakes in 3,200 companies in 41 countries to promote sound corporate governance. Recently it employed a moral philosopher and Lutheran Sunday school teacher named Henrik Syse (author of Paths to a Good Life — Philosophical Reflections on Everyday Ethics) to head an in-house advisory group. It has adopted UN and OECD principles designed to make multi- nationals more accountable. In 2005 it voted on 20,307 resolutions at 2,705 AGMs, a number that it has exceeded this year.

It fiercely opposes excessive bonuses for executives, board-rigging and “poison pill” arrangements to block take-overs. “We don’t want company management to steal money from the owners,” Mr Kjaer says in heavily accented English. “Some of what’s happened over the past years regarding option deals has been a huge transfer of wealth from owners to management.”

Because the fund has, almost uniquely, a 100-year investment horizon, it opposes quick fixes. “It’s a fund for future generations,” Mr Kjaer says. “We have high ambitions with regard to playing a leading role internationally in fostering corporate governance.” He has a large house, a summer home and boats, and he earns the equivalent of £192,000 on his civil servant’s salary. That is less than many of his staff and a tiny fraction of what he could earn in London or New York.