I move amendment No. 1:
In page 3, to delete lines 13 to 28 and substitute the following:
"(a) in section 49—
(i) in paragraph (f), by deleting the second instance of the word "and",
(ii) in paragraph (g), by substituting "Fund, and" for the word "Fund.", and
(iii) by inserting the following paragraph after paragraph (g):
"(h) measures taken in accordance with section 49A, as inserted by the Fossil Fuel Divestment Act 2018.",
(b) by inserting the following new section after section 49—
“Investment in Fossil Fuel Undertakings
49A. (1) In this section—
‘fellow subsidiary undertakings’, ‘higher holding undertaking’, ‘holding undertaking’, ‘subsidiary undertaking’ and ‘undertaking’ have the respective meanings given to them by the Companies Act 2014;
‘fossil fuel’ means coal, oil, natural gas, peat or any derivative thereof intended for use in the production of energy by combustion;
‘fossil fuel undertaking’ means an undertaking which is—
(a) engaged, for the time being, in the exploration for or extraction or refinement of a fossil fuel where such activity accounts for 20 per cent or more of the turnover of that undertaking, as derived from its most recently published audited financial statements,
(b) a holding undertaking or, as the case may be, a higher holding undertaking of an undertaking of the kind referred to in subparagraph (a), or
(c) a holding undertaking or, as the case may be, a higher holding undertaking of undertakings engaged, for the time being, in the exploration for or extraction or refinement of a fossil fuel, where the aggregate turnover of such undertakings accounts for 20 per cent or more of the turnover of the group on a consolidated basis, as derived from its most recently published audited financial statements;
‘group’ means an undertaking together with any holding undertaking, higher holding undertaking, subsidiary undertaking and fellow subsidiary undertakings that such undertaking may have;
‘indirect investment’ means an investment of the assets of the Fund in an investment product or in a collective investment undertaking but does not include financial derivative instruments, exchange traded funds or hedge funds;
‘national transition objective’ has the meaning given by the Climate Action and Low Carbon Development Act 2015;
‘State’s climate change obligations’ means the existing or future obligations of the State referred to in paragraphs (a) and (b) (insofar as the obligations of the State referred to in paragraph (b) relate to climate change) of section 2 of the Climate Action and Low Carbon Development Act 2015;
‘turnover’ in relation to an undertaking or a group of undertakings means the amount of revenue derived from the provision of goods and services falling within the ordinary activities of the undertaking or group of undertakings, after deduction of—
(a) trade discounts,
(b) value-added tax, and
(c) any other taxes based on the amounts so derived.
(2) (a) The Agency shall endeavour to ensure that the assets of the Fund are not directly invested in a fossil fuel undertaking.
(b) Where the Agency becomes aware that an undertaking in which the assets of the Fund are directly invested is or becomes a fossil fuel undertaking, the Agency shall divest the assets of the Fund from such investment as soon as practicable.
(3) The Agency shall endeavour to ensure that the assets of the Fund are not invested in an indirect investment at any time after the commencement of this section, unless it is satisfied on reasonable grounds that such indirect investment is unlikely to have in excess of 15 per cent of its assets, or such lower percentage as the Minister may prescribe by order made under this section, invested in a fossil fuel undertaking.
(4) Notwithstanding subsections (2) and (3), the Agency may invest the assets of the Fund in a fossil fuel undertaking or in a collective investment undertaking the assets of which are invested or will be invested in a fossil fuel undertaking, where the Agency has satisfied itself on reasonable grounds that the investment is intended to be consistent with—
(a) the achievement of the national transition objective,
(b) the implementation of the State’s climate change obligations, and
(c) the policy of the Government, as may be communicated to the Agency from time to time by the Minister for Communications, Climate Action and the Environment, in relation to climate change and climate change objectives.
(5) Where the Agency makes an investment which, but for subsection (4), it would be prohibited from making, it shall when publishing the fact of the investment and the name of the fossil fuel undertaking or collective investment undertaking concerned, publish the fact that the investment is made under subsection (4).”.”.
The amendment will replace the Bill as introduced on First Stage. I am grateful to all Opposition parties and colleagues who ensured this Bill passed the critical Second Stage and engaged seriously and consistently on it throughout the process, leading to today.
I also acknowledge and welcome the constructive recent engagement by the Government, the Minister for Finance, the Department of Finance and the Ireland Strategic Investment Fund that has enabled this Bill to proceed with what we hope will be cross-party support today.
I will briefly outline the provisions contained in the amendment, how they evolved and my understanding of their intent and application if that is agreeable.
The first provision is new as compared with the original text of the Bill. It sets out an obligation on the Ireland Strategic Investment Fund, ISIF, to include reporting on measures taken in implementing the Act through annual reporting by the ISIF to the Minister for Finance.
The proposed new section 49A(1) contains all of the definitions. Key changes in this section relative to the Bill as originally published are that there is now a definition of "fossil fuel" whereas the original text referred simply to "geological deposits".
The scope of activities used to define a fossil fuel company in the text - now referred to as an "undertaking" for consistency with the Companies Act - under the Bill have been narrowed from the original Bill text which read, "a company whose business either wholly or partly engages in exploration, extraction, refining, processing or delivery". It is now narrowed to the definition "exploration, extraction or refinement". I accepted this narrowing to address concerns raised by a number of parties about avoiding potential unintended consequences, for example, for SMEs, of a very broad definition. The definition also now provides further precision by setting a numeric threshold for the amount of revenue derived from fossil fuel exploration, extraction or refinement necessary for an undertaking to be defined as a fossil fuel undertaking. This was requested by the ISIF for legal certainty. I would like to note that the 20% revenue threshold for a fossil fuel company in the text is welcomed as being at the progressive end of current investment or divestment practice.
In agreeing to legislate for divestment, the Oireachtas is seeking to ensure that the ISIF will be at the cutting edge of low-carbon investment in the long term. In ten or even five years' time, it could well be - we hope this will be the case - that the 20% threshold will be significantly unambitious following anticipated shifts in international practice. It would be important, therefore, that the ISIF, in the spirit of this Bill, proactively acts in its investment strategy in the years to come to invest under progressively lower thresholds in order to remain at the progressive end of international investment policy and practice.
The definitions section includes a definition of "indirect investment". I have made significant efforts to find consensus with the Department and the ISIF to ensure that indirect investments are included in the Bill while acknowledging the need to ensure that the ISIF retains the ability to use certain indirect investment products in the short term in order to manage risk. In the dialogue with the Department and the ISIF, I sought means within the legislation to ensure that while certain products will be exempt in order to allow the ISIF to have the certainty of flexibility to allow it to manage risk, it will be obliged to ensure, as far as is practicable, that, when availing of them, these products, where they exist and are appropriate, are fossil fuel-free and as low-carbon as possible where they do not. It was argued that explicit legal certainty on the ability to avail of these instruments was needed. In good faith, I have accepted the exclusion of these indirect investment products. I would like to state on the record, therefore, my expectation that, in equal good faith, notwithstanding this definition, the ISIF will seek to avoid or limit as far as possible and as far as is practicable exposure to fossil fuel investments through these products.
The word "company" has been replaced throughout the text with the term "undertaking" for consistency with the Companies Act 2014 and the Climate Action and Low Carbon Development Act 2015.
In the proposed new subsection (2), the divestment provisions for direct and indirect investments are separated out in the amended text. In the text of the Bill as drafted, they are dealt with by means of the same provision. As drafted, the text obliges the ISIF to divest as soon as practicable without incurring contractual penalty. Our understanding is that this will take place within five years at most, but most likely earlier than that.
For indirect investments, in the proposed new subsection (3), a specific numeric threshold for acceptable exposure through indirect investments was requested, recognising that ensuring zero exposure at all times is difficult. I was cognisant of the need to address this issue but I was not satisfied with the 15% figure put forward. As fossil fuels typically represent approximately 6% to 7% of funds, exposure higher than this percentage means that a fund is overweight in the context of fossil fuels. Thus, the Bill could be used to allow the ISIF to be overweight in fossil fuels as compared with international averages through its indirect investments. I have been assured that the 15% threshold is intended as a limit rather than a goal. However, it would be important once again that the ISIF operates under the spirit of the Bill and endeavours to be 100% fossil fuel investment free, with zero or as close to zero exposure as possible. Furthermore, in light of concerns raised, it was accepted to include provision for a statutory instrument to allow the Minister to review this threshold downwards in time, as appropriate.
The transition provision in subsection (4) of the amendment is new. The aim of this new provision is to ensure that the ISIF can invest domestically in activities required for Ireland’s transition where these are essential to phasing out fossil fuels. This was formulated in response to concerns raised on Second Stage and during pre-legislative scrutiny. For this reason, the provision requires that the ISIF be satisfied in advance of a decision that the proposed investment is in line with the national transition objective, Ireland’s climate change targets and national climate policy as it evolves.
Finally, the proposed new subsection (6) obliges the ISIF if investing using the transition flexibility set out in the proposed new subsection (4) to explicitly and publicly acknowledge at time of announcing the investment decision that this has been possible only as a result of the transition flexibility provision in the Fossil Fuel Divestment Act.
As with any legislation at this stage in the process, compromises have been made but I am satisfied that this amendment represents a solid outcome that will see Ireland make a significant contribution to the global fossil fuel divestment movement. The movement is highlighting the need to stop investing in the expansion of a global industry which must be brought into managed decline if the limits to warming set out in the Paris Agreement are to be delivered and catastrophic climate change averted.