The comments of Future Fund chairman David Murray on climate change last week quietly went through to the keeper, possibly because they were located in the back of Friday’s Financial Review in the quaint “Lunch With…” section.
“[Carbon dioxide] has got nothing to do with pollution…. carbon dioxide is not a pollutant., it is colourless and odourless. It is not a pollutant… It is a tiny proportion of greenhouse gases. There is no correlation between warming and carbon dioxide,” Murray is reported to have said.
Asked what should be done about climate change, he replied: “Take measures to stop the effects of it.” Asked about glaciers, Murray rejects any suggestion of glacial melt. “They’re not. The amount of ice in the world is slightly increasing. It is not decreasing. It is just staggering, staggering.”
Murray’s claim that the amount of ice is increasing appears to be based on the claim that Antarctic sea-ice has increased despite the warming of the Southern Ocean, commonly attributed to declining ozone levels over Antarctica or a change in the composition of the seas around Antarctica.
Alas for Murray, the Greenland ice sheet, both Antarctic ice sheets (land ice), Arctic sea ice and the world’s glaciers are all melting, in some cases at accelerating rates. A spokesman for the Future Fund did not respond to Crikey’s request for a source for Murray’s views on ice.
Murray’s position at the Future Fund — his term expires in March 2012 — is independent of government. But his breathtakingly ignorant views on climate change are not merely at odds with the Government, but officially with that of the Opposition, which according to Tony Abbott currently accepts that climate change is real and human-caused, and which supports the Government’s target of a 5% reduction in carbon emissions by 2020. Murray’s views aren’t merely at odds with reality, they’re at odds with the views of Parliament.
But this isn’t the first time climate change has been an issue for the Future Fund lately. In April, Mat Murphy at Fairfax revealed via FOI documents (or rather, via the lack of FOI documents) that the Fund’s Board of Guardians had not discussed climate change since 2007. But as a long-term investor with over $50 billion in assets under management, the Future Fund is even more exposed to the issues raised by climate change impacts, future carbon prices and the growth of renewables than most investors.
To take the most obvious example, according to last year’s annual report, 25% of the Future Fund’s equity exposure is to the financial sector, almost certainly meaning it has substantial exposure to the insurance and reinsurance sectors, both of which are on the commercial front line when it comes to climate change.
As recently as January, reinsuer Munich Re, which has been raising concerns about the impact of climate change for several years, warned that the “number of weather-related natural catastrophes and record temperatures both globally and in different regions of the world provide further indications of advancing climate change”.
According to the same report, 9% of the Fund’s equity exposure is in energy, making it a potentially significant player in both fossil fuel and renewable energy markets.
The Future Fund declined to engage on the issue of the role of climate change in its investment strategy, providing only the same anodyne response it provided regarding April’s revelations:
“…the Board develops its investment strategy to meet its mandated objective of maximising returns with acceptable but not excessive risk. In doing so the Board considers a variety of risks ranging from, for example, market and liquidity risk through to environmental, social and governance risks. In line with this, the Board’s external investment managers are also expected to consider material risks in building their portfolios on behalf of the Board.”
The Fund’s apparent recalcitrance on the issue is at odds with well-established practices by global investment funds.
“ESG (environmental, social and corporate governance investment) is not a boutique investment product, it’s mainstream, and central to the world’s largest funds,” said the Australian Conservation Foundation’s Economic Adviser, Simon O’Connor.
“This is not a soft and fluffy area of analysis, rather, this lack of a detailed consideration of ESG puts at risk the future returns to Australians from the FF — this much has been made clear in reams of ESG analysis linking financial returns to ESG factors, like that done by the UN Environment Programme Finance Initiative.”
The question is whether Murray’s climate stance isn’t merely contrary to the policies of both the Government and the Opposition but is having a direct impact on the long-term returns of the Future Fund.
This article has been corrected: Simon O’Connor is Economic Adviser for the Australian Conservation Foundation, not the Climate Institute and David Murray’s current term expires in March 2012 not 2011.