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2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
THE SENATE
Government Investment Funds Amendment (Ethical Investments) Bill 2011
EXPLANATORY MEMORANDUM
(Circulated by authority of Senators R Di Natale and S Ludlam)
GOVERNMENT INVESTMENT FUNDS AMENDMENT (ETHICAL INVESTMENTS) BILL 2011
OUTLINE
The Government Investment Funds Amendment (Ethical Investments) Bill 2011
is being introduced in order to constrain the investments of government
investment funds, namely those created by the Future Fund Act 2006 and the
Nation-building Funds Act 2008, to those investments which are consistent
with socially responsible investment practices.
The Australian Government is currently pursuing reforms such as the passage
and implementation of the Tobacco Plain Packaging Act 2011 which are in
accordance with Australia's accession to the World Health Organisation
Framework Convention on Tobacco Control. At the same time, hundreds of
millions of dollars of public funds are invested in tobacco companies as
part of the holdings of the Future Fund. The proposed Bill will proscribe
investments by the funds in companies involved in the manufacture of
tobacco, cluster munitions, nuclear arms and other entities to be
proscribed under Ethical Investment Guidelines.
Socially responsible or ethical investment guidelines are guidelines which
examine the ramifications of an investment beyond the financial returns,
such as the impacts on the environment, the rights of those employed by the
various enterprises, impacts on human health or potential effect on peace
and stability. Around the world there are various examples of such
guidelines, including superannuation funds and sovereign wealth funds such
as the Norwegian government pension fund. The proposed Bill requires the
Ministers responsible for Australian sovereign funds to develop Ethical
Investment Guidelines for each fund and directs the Future Fund Board to
have regard to these guidelines when making investment policies.
NOTES ON CLAUSES
Clause 1 - Short Title
1. This is a formal provision specifying the short title.
Clause 2 - Commencement
2. This clause provides, in a table, that sections 1-3 of the Act will
commence the day the Act receives Royal Assent. The table also provides
that Schedule 1 to the Act commences on a day fixed by Proclamation, or
no later than 6 months after the Act receives Royal Assent.
Clause 3 - Schedules
3. This clause provides that an Act that is specified in a Schedule is
amended or repealed as set out in that Schedule, and any other item in a
Schedule operates according to its terms.
Schedule 1 - Amendments of Future Fund Act 2006 and Nation-building Funds
Act 2008
Item 1
This item provides for the outline of the Future Fund Act 2006 to make
reference to the Future Fund Ethical Guidelines.
Item 2
This item amends section 5 of the Act to insert a definition of Future Fund
Ethical Investment Guidelines.
Item 3
This item amends Section 5 of the Act to insert a clause that defines a
prohibited financial asset with reference to the Future Fund Ethical
Guidelines.
Item 4
This item alters the outline of Part 3 of the Act to make reference to the
Future Fund Ethical Guidelines.
Item 5
This item amends subsection of 16(1) of the Act to exclude prohibited
financial assets from the assets the Board may invest in.
Item 6
This item amends subsection 18(11) of the Act to make reference to the
Future Fund Ethical Investment Guidelines, and the Board having regard to
the Guidelines.
Item 7
This item inserts three new sections, 20A, 20B and 20C into the Act.
Section 20A requires the responsible Ministers to create, by legislative
instrument, the Future Fund Ethical Investment Guidelines. Subsection
20A(2)(a) requires the Guidelines to specify which assets are prohibited
financial assets. Subsection 20A(2)(b) permits the Guidelines to make
provision for socially responsible ethical investment practices. These are
anticipated to include, but not be limited to, environmental concerns,
human rights concerns, responsible labour practices, profit from conflict
or the manufacture of weapons of war, in line with global best practice and
in line with Guidelines adopted by other investment funds including
sovereign wealth funds.
Subsection 20A(3) requires the Guidelines to prohibit, in particular,
investments in:
a) A body corporate that manufactures tobacco products
b) A body corporate that produces components for cluster munitions
c) A body corporate that produces, maintains or simulates nuclear
weapons.
Section 20B requires that, before making or varying the Future Fund Ethical
Investment Guidelines, the responsible Ministers must consult with the
Future Fund Board of Guardians. Subsection 20B(1) requires the Ministers to
invite the Board to make a submission to the Ministers, upon provision by
them of draft Guidelines or a variation thereof, within a time period
specified by the Ministers. New subsection 20B(2) specifies that, if the
Board receives a draft and makes a submission under subsection 20B(1) that
the submission must be tabled in each House of Parliament along with the
legislative instrument.
New section 20C sets out procedures for ensuring compliance with the
Ethical Investment Guidelines. New Subsection 20C(1) directs the Board to
take all reasonable steps to comply with the Guidelines. Subsection 20C(2)
obliges the Board to notify the responsible Ministers when it becomes aware
of a failure to comply with the Guidelines, and to specify remedial action.
Subsection 20C(3) provides for the responsible Ministers to direct the
Board, in writing and within a period specified by the Ministers, to
provide a written explanation of a failure to comply with the Guidelines
and to take specified remedial action in order to comply with the
Guidelines. Subsection 20C(6) specifies that such directions do not
constitute a legislative instrument under the Legislative Instruments Act
2003 and are therefore not disallowable by the Parliament. This statement
is merely declaratory of the law, in that such instruments are not
legislative in nature, and does not constitute a substantive exemption from
that Act.
Item 8
This item alters section 24(2) of the Act to make reference to the Future
Fund Ethical Investment Guidelines with regard to the Board's written
investment policies.
Item 9
This item alters section 24(6) of the Act to make reference to the Future
Fund Ethical Investment Guidelines with regard to the Board reviewing the
investment policies upon a change of either the Investment Mandate or
Ethical Investment Guidelines.
Item 10
This item amends subclause 7(1) of Schedule 1 of the Act to insert a clause
prohibiting the Minister from authorising the acceptance of a gift that is
a prohibited financial asset.
Items 11 to 40
These items create, for each of the Funds described in the Nation-building
Funds Act 2008, sections that govern the definition and operation of
Ethical Investment Guidelines a manner identical to earlier sections
regarding the Future Fund in the Future Fund Act 2006.
Items 41 to 44
These items insert sections into the Act that, for each of the four funds,
direct the Future Fund Board to realise any assets held on the day the
Schedule commences, within a period of 12 months from the commencement of
the Schedule, if the assets are prohibited assets as defined in the
relevant Schedule.