Page 3146 - Week 10 - Thursday, 18 October 2007
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Environment, Water and Climate Change, Minister for the Arts) (3.30): Mr Speaker, for the information of members, I present the following paper:
Review of the application of environmental, social and governance principles to Territory investment practices, dated 29 June 2007, prepared by the Independent, Non-Executive Members of the Finance and Investment Advisory Board.
I ask leave to make a statement in relation to the paper.
Leave granted.
MR STANHOPE: Mr Speaker, as the members of this Assembly would be aware, in February 2007, I agreed to the independent non-executive members of the Finance and Investment Advisory Board undertaking a review of the extent to which the territory’s investment operations should incorporate environmental, social and governance principles, and I am pleased to now table the review report. In commissioning this review I said that, as is proper, the territory’s major investment portfolios are managed at arm’s length from government. While the government of the day may set broad investment policy, it is investment experts in Treasury who have to implement the policy who make the practical decisions to maximise the territory’s relatively modest financial assets. I also indicated that it may be possible to invest in ways that better achieve corporate social responsibility and positive outcomes for our environment, society and economy.
Mr Speaker, the review found that the consideration of environmental, social and governance principles in the investment decision-making process has evolved very slowly over many centuries. The approach to the consideration of environmental, social and governance principles continues to evolve today and remains a challenge to all people and organisations involved in investment management.
Contrary to what some people think, particularly those with a very fundamental view on these matters, there is no straightforward or unproblematic approach to including the consideration of environmental, social and governance principles in the investment decision-making process. Incorporation of environmental, social and governance issues into the investment framework has evolved over time from one of applying values to one of addressing investment risk. This change in emphasis reflects two problematic issues: balancing the fiduciary responsibilities of institutional investors to maximise investment returns within acceptable risk tolerances—acknowledging that many environmental, social and governance issues will ultimately impact on valuations and hence investment returns—and the inherent difficulties in deciding upon the suite of the values to be applied.
Mr Speaker, the report discusses the relative merits of the two approaches—values based and risk based—in some detail. The report found the use of values-based screening for the territory’s investments is not consistent with the overriding obligations of the prudent fiscal management of risks. Screening does not necessarily influence or change corporate behaviour. The establishment of values criteria by the ACT government is especially problematic in that many of the activities that may be considered socially undesirable are legally permitted activities, and in some cases they are engaged in by responsible governance.
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