JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht -
Thursday, 13 May 2010

Ethical Investment in NPRF: Discussion with Trócaire

Chairman

This discussion concerns ethical investing in the National Pensions Reserve Fund. I welcome Mr. Mike Williams, head of international development, and Mr. Mark Cumming, advocacy officer, Trócaire Ireland. I advise everybody that we will receive short opening remarks from Mr. Williams, which will be followed by a question and answer session.

I draw everybody's attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee, although that is about to change. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Mr. Mike Williams

We are grateful for the opportunity to address the committee on short notice because we know it currently has a very heavy agenda. We do not have an anti-business agenda and it is important to note it is rather the opposite. Foreign investment in the poor countries where we work is absolutely crucial for the development of those countries. Whereas we work on the aid side in those countries, which is very important, it is equally important that economies are allowed to develop. There is as much a need as there is in Ireland for foreign investment in all the countries in which we work. We welcome that.

In some countries, specifically where there are very weak governance structures, transnational corporations may in some cases play an unconstructive role, particularly with regard to human rights, environmental and labour issues. There has been much movement in recent years in terms of looking at sovereign wealth funds, such as the National Pensions Reserve Fund. The Minister recognised this in setting up an interdepartmental committee to look at the investment of that fund and the role it plays. These types of fund are now playing a significant role in funding transnational corporations in-country.

We welcome the fact that the interdepartmental committee was set up. We made a submission which was made available to the members of this committee. It is a relatively brief document. Other NGOs and bodies also made submissions. At this point we know the interdepartmental committee has finalised its report, which is now with the Minister and is awaiting his review. Some legislation will be required with regard to the National Pensions Reserve Fund at this point. It is really important for the committee to engage with the process.

I will briefly speak on the four areas we referred to in our submission. The first relates to a responsible investment policy of active ownership where the investor — in this case the National Pensions Reserve Fund — would seek to promote better practice by these companies through dialogue. There is a system in place for that to happen but Trócaire's view is that it would need to be enhanced considerably, and there is a need for more depth on that front.

The second point relates to negative screening, whereby the fund can exclude certain classes of assets. Following the international agreement on cluster munitions which came to fruition in Croke Park, the pensions reserve fund, to its credit, divested from companies involved in cluster munitions. We must go further and look at issues such as single-use components for nuclear devices. We should not stop at cluster munitions and there is a need to go beyond that.

The key issue for us relates to exclusion, where the pension fund would divest itself of a particular company as part of due diligence mechanisms. It is particularly important to note that there has been much work done at UN level, with John Ruggie, the special representative of the UN Secretary General, having developed a framework on this which was adopted by the UN in 2008. The EU has also endorsed the framework. The framework, among many other things, refers to human rights "harm" that can be caused through acting on behalf of or under orders from the state, reflecting directly on the state's reputation. There is a reputational risk for the Irish Government or any government in this issue.

The framework points out that states are not automatically responsible for abuse by corporations of which they are not clearly and directly in control. Nevertheless, there is a responsibility to have due diligence systems in place and to prevent, investigate, punish and redress any interference with the human rights of any kind of people. Whereas there is no obvious case of governments or pension funds having control over companies, there is nevertheless a responsibility to investigate and act on those investigations. We see exclusion as key and there is a requirement for a change in the legislation for exclusion to be allowed.

The fourth area we referred to was positive selection, whereby investments would be made that meet agreed criteria on items such as renewable energy and other pro-environmental initiatives that have an overall positive effect on economies, etc. This would be enshrined in legislation. A very good example is the Norwegian model which spans all these fronts, and 1% of that fund contributes to positive selection. It is a good model to follow.

In summary, we are very happy there has been much background work done and the interdepartmental committee has produced its report and forwarded it to the Minister. We were very pleased to be able to make a submission to it and at this point it is particularly important that this committee, the committee dealing with human rights and the Irish Human Rights Commission should take note of what has been outlined and proposed. They should actively participate in the process for developing legislation, which is critical. This meeting is very timely.

We also recognise that any pension fund must see wise investment in order to have maximum gain for the State to meet the needs of society. In doing so, the State must recognise it has a responsibility to not be involved in supporting companies that may be in breach of people's rights anywhere in the world.

Deputy Joan Burton

I welcome Mr. Williams and Mr. Cumming from Trócaire. It is a timely discussion and I have raised the matter in committee from time to time over the past seven years. The delegation from Trócaire is probably also aware that in these Houses there is an all-party committee of parliamentarians, made up of all parties and none, regarding the Association of Western European Parliaments for Africa, AWEPA. We in the Irish section of AWEPA have been campaigning for an ethical review of the National Pensions Reserve Fund's portfolio since 2006, particularly as it related to arms companies supplying weapons to Sudan and which have been used in the conflict in Darfur. In 2007 I raised this issue with the then Minister for Finance, Deputy Brian Cowen, and called for the establishment of a council of ethics to advise the Government on how the National Pensions Reserve Fund could be invested according to sound principles, as Mr. Williams has said, including the principle of investment in areas that did not cause harm. That is what we are seeking; that no harm be caused.

AWEPA has also campaigned on the issue of companies that are propping up the brutal regime of President Mugabe in Zimbabwe, including arms companies and other companies that are profiting from the misery its people. Some of the arms companies involved have been, and still are, in the portfolio of the NPRF. This committee, as some members will recall, previously met the chairman of the NPRF, who gave the explanation that the fund is investing in conglomerates which could have 50 to 250 subsidiary companies, one of which could be a company that causes harm in Darfur or Zimbabwe.

The Government set up and carried out consultations about this issue. The report took a long time to be completed but it now appears — this is the important point for the committee — that the Department of Finance is reluctant to publish it. What is the point of this secrecy? It is an insult to the work of members of all parties who have campaigned strongly and personally, often with links to their local communities in the form of church groups and so on, for this issue to be addressed. We have also had strong support from a range of trade unions, including a number of the public service unions, SIPTU, Mandate and the Irish Congress of Trade Unions. Thus, there is a wide spectrum of public and NGO support for this move.

Let us remember that the killing in Darfur and the problems in Chad continue and the availability of weapons such as cluster bombs is one of the reasons such conflicts continue. There are still massive problems in Zimbabwe even though there has been a change in the governmental structure. The report needs to be published. I propose that we as a committee, if the other members agree, write to the Department of Finance and request that the report at least be presented to the committee.

I have had the opportunity, as has Trócaire, of meeting a number of people involved in the Norwegian fund. Norway has a sensibly invested fund which enjoys good returns; its returns are possibly better than those of the Irish fund. Yet it has a stronger and more robust ethical framework to its investment policy. To some extent, Norway, being a small country like Ireland, could be used as a benchmark against which we would seek to improve our position. The chairman of the NPRF, when he came before the committee some time ago, agreed to adopt the UN position as referred to in Mr. Williams's report, but that is not enough. We need to take another step forward. As somebody who has lived and worked in Africa, I know that reducing the number of arms available to soldiers and child combatants in Africa has a major impact on the ground. Most Irish people are shocked and horrified at the idea that our pension reserve fund, however inadvertently and at a distance, could be investing in organisations such as arms companies.

I strongly support Trócaire's call for this issue to be addressed. The first step is to seek from the Department that the report be forwarded to this committee and published, as well as the production of amending legislation. The latter will not be difficult, because so much legislation is being prepared in the financial sphere that this would not even require a separate Bill; it could be included in an upcoming finance-related Bill. From an Irish point of view, we must also consider in general the investment criteria of the fund. For instance, the fund should be enabled to invest more in infrastructure projects in this country, because there have been problems with this in the past.

I welcome the delegation. People around the country are strongly supporting their cause and I hope this committee will too.

Chairman

Is the Deputy's proposal to write to the Minister for Finance agreed? Agreed.

Senator Dan Boyle

I welcome the delegation. I had the opportunity to move a Private Members' Bill on the question of ethical investment of the pension fund a number of years ago. Many of the points raised at that time remain relevant, particularly the example of best practice offered by the Norwegian system. Reference was made to the UN guidelines. The committee should be aware that these are just guidelines and, in terms of their effectiveness, they are the lowest common denominator in the field.

One piece of detail that members may need, which may be spelled out by the representatives of Trócaire, is to do with the vetting process of the pension fund. My understanding is that this is done by a UK-based consultancy firm, Hermes. In Norway there is a stand-alone agency that does this work on behalf of the fund. In view of international best practice, we may need to take this approach, although we are in a climate in which we are trying to reduce the number of agencies.

I am thankful that one difficulty seems to have been overcome. The NPRF was set up based on a philosophy of maximising its return regardless of how it was done. With the passage of the cluster munitions legislation, we now have the principle that a particular category of weapons cannot be invested in on behalf of the State. This is a category that could be expanded to include, for example, depleted uranium weapons, which is an issue I have raised in the Seanad. Deputy Burton has mentioned a range of weapons that could be considered similarly.

Questions begin to be raised in other areas of ethical investment. The question of armaments is quite clear-cut to most people, but there is also the question of ethical business practices, such as the use of pharmaceutical products in unsuitable circumstances. That is where the waters become muddy. I would be grateful to hear, particularly with regard to the developing world, the standards required and a sample of international thinking on how the principles of ethical investment can apply in these areas. These are areas in which pension fund holders ask where they should draw lines, what questions they should be asking, and whether the asking of questions causes unnecessary delays in investing the money. I am acting as a reverse Devil's advocate because I do not accept many of these arguments; however, they are raised by some people. If we are to advance on the issue of ethical investment by national pension funds, these are the questions to which we need clear-cut answers.

Deputy Kieran O’Donnell

I welcome Mr. Cumming and Mr. Williams and acknowledge the great work done by Trócaire. The organisation has done outstanding work over the years and I wish it continued success.

My questions are relatively straightforward. We need to see the report of the interdepartmental committee as quickly as possible so we can have an overall review. We can have a proper overall review.

I note the organisation's principles which are very reasonable. When the delegates were preparing their submission they obviously looked at how the National Pensions Reserve Fund is being operated at present. Will they give a practical oversight on how they view that operation, in terms of the assessments and range of investments, and whether they see scope for investment in other areas? That would put a practical element to their principles. There are clear-cut key areas such as investment in weapons and ammunition but how do the principles function in practice? Reference was made to Norway. The delegates might flesh out what they would like to see operating in practice that would be fair and transparent, with a proper reporting mechanism.

Mr. Mike Williams

With regard to Deputy Burton's point, we are aware that when large conglomerates are involved and one is trying to look at what each individual company does, it is very complex. We are aware of this complexity. Nevertheless there is a responsibility on all conglomerates to manage their own affairs appropriately. We see the onus as being on the organisations or TNCs themselves.

The Deputy referred also to the returns in Norway being quite good. That is an important point because sometimes there is a perception that if one looks at ethical investment the returns will be catastrophic and therefore the pension fund will not work. There are different views and mixed evidence but there is no doubt there are ethical investments that give very good returns. It is important to reinforce that point.

Senator Boyle referred to the current consultancy arrangement. We would feel that what is being done is important but it is light. The current oversight tends to focus very much on the governance of the TNCs, looking at it from a shareholder viewpoint in terms of maximum return and on long-term rather than short-term quick financial wins. That has been the focus. We would feel, as the Norwegian example shows, that it is necessary to go well beyond that and look at the human rights and environmental issues in terms of the overall package. There is something there and we must acknowledge that. It is also important that we recognise the NPRF is looking at the Norwegian model and that it now employs a person who worked on that model. It is very welcome that it is doing that but we feel there is a long way to go.

In regard to Deputy O'Donnell's point, we feel that some form of stand-alone agency is important. Its precise construction would have to be worked through but the important point is that there should be adequate technical expertise in this area because it is quite technical and complex. Trying to track funds in conglomerates and international companies is difficult and a high level of expertise is needed. The good point is that there is a model which works well in Norway. Ireland could be a leader in this area. There is a real opportunity. The Government has come under criticism for cutting aid and other budgets but this is an area in which it can really contribute to international development apart from channelling money to the aid budget which is something we absolutely support and need. The influence of these companies is huge. Their positive impact could be enormous as well and there is a real opportunity for Ireland to set itself out in this area as a leader which others can follow. Our view is that there must be stronger oversight of this area and the NPRF should be a little more independent than it is at present.

Deputy Arthur Morgan

I welcome Trócaire through Mr. Williams and Mr. Cumming and thank them for their presentation. Their presence highlights a very important issue at a critical time, with the recent handing over of the report. Achieving the publication of the report should be our next objective. It would give us the foundation for debate and discussion and we should try to progress that. One hopes to give positive effect to the report because that should be the outcome.

I take the point about the financial state of the country at present and that people may be concerned about the implications of ethics in the NPRF. However, for decades Irish people have demonstrated how they value charities through their very generous support for them. There is an inherent good nature in the overwhelming majority of people, even occasionally in the Houses of the Oireachtas. We need to capture that now. If we can get this report published I believe we can home in on the debate, such as, for example, the Norwegian model, as Deputy Burton noted. It demonstrates that ethical guidelines and requirements can work and be very effective.

We must achieve publication of the report and increase the level of debate. If the delegates have any suggestions for us as to how we should conduct our business in that regard I would very much welcome them. Perhaps Senator Boyle could tweet on this which would be of great assistance to the committee. Other than that we would welcome any other suggestions.

Deputy Terence Flanagan

I thank Mr. Williams and Mr. Cumming for attending the committee. Apart from the international model of Norway, are there any other countries doing well in this area? How do other European countries such as Britain compare?

Mr. Mark Cumming

The NPRF acknowledges that environmental, social and governance issues are of material concern globally for the long-term profitability of the fund and so, in many ways, the part of the debate that was so very contentious in the Dáil in 2000-01 is now over. The NPRF acknowledges that these issues are material. Classically, it has invested in the major global corporations which is a very typical approach of a sovereign wealth fund. In order to drive forward its concerns on environmental, social and governance issues it is conducting active ownership through this particular consultancy.

Our concern is to bring that forward but also to add a very significant pillar which the NPRF currently does not favour. That is a capacity to conduct investigations where active ownership to progress company behaviour has not been successful and where there is a need, therefore, to divest, given that the State would be at risk of complicity. It is important to separate those two aspects of what we propose as a model, namely, the active ownership work and the work that would result in a possible exclusion.

It is interesting that in terms of other international models there are only three sovereign wealth funds in Europe: ours, Norway's and, very recently, the French example. This last does not follow the global model in that it has been used principally to ensure that French companies stay within French ownership. It does not quite fit the model of the sovereign wealth fund. Beyond what the Norwegians are doing, one must look to the Middle East and the Far East. The international community is very concerned about the lack of transparency in many of these funds. In terms of models we look very much to Norway. The United Kingdom does not have a sovereign wealth fund.

Deputy Joan Burton

It has sovereign debts.

Deputy Terence Flanagan

What level of detailed information do the delegates receive from the NPRF? They have enough information to know there is a major problem. How often is information released? What is the level of drill-down information?

Mr. Mark Cumming

The NPRF produces its annual report on its website.

Deputy Terence Flanagan

Does Trócaire simply work from that or has it been given any extra information?

Mr. Mark Cumming

The agency produces details of how it conducts its voting at shareholder meetings and the votes are published on the website. Our concern is that the NPRF does not offer the Irish State's perspective on what service agencies should be pushing. No detail is given on the reasons why votes are cast in particular ways. Research we carried out last year shows the NPRF voted against human rights resolutions at the AGMs, annual general meetings, of some of the major corporations in which it had invested.

Deputy Terence Flanagan

Is that included in the report submitted to the intergovernmental group?

Mr. Mark Cumming

Yes, indeed.

Chairman

What is Trocaire's total estimate of investment in what it terms "unethical projects"? What amounts of money are involved in unethical projects in the countries in which Trócaire is involved? Is there any estimate?

Mr. Mike Williams

I am unsure whether we have figures. We have given some examples from Nigeria, the Philippines and Honduras in our report but I am unsure whether we have overall percentage figures.

Mr. Mark Cumming

From a legalistic perspective the only thing fundamentally wrong from the perspective of the Irish State is the investments in nuclear weapons. Mining per se is not unethical and there is nothing wrong with oil exploration per se. The issue is the conduct of some of the companies to which we have alluded in our report. One cannot say an entire category is an issue, except for those of nuclear weapons and cluster munitions, which the State has accepted. For example, there may be companies that abuse mining or labour rights. It is important to have a dynamic mechanism to push the companies to change and to have better practices and, where that is not possible, to have a mechanism that allows us to step out. The Norwegians have adopted this dual, twin-track approach, which was internationally peer-reviewed several years ago after five or six years of operation and which has shown its strength and validity.

Chairman

That does not tell us the extent to which our people are involved.

Mr. Mike Williams

We do not recommend that such companies should stop doing their business, whether mining or whatever. However, we maintain the implications of some of their ways of working are damaging for the population in terms of human rights or the environment. In a way, this is not about the figure or how much is invested. We wish to see investment in these countries continue. It is very important for them. However, broadly speaking there is a general concern because there is very weak governance in these countries in comparison with the Irish situation and there is no doubt, unfortunately, that a great deal of exploitation goes on. I refer to the example of my visit to some banana plantations in Central America. I wish to make clear the operation did not involve Irish investment but the terms and conditions and what was happening in terms of health was horrific. The case studies we provided in our report include some absolutely horrific situations. It is not that these industries are not needed but rather how they go about their business. This is what they must examine and they should not simply dismiss the issue by giving a few bob towards education or something. That is not the approach needed. They must be ethically driven businesses.

Chairman

Fair enough. Are there any other questions? Since there are no other questions, I thank Messrs. Williams and Cumming for attending today. Everyone is interested in this issue. All parties agree that what Trócaire proposes should be followed up. Following this meeting, we will forward the report to the Minister and, as Deputy Burton has requested, call for the publication of the report. It is important for us to achieve that. We will do what we can to help progress the delegation's mission.

Mr. Mike Williams

I thank the Chairman and members of the committee.