Can the European left look to Norway to push the world's powerful nations to act morally abroad? A Labour/socialist left coalition government is celebrating electoral victory there, the first time an incumbent government has won re-election in 40 years. Four years ago, it promised to act as a "peace nation" to support a "more democratic world order" and human rights. Yet socialist-led Norway – still living on its benign image abroad – has instead become the home of four dirty little secrets.

The first concerns the government's pension fund, which invests its huge oil income in more than 7,500 companies in 46 countries and is worth about £250bn. Regarded by many as a model of ethical investment, its portfolio is more like a dirty list of the world's worst corporations, including numerous oil, mining and agribusiness corporations criticised for their human rights record and environmental impacts. The fund also invests in half a dozen tax havens and numerous Israeli and other companies accused of contributing to the occupation of Palestinian territories. The government has so far excluded only a handful of companies from the fund on ethical grounds.

Even worse is policy on oil. Norway is the world's third largest exporter of oil and gas, which provide more than a third of government revenues. Last year, when the doubling of world oil prices plunged millions of people in developing countries into poverty, oil revenues boosted government coffers by 17 times the value of Norway's overseas aid. StatoilHydro, 67% owned by the government, operates in several countries accused of corruption and dire human rights records, such as Azerbaijan, Angola, Iran and Nigeria, and is eyeing up Iraq. Ministers have been speaking openly about reorienting Norwegian diplomacy to push into new oil markets such as Saudi Arabia.

On the environment, Norway's benign image is also removed from reality. True, nearly all domestic electricity comes from hydroelectric plants and Norway was one of the first to adopt a carbon tax to address global warming, in 1991. Yet with 0.1% of the world's population, Norway emits 0.3% of greenhouse gas emissions; if oil exports are included, the figure may be about 2%. The government is committed to making Norway carbon neutral by 2050, yet this will partly be achieved by buying carbon reductions in other countries, not reducing to zero Norway's own emissions.

Finally, Norwegian arms exports – little known outside the country – are booming. Although amounting to 0.1 per cent of world arms exports, Norway's weapons sales have tripled since 2000, reaching £336m worth in 2007. Norwegian arms were used by the US and Britain during the invasion of Iraq while a lack of controls in Oslo have allowed high explosives sold to the US to be re-exported to Israel for use in the occupied territories.

Norway has lost its ethical niche. Although it has a large aid programme and strongly supports the UN, it has otherwise joined the club of rich nations exploiting the planet for their own benefit. The leitmotif in its unethical policies is the failure to summon up the courage to regulate corporations, whether in oil, arms or finance. Unless governments do this, hopes of an ethical foreign policy will remain a mirage.