THE Future Fund's investments in tobacco and companies involved in nuclear arms production face growing scrutiny this year, as the Greens step up calls for tighter rules on what assets the fund can buy.
With the government facing a legal fight with tobacco firms over new plain packaging laws, the Future Fund last year said it held $147 million worth of shares in cigarette producers.
The Greens, which Labor depends on to pass legislation in the Senate, plan to increase the pressure on the fund to ditch this stake and a separate $179 million worth of shares in companies involved in nuclear weapons production.
When the Senate returns for its first sitting period from next month, the Greens will push for rules forcing the fund to divest such "unethical" holdings.
The Greens Senator who introduced a bill on the topic late last year, Richard Di Natale, said it was a "no brainer" to offload the tobacco and nuclear holdings. The plain-packaging laws were passed in late 2011 and Philip Morris has already lodged a legal claim saying the restrictions damaged its property.
"It's completely inconsistent to on one hand take on big tobacco through a very courageous reform like that, and then on the other hand to be investing $147 million in large multinationals who make the stuff," Senator Di Natale said.
While the government has refused to tell the fund what to invest in, Senator Di Natale said selling the shares would mean little to the $73 billion fund's returns.
"It would be very easy to divest ourselves of those shares without any impact on the bottom line, and I think it would be the socially responsible thing for the government to do."
Previously, the fund has responded the stocks are not illegal and the government has refused to intervene in its investment decisions.
However, there are some precedents for governments intervening in how their funds are invested.
In October, the Canadian state of Alberta dumped $US17.5 million worth of tobacco shares because it was suing tobacco companies for health-care costs caused by smoking.
Norway's sovereign wealth fund ditched all of its investments in tobacco in 2010 and has guidelines that prevent it from investing in companies that damage the environment.
The Future Fund last year sold its holdings in cluster bombs and land mines, including the defence giant Lockheed Martin, before a new treaty on the bombs came into force.
When the Future Fund's general manager, Mark Burgess, was questioned about the fund's tobacco and nuclear investments in October he said it was updating its environmental, social and governance strategy.
It is understood that some government MPs are sympathetic with the Greens' argument but the Finance Minister, Penny Wong, has stressed the need for the fund to make arm's length investment decisions.