Finance and Administration Committee Thursday 26 May 2011
Senator LUDLAM: Thanks, Mr Neal, for coming in. I would like to start off this morning by congratulating the fund on the decisions that you have made around the divestment of companies involved in the manufacturing of cluster munitions; in particular, the fact that the fund appears to have gone even further than the legislation would have compelled you to do. I am interested to know what process you went through, if you could describe it fairly briefly, to identify first that you needed to do so in the absence of enabling legislation, and then what your process was for deciding who should be the target of the divestment.
Mr Neal: We discussed this a little before and I have taken on notice to provide the detail of that process.
Senator LUDLAM: Okay, I will not dwell on that then. I can check the transcript. I just want to offer my congratulations on behalf of the Greens. This is somewhat in contrast to the issue that has been raised in the press this morning, that the Future Fund is quite heavily invested in companies involved with nuclear weapons. Let us start at the beginning: will the Future Fund consider withdrawing from the companies that are involved in the fabrication of nuclear weapons?
Mr Neal: The board's policy is pretty clear. The board will consider the financial benefits of investing in any company, providing its activities in relation to its Australian operations are legal according to Australian law. The international version of that is the international conventions that Australia supports. So, if there were a company that was in breach of either of those two then we would exclude them from our portfolio.
Senator LUDLAM: Okay, that is good news. Based on the statements made by your spokespeople as they have been reported this morning in the Age, I think your spokespeople have been very, very poorly advised. I am wondering whether the fund has received legal advice on the treaties that Australia has signed up to on nuclear weapons. I particularly draw your attention to article VI of the non-proliferation treaty which mandates that state parties holding nuclear weapons disarm and abolish those weapons. That appears to have been ignored in the statements that this is a non-proliferation treaty. It is a non-proliferation and disarmament treaty, and I wonder whether the fund received legal advice on what our treaty obligations in Australia actually are.
Mr Neal: To my knowledge, no, we have not received legal advice on precisely that.
Senator LUDLAM: All right. That is okay, it was a yes or no question. That is fine.
Mr Neal: Okay.
Senator LUDLAM: What I might do then, in the absence of that, is invite you to seek advice. I am going to draw your attention to a couple of instruments and treaties that Australia is a party to that relate directly to theissue of nuclear weapons, and directly contradict the statements that your spokesperson has made in the press today. If those statements were inaccurately quoted I am happy for you to contradict them or clarify them. The key one really is the nuclear non-proliferations treaty, and specifically article VI. The South Pacific Nuclear Free Zone Treaty Act 1986 and the Weapons of Mass Destruction (Prevention of Proliferation) Act 1995 explicitly prohibit the economic activity of manufacturing nuclear weapons in Australia. That contradicts one of the statements that has been made.
The other thing I would want to draw your attention to is the decision of the World Court in July 1996 which ruled that the threat or use of nuclear weapons is generally illegal, and that states have an obligation to conclude negotiations on their elimination. Were any of those treaty obligations discussed by the fund before the decision was made to make the statements that were made this morning?
Mr Neal: I think I would like to take the bulk of that on notice. The one comment that I would make is that we are not aware of any of the companies in our portfolio manufacturing nuclear weapons in Australia. Other than that I think that is a detailed question with some detailed points that I would need to take on notice. I would find that difficult to answer here.
Senator LUDLAM: You have just divested in a number of companies that manufacture cluster munitions, but none of them are undertaking that activity in Australia either, are they?
Mr Neal: Our understanding is that the treaty that Australia has signed in that regard is an international treaty that is essentially stating that this is an illegal activity for these things to be manufactured anywhere in the world.
Senator LUDLAM: I just quoted you the World Court decision. It is not identical. It is not a convention-
Senator Wong: Precisely, I was just going to say that. I think Mr Neal has said he would take on notice the propositions you have put. I accept your view in terms of what you have just put to him, but the board has made a distinction, as I understand, in its public comments between the international agreements that Australia is party to in terms of cluster munitions and the prohibition in Australian law for the manufacture of such nuclear weapons within Australia.
Senator LUDLAM: I think there is a distinction being drawn that I am not sure is appropriate. The very same companies that you made a welcome decision to divest in because they are manufacturing, or may be involved through subsidiaries of manufacturing cluster weapons overseas, nobody has accused any of those companies of fabricating those weapons in Australia. I do not think the distinction is accurate to say just because they are not making nuclear weapons in Australia it means you are off the hook.
Senator Wong: That is not what I was saying. In terms of your questioning you were conflating the two, and I was attempting to communicate what I understand to be the board's position. I think Mr Neal has taken on notice the propositions you have put, so I am sure the Future Fund will consider them.
Senator LUDLAM: That is wonderful. Can I invite you, Mr Neal, to seek legal advice on this question, and perhaps clarify the position of the fund down the track?
Mr Neal: I will put that to the board.
Senator LUDLAM: That would be greatly appreciated. In a number of other countries, including, I suppose, Norway, the Norwegian pension fund, the New Zealand pension fund, under similar circumstances to Australia have divested in a similar list of companies which the Future Fund is currently invested in. [11.05]
I think it would be a powerful statement and probably untenable for the fund to maintain its investments in these companies, particularly as the Australian Foreign Minister and former Prime Minister has done an enormous amount of work in the last three years involving Australia in international diplomatic efforts to abolish these horrible weapons. For us to discover as Australian taxpayers that we are invested in the production of them I think sends a profoundly contradictory signal.
Senator Wong: That is probably a question for me rather than Mr Neal, Senator, don't you think?
Senator LUDLAM: Certainly, Minister.
Senator Wong: I think that the government's position in relation to nuclear non-proliferation and disarmament is clear, and we have consistently held that position and strongly advocated for it.
Senator LUDLAM: I was just acknowledging that.
Senator Wong: I think the question here is what is the best way to pursue those policies. The proposition you are essentially making is that somehow involving the government in investment decisions of the Future Fund is one of the ways those policies should be pursued.
Senator LUDLAM: Yes, that is a fair characterisation.
Senator Wong: Yes, and you are entitled to put that view. I put this view; this is a fund which has under management just under $75 billion of investment for the future good of the country. Both parties of government have taken a very strict view, and I think the correct view, about the importance of the fund operating its investment strategy without government interference. If you look at the legislation that established the fund, if you look at the investment mandate, it is clear that the practice that is being observed is one which seeks to ensure that the board takes responsibility for these matters and that we do not have politicians making decisions from time to time about directing where investments should go. As a matter of principle I think that is the sensible thing to do.
You have raised a number of matters and they are also in the media. They are matters which Mr Neal has taken on notice and which I am sure will be considered by the board. However, I think it is important just to take a step back, notwithstanding the views we have as a government-and I think our record on nuclear non-proliferation disarmament is clear-about what is the appropriate way to ensure those objectives are furthered.
Senator LUDLAM: Minister, I was directing my questions at Mr Neal for precisely those reasons. Mr Swan was very clear, almost to the point where it appeared he was distancing himself from the decision of the fund's board on cluster munitions. I am not expecting political intervention in this instance. I am expecting common sense that the best way to pursue the fund's objectives of maximising returns for our superannuation funds, and the best way at the same time to be at least consistent with the objectives of Australian foreign policy, is not to be investing in companies that produce weapons of mass destruction. I think I have made that point reasonably clear. I very much look forward to following this matter up. Thanks, Mr Neal.