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.
Frequently Asked Questions about this Article…
What tobacco and nuclear-related holdings does the Future Fund currently have?
According to the article, the Future Fund held about $147 million in shares of cigarette producers and a separate $179 million in shares of companies involved in nuclear weapons production.
Who is urging the Future Fund to sell its tobacco and nuclear investments?
The Greens are stepping up pressure, with Greens Senator Richard Di Natale introducing a bill and saying the fund should divest those 'unethical' holdings when the Senate next sits.
Would divesting tobacco and nuclear holdings materially hurt the Future Fund’s returns?
Senator Di Natale argues selling those holdings would have little impact on the Future Fund’s returns — he noted the fund is about $73 billion and said divestment could be done without affecting the bottom line. The fund and government, however, have previously resisted direction on investment choices.
Has the Australian government told the Future Fund what it must or must not invest in?
No. The government has refused to tell the Future Fund what to invest in and has maintained the need for the fund to make arm’s-length investment decisions, a position emphasised by Finance Minister Penny Wong.
Are there international examples of governments forcing or encouraging divestment from tobacco or controversial industries?
Yes. The article cites Alberta (Canada) dumping US$17.5 million of tobacco shares while suing tobacco companies, and Norway’s sovereign wealth fund divesting all tobacco investments in 2010 and using guidelines to avoid companies that damage the environment.
Has the Future Fund ever sold investments for ethical reasons before?
Yes. The Future Fund sold holdings in cluster bombs and land mines — including positions in defence giant Lockheed Martin — ahead of a new treaty on those weapons coming into force, and its general manager has said the fund is updating its environmental, social and governance (ESG) strategy.
What could happen if the Greens’ bill to force divestment passes in the Senate?
If the bill passed, it would aim to force the Future Fund to divest specified 'unethical' holdings such as tobacco and certain nuclear-related investments. Passage would depend on Senate votes and could change the fund’s permitted asset list or rules for investments.
What does this debate mean for everyday investors watching ESG and sovereign fund behaviour?
The story highlights growing political and public pressure on large sovereign funds to factor ethics and ESG into investment decisions. For everyday investors, it’s a reminder that policy and regulatory debates can influence large fund holdings and that ESG considerations are increasingly shaping investment conversations.
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