By Gwladys Fouche and Nerijus Adomaitis
OSLO, May 5 (Reuters) - Norway's wealth fund has excluded Bharat Heavy Electricals BHEL.NS from its investment portfolio because of concerns over the environmental impact of a plant the Indian company is building, the Norwegian central bank said on Friday.
The $935-billion Norwegian fund, the world's largest, is not allowed to invest in companies that breach certain ethical guidelines set by the Norwegian Parliament. These include producing nuclear weapons, tobacco or anti-personnel landmines.
BHEL, an engineering and manufacturing company that is majority-owned by the government of India, did not reply to requests for comment.
It's stock was excluded from the Norwegian fund's portfolio because of "the risk of severe environmental damage" resulting from the building of a coal-fired power plant close to the Sundarbans, the world's largest mangrove forest, in Bangladesh, the fund's ethics watchdog said in a statement.
This is an area with "universally unique environmental qualities" the Council on Ethics said, adding that "there is an unacceptable risk of the company contributing to or being responsible for severe environmental damage".
The Council on Ethics makes recommendations to the board of the central bank, which then decides whether to follow them through and instructs the fund's management to take action. The fund is managed by a unit of the central bank.
The watchdog said that BHEL "did not reply to the Council's inquiries initially, but has later submitted comments to a draft recommendation, stating that there is no need to dredge the waterways" through which ships will access the plant.
The fund has sold all its holdings in BHEL, which it did ahead of the publication of the decision. The fund did so gradually so as not to alert market participants.
(Editing by Alexander Smith)