Future Fund clash over tobacco laws

THE taxpayer-owned Future Fund spent more than $37 million investing in tobacco stocks as the government was finalising its world-first plain packaging laws.

By InvestSMART · 16 Oct 2012

By InvestSMART ·
16 Oct 2012

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THE taxpayer-owned Future Fund spent more than $37 million investing in tobacco stocks as the government was finalising its world-first plain packaging laws.

In a move that has sparked criticism from health groups, the fund's stake in tobacco companies has swelled by about 50 per cent in recent years to $210 million at June 30.

Until now, the fund has not said if it had been buying more stock or if the shares had risen in value. But now the fund has revealed its managers bought more shares in tobacco companies before February.

In response to questions put to the fund in May, it has said that $37.8 million of the $78 million increase in its tobacco holdings between December 2010 and February this year was driven by increased buying. Share price and currency movements accounted for the remaining $40.2 million of the increase, the fund said in response to a Senate estimates question.

The purchases occurred while the federal government was passing legislation for its plain-packaging rules, which will require cigarette branding to be replaced by a drab packet with graphic health warnings from December.

In response to its critics, the Future Fund argues the tobacco investments do not breach its internal policies, as cigarettes are legal. But with the $77 billion fund also investing millions in nuclear arms companies, the Greens have proposed ethical investment rules for the fund a position rejected by Labor and the Coalition.

Greens senator Richard Di Natale said it was "incredibly disappointing" the government refused to intervene in the issue.

"The government must take some responsibility for the fact that the fund is investing in an industry which is essentially doing all it can to thwart government policy," he said.

Finance Minister Penny Wong said in August that it would be "inappropriate" for a government to intervene in investment decisions by the Future Fund, which is independent of government.

Senator Wong argued that breaching the fund's independence could set a precedent for "rather odd" outcomes, such as politicians who were sceptical of climate change science preventing the fund from investing in renewable energy.

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Frequently Asked Questions about this Article…

What tobacco investments did the taxpayer-owned Future Fund make?

The article says the Future Fund spent more than $37 million buying tobacco stocks while the federal government was finalising plain-packaging laws. By June 30 the fund’s stake in tobacco companies had swelled by about 50% to $210 million.

When did the Future Fund buy more tobacco shares in relation to Australia’s plain packaging laws?

The purchases occurred before February, while the federal government was passing legislation for its world‑first plain‑packaging rules (which will require drab packets with graphic health warnings from December).

How much did the Future Fund’s tobacco holdings increase and what drove that rise?

The fund’s tobacco holdings increased by about $78 million between December 2010 and February. The fund says $37.8 million of that increase was driven by additional buying, while share price and currency movements accounted for the remaining $40.2 million.

Does the Future Fund say its tobacco investments breach its internal policies?

No. The Future Fund argues that tobacco investments do not breach its internal policies because cigarettes are legal, and therefore the holdings are permitted under its current rules.

Have there been calls for ethical investment rules for the Future Fund over tobacco and other controversial holdings?

Yes. Greens senators proposed imposing ethical investment rules after reports the $77 billion fund had also invested millions in nuclear arms companies. That proposal was rejected by both Labor and the Coalition.

What has the government said about intervening in the Future Fund’s investment decisions?

Finance Minister Penny Wong said it would be 'inappropriate' for the government to intervene because the Future Fund is independent. She warned that breaching that independence could set precedents, such as politicians blocking investments in renewable energy for political reasons.

Why did Greens politicians criticise the Future Fund’s tobacco purchases?

Greens senator Richard Di Natale described the lack of government intervention as 'incredibly disappointing,' arguing the government should take responsibility because the fund was investing in an industry working to thwart government policy on plain packaging.

Should everyday investors be concerned about the Future Fund’s tobacco holdings?

The article does not provide evidence that the Future Fund’s tobacco holdings directly affect retail investment returns. It does highlight debate about ethics and independence of the $77 billion fund, which may be of interest to investors watching how large public funds set policy and precedent.