Wednesday, 19 March 2008

It's not easy being green: time for Australian governments to put their investments in order

This month the Australian Conservation Council released its 32 page report Responsible Public Investment in Australia.
Few of the government funds interviewed for this report appeared to have linked ESG factors with their material influence on returns and the associated risks and opportunities in investment management.
This demonstrates a worrying disconnection between many public sector funds and industry best practice developments.
In many cases government asset managers lack the transparency of private sector asset managers in terms of their investment strategy and portfolio holdings.
However, a small number of asset managers were aware of ESG developments and reported
that the UN PRI was being considered at board level.
Government investments in the energy sector may be undermining stated environmental policy
The investment practices of government funds have the potential to support or detract from government policy goals.
Most Australian jurisdictions, for example, have policies and laws that related to climate change and energy.
But investment priorities sometimes appear to undermine stated policy objectives.
The total investment of all State, Territory and Commonwealth funds in the listed energy sector is estimated as follows:
Industry: Holdings ($ million):
Nuclear/uranium $ 559
Fossil fuels $ 5,379
Renewable energy $ 126
There appear to be contradictions 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 is striking, given the public commitment of all Australian governments to renewable energy.
The report also identifies the Commonwealth Futures Fund as not taking social, environmental and governance issues into consideration when making investment portfolio management decisions.
It's time for a whole of government approach to public investment. The Rudd Government needs to lead the way by example on this and then drag the states, kicking and screaming if necessary, into a green investment plan.

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