Oil sands have been a focal point of environmental groups' global efforts to stifle energy production from fossil fuels, saying they take an especially large toll on the environment.

KLP's decision affects five companies, which were added to its exclusion list: Canada's Cenovus Energy, Suncor Energy, Husky Energy and Exxon-controlled Imperial Oil, as well as Russia's Tatneft PAO.

The fund, which manages over $81 billion in assets, said its new policy was to exclude companies with more than 5% of their revenue derived from the oil sands business, similar to its rule on coal.

KLP previously had a 30% threshold for oil sands revenues.

It said it hoped its move would signal to the markets that oil sands should not be part of current and future energy supply.

"By going coal and oil sands free, we are sending a strong message on the urgency of shifting from fossil to renewable energy," KLP's Chief Executive Sverre Thornes said in a statement.

The decision to cut out oil sands was a logical extension of the coal ban, Jeanett Bergan, KLP's head of responsible investment, told Reuters.

"It's hard to treat oil sands differently (from) coal, because of the similar environmental effects in the extraction, and we decided to treat these fossil fuel products equally," Bergan said.

KLP also avoids investing in companies involved in making tobacco, alcohol and pornography as well as gambling firms and certain weapons makers.

(Reporting by Victoria Klesty, editing by Terje Solsvik and Deepa Babington)