Peter Costello says it would be an extraordinary decision for the Future Fund to pull out of fossil fuel investment as part of managing risks associated with climate change and decarbonisation.
The former treasurer, now chairman of the government-owned sovereign wealth fund, which he set up, told a Senate estimates hearing on Thursday that divesting the fund’s investments in coal, oil and gas would be a “very strange decision for a country like Australia”.
Costello said the clearly stated policy of the Future Fund - currently worth $105bn - was to “invest in every stock, with the exception of something that would be illegal under an international convention”.
He noted the organisation had made one exception to this rule in choosing not to invest in tobacco companies. Costello said the rationale behind this decision was specific and unique – there was no safe level of tobacco consumption.
A different set of circumstances applied with fossil fuels, he said. “We have a rule that’s been under every [Future Fund] chairman and every government: a legal product we’ll invest in, provided its a good investment.”
Costello said the Future Fund was not mandated to make “political” decisions, but to deliver returns of between 4.5% and 5.5% a year.
He said the wealth fund’s staff were neither politicians nor ethicists. “We don’t instruct managers to exclude fossil fuel companies,” he said.
The chairman said if people applied value judgments about investments, rather than simply implementing clearly articulated investment mandates, it might be seen as impolitic to invest in gaming stocks, or in Fairfax or News Corp shares.
Costello said a recent decision by the Australian National University was not a fossil fuel divestment, as it had been commonly characterised in the media. He said the ANU remained a substantial investor in Australian resources companies.
When Greens senator Larissa Waters persisted with questions about the fund’s risk management practices and policies on ethical investments, and about Costello’s own view of the climate science, he declared she was intent on making a “political point”.
Waters was also rebuked by the Liberal senator Cory Bernardi for raising “allegations” in the hearing after she asked Costello to rate his knowledge of climate science.
Bernardi noted that the Future Fund and its staff were concerned with “the science of investment”. Costello warmed to this theme, noting the fund’s investment processes were highly scientific. “You should see the logarithms,” he said.
The Future Fund’s managing director, David Neal, used the appearance at the hearing to argue the wealth fund remained rigorously within the law when it came to managing its tax obligations. A recent global investigation into secret tax deals undertaken by multinationals suggested the Future Fund was one of the groups using PricewaterhouseCoopers to negotiate secret tax deals in Luxembourg.
Costello used his appearance to expand on the subject of tax reform. He said governments were better placed to raise revenue at home than to nail down profit shifting.
“In the world of electronic transfer and the internet and mobile capital, your best tax bases are always going to be ones that are local: land taxes, consumption taxes and PAYG – they are going to be your best taxes, and the rest you are going to have to negotiate,” he said.
After the hearing, Waters expressed concern about Costello’s comments on fossil fuel investment.
“It’s alarming that given the climate crisis we all face, that Mr Costello interpreted my questions about climate science and investment risk as playing politics,” she said.
