Norway has been accused of climate hypocrisy in Indonesia, where it has won plaudits for financing forest protection even as its state pension fund allegedly secures even greater revenues from logging, plantations, mining and other environmentally destructive practices.

Conservation groups say Norway's sovereign wealth fund – thought to be the largest in the world – should set a better example of ethical investment in a country that is experiencing some of the world's worst deforestation problems.

In recent years Norway has won plaudits as the leading financier of forest conservation in tropical countries under the Reducing Emissions from Deforestation and Degradation (Redd) scheme. Its commitments include billion-dollar pledges to Indonesia and Brazil, and have played an important role in climate talks.

But environmental groups have highlighted the apparent contradiction in Norway's approach, which appears to fund conservation from one budget, while investing heavily from another in companies that accelerate deforestation.

The UK-based Environmental Investigation Agency wrote in October to the country's prime minister, Jens Stoltenberg to call for a new approach. The NGO said Norway's financial involvement in Indonesia was a net negative for the environment. It said that the $30m (£19m) that Norway provided for Redd projects in 2010 is just of the fifth of the profits and a third of the investment value in companies involved in "logging, plantations, and mining companies currently deforesting large areas of Indonesia."

At the heart of the discussion is one of the world's most powerful investment bodies. The Norwegian Pension Fund Global – widely referred to as the "oil fund" due to its reliance on revenues from North Sea petroleum products – overtook a similar investment holding operation in Abu Dhabi this year to become the world's biggest sovereign wealth fund, with holdings calculated at $570bn.

The fund, which is administered by Norges Bank and ultimately the ministry of finance, is committed to transparency and ethical investment.

But management of the fund has grown more complex as it expands in size to hold shares in more than 8,000 companies.

Earlier this year, Rainforest Foundation Norway named 13 companies associated with deforestation – either through logging, mines or forest clearing for palm oil plantations – that the pension fund had invested in. It said the value of the holdings increased 18% last year.

"Norway is saving rainforest with one hand and destroying the rainforest with the other," Lars Løvold of the Rainforest Foundation Norway wrote recently.

The Norwegian authorities appear willing to listen, but they are still weighing up a response.

After similar revelations last year, the fund sold off its share of $1.4m in a Malaysian company, Samling Global, that was implicated in logging. In 2008, it announced that it would divest from Rio Tinto due to the "unacceptable risk that the fund, through continued ownership in the company, would contribute to ongoing and future severe environmental damage" through mining operations in Indonesia.

The pressure is increasing. This year, Telepak – an Indonesian NGO – and the Environmental Investigation Agency released video purporting to show a Malaysian-owned company clearing thousands of hectares of forest in an area of Kalimantan in Indonesia that was supposed to be protected under the Redd pilot scheme. They said the Norwegian fund held shares worth more than $40m in the company responsible, Kuala Lumpur Kepong.

Environmental groups have suggested improved management of the pension fund to avoid conflicts between government policy and investment objectives.

Last month, the managers of the fund sent an ethics group to investigate the situation in Indonesia, but their report has still to be made public. The finance ministry and Norges Bank have not yet responded to the Guardian's requests for a comment.