OSLO (Bloomberg) - Morten Baltzersen, the head of the Financial Supervisory Authority in Norway, says the rush to plow funds into investments that fulfill environmental, social and governance (ESG) standards has opened the door to a new risk.

Baltzersen says the worry is that issuers are overstating their green credentials (known as greenwashing) to meet huge investor demand. Meanwhile, no one’s really policing whether the issuers’ claims are true. In short, investors don’t really know what they’re buying.

"There’s a lot that is marketed as green because there’s a lot of demand both among institutional and retail investors,” Baltzersen said in an interview in Oslo. But investors’ "trust can be exploited,” he said.

Baltzersen oversees a market pumped up by decades of reliance on fossil fuels, making Norway one of the richest places on Earth. Much of the money Norway gets from its oil and gas sectors has been channeled into the world’s biggest sovereign wealth fund, which this year swelled to $1.1 trillion.

Though successive Norwegian governments have made it a goal to wean the economy off oil, actually doing so has proven difficult in practice. What’s more, the current center-right coalition has stepped up reliance on the wealth fund (also called the oil fund) to add stimulus to the economy.

Greta Thunberg has publicly accused Norway of violating children’s rights around the world because of its reliance on oil and gas.

In recent years, the fund has sought to dump its holdings of oil and gas stocks. The plan, which was intended to achieve sector diversification rather than live up to any ethical goals, was recently watered down considerably by the government.

But investments by Norway’s wealth fund are also guided by ethics and the fund doesn’t shy away from naming and shaming companies. Such exclusions generally follow a lengthy consultation period during which the fund, as one of the world’s biggest stock and bond holders, gains access to much more information than most investors.

The fund recently dropped U.K. security firm G4S Plc, citing "systematic human rights violations” of migrant workers in the Middle East. G4S, which has been a signatory to the UN Global Compact since 2011, said last month it was making progress on strengthening recruitment and welfare standards.

Norway and the rest of the Nordic region are home to a large asset-management community that seems to have an insatiable appetite for ESG assets.

Baltzersen says investors need to remember that the asset class "isn’t risk free, even if it’s a so-called green investment.”

Issuance of green bonds has exploded in the Nordics, with Swedish airport operator Swedavia AB and shipping company Teekay Shuttle Tankers LLC among those tapping the market in recent months. (Both companies got the lowest grade in the green bond framework, according to the Norwegian Cicero Center for International Climate Research.

Baltzersen, like others, says it’s imperative that ESG classifications are standardized, so that investors know what they’re buying.

"It’s difficult to determine what is green or not,” he said.