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Government Investment Funds Amendment (Ethical Investments) Bill 2011

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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.