The decision follows much debate about whether the Future Fund should engage in ethical or socially responsible investments. In announcing the move today, the chair of the Future Fund David Gonski commented:
The board noted tobacco's very particular characteristics including its damaging health effects, addictive properties and that there is no safe level of consumption. In doing so the board also considered its investment policies and approach to environmental, social and governance issues. As a result, the board determined that in this instance it is appropriate to exclude primary tobacco product manufacturers.
This decision by David Gonski and the Future Fund is a welcome one, and consistent with Australia's position on tobacco control and plain packaging.
The discussion about ethical investments has particularly focused upon investments in tobacco. But there has also been debate about the Future Fund's position on fossil fuels, the environment, and climate change. Should an institution whose mandate is planning for the future be investing in fuels that put that future at risk?
Should the Future Fund be subject to a social responsibility policy on investments? Should the Future Fund divest itself of investments in coal, oil, and gas? What about mining? Should the Fossil Fuel take into account the environmental and health impacts of extractive industries? Should the Future Fund be fossil fuel free?
North American universities and the divestment movement
In 2012, there was a concerted push to end fossil fuel subsidies at the Rio+20 United Nations Conference on Sustainable Development.
There has been much debate as to whether fossil fuel divestment will become a key tactic in 2013 in the debate over climate change.
In the United States, Bill McKibben – author of an incisive piece for Rolling Stone “Global Warming's Terrifying New Math” – and 350.Org have promoted a movement to encourage divestment in fossil fuel industries.
McKibben has focused upon investments by educational institutions in fossil fuels: “If their college's endowment portfolio has fossil-fuel stock, then their educations are being subsidized by investments that guarantee they won't have much of a planet on which to make use of their degree.”
McKibben maintains that a “campaign that weakens the fossil-fuel industry's political standing clearly increases the chances of retiring its special breaks”.
The push for divestment of fossil stocks has now evolved into the Go Fossil Free movement, which says “Fossil Fuel investments are a risk for investors and the planet–that's why we're calling on institutions to divest from these companies.” They have particularly targeted university investment.
In November 2012, the Unity College Board of Trustees voted to divest itself of fossil fuel investments. Both Sterling College in Vermont and Hampshire College have changed their investment policies.
Canadian students have campaigned for divestment from fossil fuels at the University of British Columbia, the University of Ottawa, McGill University, and the University of Toronto.
Forward on climate: city governments and pension funds
McKibben also urged pension funds to desist from investment in fossil fuels. He observed: “It does not make sense to invest my retirement money in a company whose business plan means that there won't be an earth to retire on.”
In December 2012, Seattle mayor Mike McGinn directed the city to refrain from investing in fossil fuels. He also wrote to the city pension funds, asking them to “begin the process of divesting our pension portfolio from those companies.”
In San Francisco, councillor John Avalos proposed that the city's retirement fund should withdraw its money from fossil fuels. A hearing on the resolution will be held later in 2013. McKibben commented on the proposal: “The Bay Area will spend billions adapting to climate change – it makes no sense at all to simultaneously invest in the corporations making that work necessary.”
The Forward on Climate rally emphasized the need for Obama administration to take action on climate change in its second term.
In the future, there is likely to be an international movement to push for regulation in respect of investment by government institutions and their funds in fossil fuel industries.
A fund for the future should be realistic about the future
In response to a 2011 Freedom of Information request by the Climate Institute, it was revealed that the Future Fund had not discussed climate change at its meetings – perhaps unsurprisingly given the former chair David Murray's doubts about climate science. John Connor commented: “For our largest pool of capital to ignore this is a problem for Government and regulators, but most of all for citizens and taxpayers who are entitled to know what the board of guardians are actually doing.”
A spokesman for the Future Fund disputed such complaints: “In formulating and implementing its investment strategy, the board considers and discusses a variety of risks such as market and credit risk as well as environmental, social and governance risks, and climate change forms part of that discussion.”
John Hewson, economist and former leader of the Liberals, has complained that the Future Fund has not adequately addressed climate risks: “While investors all over the world continue to build understanding of how to protect themselves from the market and physical impacts of climate change, the Future Fund thinks it is immune.”
Investors have been demanding that companies disclose climate risks, and set greenhouse gas emission reduction goals, publish sustainability reports, and pursue energy efficiency.
In Australia, there has been much attention given to financial institutions financing fossil fuel projects. The ANZ Whitehaven Coal Hoax controversy focused public attention on whether banks should invest in coal projects.
There are examples of ethical investment policies in Australia dealing with environmental matters. Under its charter, Australian Ethical Investment will avoid any investment which is considered to unnecessarily “pollute land, air or water”, “destroy or waste non-recurring resources”, or “have a harmful effect on… the environment”.
Arguably, the Future Fund should establish an investment policy dealing with matters of fossil fuels, the environment, and climate change.
Dr Matthew Rimmer is an Australian Research Council Future Fellow, working on Intellectual Property and Climate Change. He is an associate professor at the ANU College of Law, an associate director of the Australian Centre for Intellectual Property in Agriculture (ACIPA), and a member of the ANU Climate Change Institute. Dr Matthew Rimmer receives funding as an Australian Research Council Future Fellow working on "Intellectual Property and Climate Change: Inventing Clean Technologies" and a chief investigator in an Australian Research Council Discovery Project, “Promoting Plant Innovation in Australia”.
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