Richard Di Natale (Victoria, Australian Greens) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

The Government Investment Funds Amendment (Ethical Investments) Bill 2011 creates a requirement for the Future Fund and nation building funds to make their investments according to a set of ethical investment guidelines.

The Future Fund was created in 2006 with the passage of the Future Fund Act. The fund was set up to cover the government's unfunded superannuation liabilities. In 2008, the Nation-building Funds Act established three more investment funds: The Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund. As of the 30 September this year, the Future Fund had $73 billion under management. The other funds collectively have over $17 billion under management. In total they hold over $90 billion of public funds, and are set to grow significantly in the next 10 years. The Future Fund is already the world's 13th-largest sovereign wealth fund.

Ninety billion dollars is a significant amount of money, and how that money is invested can have significant consequences. This money is invested on behalf of the Australian people. It must be invested prudently, so that when the time comes to tap into the fund for its intended purpose, the balance is enough. It must be invested wisely, so that the balance grows at a reasonable rate and the burden on taxpayers is minimised. It is also important that the investments should not be counter to the interests of the broader Australian community. This bill seeks to address that issue.

A few weeks ago, the Senate passed the tobacco plain packaging bill. This is a world-leading piece of legislation that will make it more difficult for tobacco companies to market their products and entice new smokers. The plain packaging laws, even if they should prove only half as effective as expected, will save lives. It also sets a precedent that could be adopted around the world.

Because this initiative will be effective, it is strongly opposed by the tobacco companies, who will fight it using any tool at their disposal. Already, the Philip Morris company has challenged the plain packaging law under investor provisions of a bilateral trade treaty between Australia and Hong Kong. It is clear that to implement the Act and save Australian lives, the Australian government will have to fight some powerful and well-resourced interests.

At the same time as this is happening, the Future Fund has invested $36.5 million in Philip Morris. This is in addition to $46.4 million in British American Tobacco, $26.1 million in Lorillard, and other tobacco investments. This raises the question of how to reconcile this large investment of public money in companies that profit from damaging the health of Australians and are fighting to prevent reform. There are other significant ethical issues that arise from investing in tobacco companies -investments that increase in value the more people become addicted to deadly products.

There are other examples that raise concerns. There has recently been discussion of the issues caused by the fund's $135 million of investments in 15 companies associated with nuclear weapons. Australia has long been an advocate for nuclear disarmament. Yet the Commonwealth may profit if the pace of disarmament is slowed or reversed.

There are already certain restrictions on what the fund's Board of Guardians may invest in. The fund has indicated that it must not invest in a company whose activity would not be legal in Australia. For instance, in May this year the fund divested itself of stock in companies involved in the manufacture of cluster munitions. Because Australia is a signatory to the Convention on Cluster Munitions, which bans their acquisition or use, the manufacture of these weapons would be illegal in Australia.

The government has correctly pointed out that it lacks the power to direct the fund how to invest. The Future Fund Board of Guardians manages the portfolio and do not take direction from the minister about individual investments. This is a sensible policy which removes the temptation for political interference which must always exist when such large amounts of money are at play. The fund exists to service unfunded liabilities, rather than to seek economic changes that are better pursued elsewhere.

To achieve its investment goals, according to the Future Fund Act the board may invest in any financial assets, however the board does take a manner of direction from the government. This is the Future Fund Investment Mandate. Under the act ministers can provide written direction to the board, and must do so at least once, although they may not direct the fund to invest in a particular asset, business or activity. The current mandate, issued in 2006, specifies that the board must seek a rate of 4.5-5.5 per cent over inflation as the benchmark return. It limits the circumstances in which the Fund may acquire shares in Telstra. And it states that the board must have regard to international best practice with regard to corporate governance including its voting policy.

The mandate suggests a way in which we can resolve the issues such as those regarding tobacco and nuclear weapons. As the board must reference the mandate when devising an investment strategy and making investments, it could also receive guidance on the ethical implications of its investments using a similar mechanism. There are many precedents for this. Around the world, investment funds are adopting ethical investment guidelines in accordance with the wishes of their members. In Norway, the government pension fund—a sovereign wealth fund similar to the Future Fund—has adopted stringent ethical investment practices. This has seen that fund divest itself of all tobacco investments. They have also sold their holdings in mining companies that damage the environment, produce or maintain nuclear missiles, or breach human and labour rights. The fund still maintains a healthy balance.

This bill creates a new instrument that creates a requirement for ethical investing by Australia's funds. For each of the four funds—the Future Fund, the Building Australia Fund, the Education Investment Fund an d the Health and Hospitals Fund— the bill specifies that ethical investment guidelines must be provided by the responsible Ministers.

The bill does not specify everything that the guidelines must cover. There is a large body of experience around the world that should be consulted in developing guidelines that are thorough and appropriate to the context in which they must operate. According to best practices, they should take into account many things, including the environmental impact of a company's business, their treatment of their workers, or whether they profit from conflict and war. All of these factors and more should be considered.

We also believe the fund should be consulted in the development of the guidelines. The bill requires this. The board will be invited to make a submission with regard to any draft guidelines or change to existing guidelines. This submission will be tabled in parliament along with the instrument itself.

The guidelines should be flexible, but there is a minimum outcome that we could expect to see. The bill requires that the following investments be prohibited under the guidelines: Tobacco, cluster munitions and nuclear weapons. Any ethical investment guidelines that allowed continued investment in these industries would not be worthy of the name.

The funds do have large portfolios already. Hundreds of millions of dollars are invested in companies that have ethical question marks over them, and the bill makes provision for this. The fund managers will have 12 months to dispose of any asset that becomes proscribed under this bill. If it is brought to the attention of the board that they are in contravention of the ethical investment guidelines, the bill ensures that the board will notify the ministers right away. should the ministers determine that the fund is in contravention of the guidelines, they will have the power to direct the board to take action to rectify the situation in a timeframe of their choosing. These provisions ensure genuine accountability.

The fund's Board of Guardians have already considered the consequences of some of their investments, as we have seen with the divestment of cluster bomb stocks. This bill formalises the consideration of the impacts of investments made on the public's behalf around the world. This legislation resolves conflicts between the Future Fund's global investments and domestic reform. It brings Australia into line with other funds around the world in upholding the highest standards of ethical investment.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.