The Australian Conservation Foundation (ACF) just released a report looking at
- How well environmental, social and governance (ESG) issues are integrated into investment decisions made by government owned funds
- Whether the investment holdings of government funds in the energy sector are consistent with stated environmental protection policy goals
While Australian government funds are worth $206 billion in assets, the report was only able to look at the $52 billion invested in Australian shares, due to the lack of available data on the rest of the money. And, not surprisingly, the government investment funds don’t fare well in either of the two categories.
In terms of ESG, approximately $28 billion (55%) is invested with some level of commitment to incorporating ESG risks and opportunities into investment activities, and only an estimated $775 million (1.5 per cent) is committed to dedicated socially responsible investment options, undertaken with some form of value-based investment screening (negative screening).
In general, the largest government funds tend to be more likely to undertake ESG screening or engagement, though the Future Fund is a notable exception, and it remains unclear whether it will make any specific ESG commitments. Due to the size as well as its nature of being charged with guaranteeing Australians a socially, environmentally and economically sustainable future, the Future Fund’s poor performance is particularly regrettable in this context.
Internationally it is apparently best practice in asset management, particularly in regards to long term investors such as superannuation and government funds, to increasingly include consideration of ESG factors in the investment decision-making process. There is strong evidence that ESG issues can be material to performance of portfolios, particularly over the long term. ESG consideration is now clearly established within a trustee’s fiduciary duties. In response, best practice in the investment industry is quickly becoming aligned with a commitment to the United Nations Princples for Responsible Investment (UN PRI), which provide a framework for asset managers to integrate ESG issues into investment decisions.
At the Commonwealth level the Australian Reward Investment Alliance (ARIA), the major superannuation fund for government employees, is a leader in responsible investment practices. At state level, the ACT appears to be the only jurisdiction that has conducted a whole-of-government review of responsible investment practices; positive developments have also recently occurred in Victoria and Queensland. In contrast, most major government funds in NSW (not surprising after more than 10 years of right-wing Labor governments), South Australia and Western Australia have not indicated any notable ESG initiatives. This demonstrates not just a worrying disconnection between many public sector funds and industry best practice developments, it also shows an enormous hypocrisy, practiced by governments in form of an uncoupling between their social and environmental policies and their investment strategies.
The report shows that government funds put nearly 50 times as much money in fossil fuel and uranium industries than in renewable energy (almost $6 billion versus $126 million). There is a clear contradiction between these investment holdings and the stated policy goals of some States and territories. In particular:
- NSW, Victoria, Queensland and Western Australia all have significant holdings in uranium-related equities, despite legislative or political bans on uranium mining
- All jurisdictions have very low holdings in the renewable energy sector, despite a stated strong commitment to renewable energy as a critical part of future energy generation, and
- All jurisdictions have significant exposures to fossil fuel industries, despite a range of policy commitments relating to the need to reduce greenhouse gas emissions
The imbalance between investment in fossil fuels and renewable energy sources seems striking, given the public commitment of all Australian governments to renewable energy. On the other hand, it is not a surprise. Just take corporate welfare as an example: the fossil fuel industry receives just over $800 per person in Government subsidies, which is about 28 times the amount given to the renewable energy sector (by the way: a Greenpeace commissioned Newspoll just found that, unsurprisingly, 78% of Australians are not aware of this distorted government largess).
The NSW right-wing treasurer and former Socialist Alliance member (what happened to him?) Michael Costa said his government would continue to invest in non-renewable energies because it supposedly is in the public’s interest to put public money where monetary returns are the highest – in other words: in the NSW government minister’s mind, the public has a higher interest in short-term financial gains than in its own long-term future future. The fact that the ACF’s survey (saying that 90% of people polled would prefer to see the renewable energy sector receiving the same government subsidies as the fossil fuel industry) might be an indicator to suggest the opposite would not bother our politician the slightest; after all his government is selling off the electricity generators despite over 70% of the NSW public being against such move.
All of that of course will only change when we as people become more aware of and committed to a practice of social, environmental and economic sustainability. We can’t rely on politicians; they are always on the side of big money (unless they become worried about their re-election), and we can’t rely on industries being systemically driven by profit maximisation. It’s up to us to redress the balance – which will still make it quite a long journey.