Oireachtas Joint and Select Committees
Tuesday, 27 June 2017
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Fossil Fuel Divestment Bill 2016: Discussion
We will move on to scrutiny of the Fossil Fuel Divestment Bill 2016. We are joined by Deputy Thomas Pringle, Mr. Kingsmill Bond, new energy analyst, and Ms Finola Finnan, Trócaire, who are very welcome. In accordance with Standing Order 141(2), the committee will scrutinise the Fossil Fuel Divestment Bill 2016. Deputy Pringle will outline the Bill to the committee. That will then be followed by short presentations from Mr. Bond and Ms Finnan.
This is my first time sitting on this side of the room, so it seems a bit strange. I thank the members of this committee for the opportunity to speak today and for the members' openness and willingness to engage with the important issue of fossil fuel divestment. There has been much criticism of the so-called new politics in the current arrangements and, in some ways, rightly so. Without this new politics, however, I, as an Independent rural opposition Deputy, would not have had the opportunity to present legislation like this today. This committee has helped facilitate this in a timely manner by ensuring the Bill reached scrutiny stage not too long after the Second Stage debate.
I will say a few words about the importance of this Bill and its contents before leaving the more technical aspects to the experts I have with me, who will also be presenting. I thank Mr. Kingsmill Bond and Trócaire for their incredible support and for the work they have put in to raise awareness of fossil fuel divestment and the progression of this Bill through the different stages. As the committee will be aware from the explanatory memorandum, the Bill seeks to compel the Ireland Strategic Investment Fund to divest its assets from fossil fuel companies over a period of five years.
I want to make clear that this Bill has not been brought forward to single out or castigate the ISIF or to use it as a platform to in any way attack the political ideology of any party in the House. This Bill is about highlighting the urgent need for all policies to align with the agenda set out in the Paris Agreement. This is not altruism - it is both our moral obligation and an existential expediency - nor is this about constraining investment and policy decisions. It is about shifting policy and investment focus away from the technologies and industries that must be phased out if we are to protect civilisation as we know it and about ensuring that scare public resources are invested in the technologies, industries and jobs of the future. It is about sending a message to the public and private sectors in Ireland, large and small, that the Oireachtas is taking the risks posed by climate change seriously and will act to protect people and the State from those risks. It is also about demonstrating to the international community that Ireland stands by the commitment it made to the Paris Agreement and that it will be a serious player in the emerging green global economy.
One might well ask why a rural Deputy like me would be interested in bringing forward legislation like this but the answer is simple. It is a question of climate justice. Climate change affects everyone but not all equally. Climate justice on a domestic level means local communities, in particular rural and isolated communities, having a stake in future energy projects which will have an impact on their communities. We need to empower communities to engage with and defend themselves during the transition to a low carbon economy. If rural Deputies like myself do not join the debate on climate change mitigation now, then we may continue to be left behind by national policies and decisions which disproportionately affect our communities.
I also feel very strongly that Ireland has an obligation, a duty and a moral imperative to concern itself with the plight of disadvantaged communities in poorer countries already feeling the effects of climate change and who are disproportionately affected by climate change while having no recourse to mitigate against its effects. As I highlighted in the debate in January and in my written submission to the committee in recent weeks, I look forward to working with colleagues on Committee Stage to address any technical issues with regard to definitions to ensure the Bill serves to advance the decarbonisation agenda in Ireland, and to avoid unintended consequences.
Thank you. I wish to advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. Kingsmill Bond and Ms Finola Finnan to make their opening statements.
Mr. Kingsmill Bond:
I thank the Chairman and members of the committee for inviting me to speak. I have been asked to focus on the global context for this energy transition. I work for a think tank called Trusted Sources and I focus on the implications for financial investors of the shift to new energy. I have provided a submission and a number of slides. Having spoken to a number of people this morning, I will change the order of my submission a little, if I may. I will first set out what we think is going on, second, I would like to consider the implications of the transition for investors and, third, if there is time, I will debunk some commonly held assumptions about the energy transition.
First, to explain what is going on, the world is undergoing a switch from fossil fuels to renewables, with implications as profound as the switch from biomass to fossil fuels 250 years ago, which began in England and launched the industrial revolution and the modern world. This revolution is rapid, it is global, it is disruptive and it is now. As a Deputy whom I met this morning said to me, Ireland missed out on the last energy revolution and it should not miss out on this one. The initial driver of this revolution was regulation but it is now costs. Solar, wind, lithium ion batteries and electric vehicles are starting to drive out the fossil fuel alternatives, not just because they are better for the environment and better for people’s health, but because they are cheaper and easier to deploy. It was countries such as Germany and the US which developed the technology, but in fact the key driver of change is now the emerging markets in countries such as China and India, and regions such as south-east Asia and, eventually, Africa, where energy demand is growing and where, for the first time, there is a real choice of energy supply options. What we have is a classic emerging market energy leap-frog. Nonetheless, we should not take the problems the transition faces in Europe as indicative of what is happening globally.
The impact of this switch on companies takes place when demand for the old energy starts to fall. This has already happened for coal, for thermal electricity in Europe and for per capitafossil fuel demand, so we are seeing a series of peaks. At current growth rates for solar and wind of 20% a year, the world is only three and a half years away from peak fossil fuels demand, and this will be followed by peak demand for petrol cars and peak demand for oil. Once demand peaks, declining demand will unleash more competition between fossil fuels. It will also embolden policy makers who seek to reduce pollution by increasing carbon taxation, which will then lead to an environment of falling prices for producers of fossil fuels.
That is on the negative side. On the positive side, the shift will unleash a burst of creativity as the world’s entrepreneurs are able to create and make use of increasingly low cost renewable energy, resulting in a world of distributed energy supply, digitised energy, autonomous cars, electric vehicles, smart grids and so on.
In the second part of my presentation, I want to talk to what is my key brief, which is what this means for financial markets. Disruptive change of the kind I have mentioned usually means that the incumbents suffer as new entrants come in and prices fall. Incumbents are the companies which have stranded assets at the top end of the cost curve. They have unneeded infrastructure and management teams which are, frankly, in denial about what is going on. We have already seen spectacular losses for investors in coal companies and electricity companies. Over the last 12 months, the disruption has started to spread into the automotive industry and we believe it will continue to spread into a series of new industries, most notably oil and gas. At the same time, we are seeing a shift of capital, ideas and talent into the new areas of solar, wind, batteries, electric vehicles and all of the software and services that surround them.
The real question is whether this is priced in by financial markets. There is still a debate in financial markets about the nature of the energy shift. While there are some impressive advocates of the view I have just set out, such as Amory Lovins, the consensus view remains that the energy change will take decades and that the lack of investment in new oil wells means oil prices will rise and then trend upwards over time. This consensus, which I will discuss in the final part of my submission, is largely formed by the incumbent fossil fuel sector, which, of course, has no wish for change. As a result, the share prices of these companies are still trading above book value and, for the most part, have not seen a collapse.
I would argue we are still in a position where it is possible to exit most fossil fuel companies at a reasonable price. If we are right about this transition, this will not be possible in five years time. A hedge fund manager may try to time this exit but strategic investors do not have this luxury.
In the final part of my submission, I want to talk about some of the most common counterarguments I hear, which are possibly resonating in the minds of committee members and which I talk about to many investors. There are five such counterarguments. The first is that people often say the International Energy Agency, IEA, has projections of future supply of solar and wind which are very slow and small. I would respond that the IEA produces superb backward looking analysis but very weak forward projections, and that its forward projections have consistently and dramatically understated the growth of renewables. For example, in 2000 the IEA forecast that in 2015 the world would have 6 GW of solar capacity, when in fact it had 226 GW, many orders of magnitude larger.
The second commonly made argument is that investors do not need to worry because the supposed lesson of history is that changes in energy systems take place slowly. Again, this is incorrect. While systemic change is indeed slow, marginal change is extremely quick. The bankruptcy of large numbers of coal companies at a time when global coal demand was just 2% off its all-time high is a very good indication of that.
The third misconception is that renewables are still too small to make a difference. In 2016, for example, solar and wind made up just 2% of global energy supply. However, it is not the total size that matters; it is the share of the change. In 2016, to take BP data because it is the most commonly used database, solar, wind and other non-fossil sources made up 62% of the increase in global energy supply but, from our calculations, by 2020 they will make up all incremental supply.
The fourth argument I often hear is that renewables are expensive and will continue to need subsidy for decades to come - that the renewable revolution is nothing other than a mirage driven by idealists. This is backward looking and no longer accurate. The cost of solar and wind has fallen so fast over the last five years that they are now cheaper than fossil fuels in a very large number of locations. A bit like the mobile phone, it has moved from being a rich man's toy to a poor man's necessity, as, for example, solar lights are rolled out across Africa.
The final misconception is that the intermittency of solar and wind means they can never rise beyond a small share of the entire energy mix. There are two important counterarguments. First, there are plenty of countries, including Ireland, where solar and wind already make up over 20% of electricity supply. Second, fossil fuel demand will peak when solar and wind make up just 12% of electricity supply and 5% of energy supply.
The best example that I can point to - it is a very good example - is to look at the early 20th century transition. One example from the UK in 1907 is the demand for gas for lighting peat at the time, when electricity only had 2% of the market and far higher costs.
My final point is simply that we must look for radical change when these new technologies are still relatively small, and we are now at that position.
Ms Finola Finnan:
I wish to express my sincere thanks for the invitation to present at this hearing on the Fossil Fuel Divestment Bill. Trócaire is delighted to be before the committee. The organisation has worked hard on climate change in recent years. We are especially grateful to Deputy Pringle for introducing the Bill and to the Oireachtas committee for prioritising its consideration before the summer recess. In doing so, I believe the committee recognises the significant level of public interest in the Bill and the urgency of the issue, especially for the poorest people throughout the world whom Trócaire represent.
Trócaire was invited to attend an event in Cork city recently. Members of the local community had organised a forum on climate change and invited their local Deputies to engage on the issue of climate action and the Fossil Fuel Divestment Bill in particular. At the event a grandfather posed a question to the elected representatives and to the members of the public attending the event. The question was in two parts: "What did you do when you knew?" and "What will we tell our grandchildren when they ask us this question?" The simplicity and sincerity of his question brought everyone in the room beyond all the data to the basic moral challenge posed to each of us as we make decisions around climate change. I am putting the same question to everyone at the committee today.
Trócaire is already seeing the game-changing impacts of climate change in the countries where we work. We need look no further than the devastating food crisis currently taking hold in the eastern horn of Africa. I imagine committee members are aware that almost 25 million people are in urgent need of food aid. Millions are facing starvation in the coming months across Ethiopia, Kenya, Somalia and South Sudan. The needs that we see are extraordinary and are caused by severe drought. In some cases this is exacerbated by conflict. This is the latest crisis in an increasing log of climate impacts that we have seen unfold in recent decades. It is an unfolding human tragedy that will lead to increasing poverty, hunger, inequality, displacement and conflict in countries that have done the least to cause it and that have the least capacity to cope with it.
As many committee members are aware, Trócaire is helping communities to adapt their livelihoods. We are providing humanitarian assistance to these frequent disasters and we are active at the moment in the eastern horn of Africa. We can see how fragile the situation is as well as the very real prospect of reaching a point beyond which these communities can adapt. As we meet these women and men face to face and see the suffering caused by the fossil-fuel-based economies of richer countries, we have to ask ourselves this question: "We know, so what are we doing?" That is why we are campaigning for climate action in Ireland with the support of the Stop Climate Chaos coalition, Social Justice Ireland, the Environmental Pillar and thousands of members of the public.
We are also before the committee today to urge the committee and the Houses of the Oireachtas to progress and pass the Bill to divest the Ireland Strategic Investment Fund from fossil fuels as soon as possible. The vast majority of existing fossil fuel reserves must remain unburned if we are to deliver on the temperature limits set out in the Paris Agreement. I believe we are all in agreement on that now. The fossil fuel question represents a concrete and compelling test of our intent to deliver on the commitments in that landmark agreement. Christiana Figueres, the UN's chief diplomat responsible for the negotiation of the Paris Agreement, has warned that unless action and ambition are increased by 2020 it will not be possible to achieve the temperature limits set out in the agreement. This would make the sustainable development goals, which Ireland led the way in negotiating so successfully in 2015, impossible to achieve.
We have seen that divestment, even on a significant scale, does not result in the dissolution of an industry and historical evidence shows this too. However, it does shift public and political opinion, leading to changes in government policies, market norms and investment principles. It can significantly bolster political, public, private sector and investor understanding of why fossil fuels must be phased out as soon as possible. That is the reason we are behind it.
We neither want nor expect fossil fuel use to stop overnight. We want a timely, managed and just transition that puts those most vulnerable globally and in Ireland at the centre of concern. Failing to deliver on the Paris Agreement is not an option. This means stopping the expansion of the fossil fuel industry and stepping up the pace of the phase-out. We have heard good economic argument for that too.
In stark contrast with Ireland's strong reputation for global poverty eradication and responsible multilaterialism, Ireland is consistently failing to deliver on its commitments on climate change. Ireland cannot hide behind its small size and population. We must recognise that we have one of the highest levels of greenhouse gas emissions per capitain the world.
I will close by returning to the grandfather from Cork and to the millions of women, men and children in the poorest parts of the world whose lives and livelihood are at risk from climate impacts that are already too much for them. The transition is complex and must be managed. We recognise that. However, moral leadership that can unlock new ambition and progress is absolutely essential. In his seminal encyclical, Laudato si' - On Care For Our Common Home, Pope Francis states:
Hope would have us recognize that there is always a way out, that we can always redirect our steps, that we can always do something to solve our problems. Still, we can see signs that things are now reaching a breaking point...We must regain the conviction that we need one another, that we have a shared responsibility for others and the world...
Today we urge the committee and the Oireachtas to show that moral leadership and to continue the swift passage of the Bill. In doing so, the Oireachtas will send an incredibly important global message of hope, solidarity and political leadership that will benefit all.
I thank the deputations for their presentations. I engaged with Trócaire in advance of the meeting. I read much of the documentation provided. I have researched some of it. I thank Deputy Pringle for putting it down. It is probably the first time this committee has engaged with pre-legislative scrutiny on something that does not involve a member supporting it. It is indicative of the support of this committee. We are prioritising the business of a non-member over our own business. That is a positive sign.
The explanatory memorandum is short and clear-cut. In one way, it is about removing Ireland Strategic Investment Fund from investing in fossil fuels, but the topic is broader. There are many members of the committee and the Gallery is full. We have three sessions this afternoon so my comments will be relatively brief.
I thought Mr. Bond's presentation was good, especially on the idea of disruption that we are all changing. We are all sitting here with smartphones, but ten years ago we would not have considered the possibility of their existence. We are looking at electric cars and the way people move around. Change is rapid, especially in the energy sphere.
The deputations have brought to us today the idea that we should be doing it for reasons other than the moral argument, which was certainly among the arguments of Deputy Pringle and Trócaire. They suggested we should be leading ourselves there. However, there is a commercial logic to this as well in that energy companies, coal companies and oil companies are towards the end rather than the start of where they are going. Fossil fuels eventually will run out or become harder or more expensive to harness. Even if we can harness them, we have the challenges of Paris and climate change.
There is a commercial aspect to what we are doing. Can Mr. Bond put a value on State investment in fossil fuel companies? Does Mr. Bond have any indication of the value there at the moment? What has the State invested in those companies? How much money would be available if we removed ourselves from those companies? What is then available? Is there any suggestion that we should get involved with the newer technologies, including solar, wind, lithium batteries and so on? Pardon the pun, but we could get burned for investing in the wrong thing. There is a future in all of this stuff.
Unfortunately, we saw the issue with cladding. The wrong type of cladding can have tragic consequences. Certainly, insulating homes better and having better fuel consumption in terms of motor vehicles and so on is vital. There is considerable scope when we look at our greenhouse gas figures per capita, given that they are so high. Can the deputations enlighten us on what we have tied up in fossil fuel companies at the moment? What might we do with that money if we did not have it tied up?
Mr. Kingsmill Bond:
I thank Senator Horkan. That is an apposite comment.
My understanding is that according to the most recently publicly available information, €131 million has been invested in fossil fuel companies globally.
With regard to the second point, this is a tremendous opportunity for Ireland, as a country which does not have much in the way of fossil fuels, and which has a relatively low population density and, therefore, a large natural endowment of renewable technologies relative to the population, to steal a march in this industry and sort out the myriad problems in software and services surrounding the electricity and transport systems. It is not easy and many companies have failed and will fail, but if the country as a whole took the lead in the implementation of these technologies, it could turn out to be extremely lucrative and provide global leadership.
Sometimes rural areas are more affected by climate change, for example, in respect of flooding. Deputy McGrath has an issue with flood insurance and the difficulties people in flooded areas have obtaining insurance cover. Those areas are more exposed to climate change yet when wind farms are proposed - Deputy Pringle will be familiar with this in his own constituency - how does one get buy-in from communities? Clearly, when wind farms are proposed and there are suggestions to put new technologies in areas, there is a great deal of resistance locally. It is understandable in many cases. Should they get a share of the revenue? How is buy-in achieved? At this stage, should the technology be offshore using wind and tides or resources at the bottom of the sea, including turbines and so on? Where is the market going? How do we get people to buy into the new technologies?
Mr. Kingsmill Bond:
There is a mixture of solutions to this. There is a great deal of experience in Germany, for example, of getting community buy-in for the implementation of renewable technologies, both solar and wind. Much of the success has been down to communities getting involved and feeling like they have ownership of the projects. That is one solution. The Senator mentioned offshore wind, which is another solution. The cost of offshore wind has fallen spectacularly over the past 18 months from more than €100 per MW/h to €60 per MW/h and it continues to fall rapidly. That will make it a viable commercial technology. A combination of different approaches will be needed. The useful policymaker handbooks produced by the IEA address the issue of the integration of renewables into transport and electricity networks and they also refer to community buy-in.
With regard to Trócaire, €131 million is a large sum but it does not equate to the national debt or anything like it. It is a relatively small amount to divest and potentially put into other companies. The Department and various other officials will put forward arguments. What message has Ms Finnan other than what was in her opening statement? People said the smoking ban could not work but it did. The plastic bag tax was introduced, which made a great deal of sense, despite objections. Pay-by-weight was implemented by many local authorities and much of the waste collected is not dumped. People recycle more and they are composting, thereby making their carbon footprint smaller. What is Ms Finnan's message to the people who say this should not be done or not just yet?
Ms Finola Finnan:
It is not only symbolic. Our argument clearly is there needs to be coherence across Government. To deliver on the Paris Agreement, this would set out a clear marker regarding where Ireland is going. It is also important in changing public awareness. Divestment will not ensure the fossil fuel industry goes into sharp decline but it will change public opinion and demonstrate Government leadership and coherence across Departments. A great deal of money is spent addressing humanitarian disasters and responding to crises through good development aid, yet the State is investing in the fossil fuels that cause climate change and untold hardship for people. There is no coherence and we would like the Government parties to take a lead on this. They have taken a lead in development and multilateralism and they can take a lead on this. It would be a signal to Europe and the rest of the world that we are serious about the issue. It is only the start. It is one step along the way but it is important and the Government would do well to take it and follow through with other mitigation and energy policy implementation.
Ms Cliona Sharkey:
It is incredibly important in respect of the symbolic message that it would send both in Ireland and internationally. Article 2 of the Paris Agreement includes a commitment to align finance flows with the decarbonisation agenda and, therefore, this would be a clear and concrete response to that. As Ms Finnan said in her opening statement, action has to increase before 2020 if the agreement's temperature limits are to be viable. This would be a clear, concrete and timely response to the commitment to show the way for other investors.
I thank everyone and, in particular, the Trócaire representatives for all the work they have been doing for many years on various issues and, in particular, in flagging this issue. There are significant fines for not meeting the targets. There are many reasons we should move towards electric cars and reduce our carbon footprint generally. Similar to reduce, reuse and recycle, we should try where we can to consume less energy. I thank Trócaire, Deputy Pringle and Mr. Bond for their contributions.
I welcome Deputy Pringle, Mr. Bond, Ms Finnan and Ms Sharkey and I thank them for their opening remarks. I attended the excellent meeting in Cork mentioned by Ms Finnan. I recall well the grandfather in question taking the microphone and putting the question. It was a powerful intervention which swept aside any analytical thinking or suspicion and concern anyone might have about the overall objectives. He put it up to us and we have to respond. The Oireachtas Members present gave a commitment to support the early scheduling of the pre-legislative scrutiny phase and I am glad that is happening today.
We support the objectives set out in the Bill. We acknowledge the work Deputy Pringle has done and the fact that the Bill has the support of the House, which is important. We have no choice but to reduce our dependence on fossil fuels. It is not just the challenge of our generation; it will be the challenge of this century and we are still in its early days. The Deputy said he is open to amendments, definitions and so on. I refer to the key definition of "fossil fuel companies" and the obligation placed on ISIF to divest itself of investments in those companies over time. In the event of such a company moving into renewable energy investment, for example, is he open to amending the legislation to make sure ISIF is not prevented from investing in companies that meet the definition of fossil fuel company currently but can support their efforts to reduce their footprint in that area and improve their renewable energy footprint? We should recognise some of the companies involved are in the process of doing that and I would not like ISIF to be denied the right to invest in companies in that respect and to support those efforts.
This arose on Second Stage and is one of the concerns that arose in drafting, particularly with regard to Bord na Móna and the ESB. It is vital that there be a transition plan and active transitioning, such that any investment may be clearly delineated to support implementation of the plan. That is something at which we probably could arrive and it would probably be acceptable. The main point is that whatever investment ISIF makes in the future has to be in support of transitioning from carbon dependency, which is vital.
That is the overall objective. The possibility of making such investments is not going to be ruled out, provided they are directly linked with a move away from fossil fuel dependency towards more renewable forms of energy. That is an important principle. The wording will have to be teased out.
There should not be the offsetting of other investments. It should not be possible to continue to invest in fossil fuels by finding another source of funding, for example. The fund would have to be clearly accountable. That is very important.
Absolutely. We will hear from those concerned later. They will set out their mandate and objectives to increase their investment in the renewables sector. It is important to deal with that issue.
With regard to countries which have similar provisions, Mr. Bond might be best placed to answer my next question. Do other countries give a similar mandate to public investment vehicles that prevents them from investing in companies directly involved in the fossil fuels business? Are there examples where this is done well and from which we could learn?
Mr. Kingsmill Bond:
The classic example is Norway. As the Deputy does, its pension fund is the world's largest. It has created a very extensive list of companies in which it will not invest, including a large number of fossil fuel companies. I believe the list is available publicly. It focuses specifically on companies that were both pollutive and not prepared to change. It includes many coal companies and a number of oil and gas companies. I suggest the Norwegian model demonstrates the very best international expertise in this area.
The delegates have acknowledged that the direct practical impact is modest, but this says a lot about our priorities and leadership and shaping public opinion. Is there more we could and should be doing in the public sector and across the full footprint of the public service, including in regard to how public transport companies, for example, use fuel? Could this template be used and applied in a wider context across the public service to embolden the overall statement that will be made by the passage of this Bill in support of reducing our carbon footprint and public sector dependency on fossil fuels and to invest in more renewable forms of energy? How could we use this legislation as leverage to do more across the full breath of the public sector?
Ms Finola Finnan:
There is plenty more to be done and it is the first step. The national mitigation plan is probably the platform for it. Regarding all of the sectors that are carbon emitters, having a clear plan with clear targets and a clear implementation plan is really important. It is also a matter of engaging with the public and ensuring we are listening to them and addressing their needs. I will defer to my colleague who has been working on this issue, Ms Sharkey, who will probably have a little more to add.
Ms Cliona Sharkey:
I thank Deputy Michael McGrath for his question. In looking at the broader impact of divestment movements in the past, we note the primary impact is on public and political awareness policy, market norms and investment principles, for example. The Bill could also have an enormous impact on private sector awareness of the transition and the need to engage with the transition in order to survive and thrive in the future. There is an incredible body of emerging evidence, analysis and recommendations concerning the need for the private sector to start monitoring and managing climate risks. On advancing the transition, there could be a huge impact on the private sector in Ireland, based on the sense that the State will back those industries and companies that are really engaging with and embracing the transition.
As Ms Finnan said, the national mitigation plan is really the platform for the whole-of-government approach in the public sector. We have our concerns about the draft plan in that it is not where it needs to be in closing the gap to the 2020 targets and putting us in a position to transition in a cost-effective and meaningful way towards meeting our 2030 and 2050 targets. In this respect, the Bill could send a really clear political signal that elected representatives are attentive to the scale of the ambition and the need to step up the pace of the transition. It is a question of setting an expectation with regard to energy policy across all sectors that each decision on policy and investment will be scrutinised by elected representatives to ensure it is always reaching to the higher end of ambition rather than defaulting to the closest business-as-usual arrangement. The latter is often the case. We want the Bill to contribute to ensuring we are always reaching to the most ambitious and viable pathway for Ireland.
I welcome the delegates to the committee. I commend Deputy Thomas Pringle for his work in bringing this legislation through Second Stage to the point of pre-legislative scrutiny. It is probably fair to say everybody agrees with the spirit of what is being attempted by him in the Bill. Deputy Gerry Adams drafted similar legislation in the past and presented it to Trócaire. Since Deputy Thomas Pringle introduced his legislation, however, we have decided to support the principle behind it. I am glad that it has reached this stage and I will work to bring it into law. I have a number of questions. As Deputy Michael McGrath said, we will hear from others who may be raising issues about the legislation. I want to use the opportunity to raise some of these concerns in order to hear what the delegates, as experts, have to say about them.
The ISIF is stating it is selling up or unwinding its global investments and that it will do so within a five-year period, with the result that all of its investments will be on the island of Ireland. It is also stating all of its investments are in sectors which are targeting or facilitating a transition to a low-carbon economy. Given what Deputy Thomas Pringle said, do the delegates have any evidence to suggest this is not the case and that it is investing in areas in Ireland in which it should not be investing, bearing in mind the transition to a low-carbon policy?
I do not have information on the fund's direct investments in Ireland. The Bill is important in that respect. The argument was made on Second Stage that the ISIF should be able to retain the possibility of investing in fossil fuels externally, if necessary. Retaining the possibility would, however, undermine the whole purpose of the Bill and divestment. Therefore, it is important to send the message in the Bill. I am not sure about the investments in Ireland. Does Ms Sharkey have a view on the matter?
Ms Cliona Sharkey:
I defer to the experts in the room on the fund. I understand that, under the legislation, the capacity to invest globally will remain, even though the intention is to focus on the Irish economy. As Deputy Thomas Pringle and Mr. Bond have pointed out, there can be a political impact in the short term, both in the message that can be sent internationally and the intention that can be set regarding domestic policy.
We also set the standard that any investment in fossil fuel transition activities, be it technology or companies, should always seek to be as ambitious as possible and meet standards of robustness, given the pace of decarbonisation needed.
I appreciate that. The Minister has informed us that he has some concerns that the definition of fossil fuel companies could restrict investment in Bord na Móna and the National Oil Reserves Agency. Where should we be in permitting, or not as the case may be, investment in these State agencies?
It could be argued that it will limit the ability to make investments. Of course, it will as that is the intention of the legislation. Bord na Móna is a State body involved in peat extraction and in which the Ireland Strategic Investment Fund, ISIF, would not be able to invest. From the earlier conversation, was it suggested there might be openness to an amendment to allow the ISIF to invest in parts of that State body?
For example, Bord na Móna has spoken about creating wetlands, with cut-out bogs, as part of its climate mitigation plan and the carbon sequestration process. If it requires investment for that transitional purpose and provided it was not allowing it to continue pumping money into other schemes, we should be able to come up with amendments, if required, to provide for these developments.
On Second Stage it was said the definition of "fossil fuel enterprise" would mean people would not be able to put diesel into their tractors. That is the farcical end. We can arrive at amendments that would facilitate that process. It is important that the ESB and Bord na Móna move towards divestment. We should be able to facilitate them in that regard.
On putting diesel in a tractor, the argument will be made that the definition will restrict investment by the ISIF. The fund already invests. We are familiar with its portfolio which is in the billions of euro and how it invests on a large scale. Through the Strategic Banking Corporation of Ireland, it is one of three contributors, with KfW Bankengruppe and the European Investment Bank, EIB, which makes small loans available to small and medium-sized enterprises, SMEs. The point raised by the Minister is that this would prevent, for example, a local business in west Cork which distributes coal from actually drawing down a bank loan from Bank of Ireland or AIB because it had originated through the Strategic Banking Corporation of Ireland, which receives 30% of its funds from the ISIF. Accordingly, the definition in the Bill will restrict indirect investment in a fossil fuel company. I am not making this argument for the sake of it as I support the legislation. However, we are engaged in pre-legislative scrutiny and have to produce a report on it. We need to hear whether this is intended to be captured in the legislation, if it will be dealt with on Committee Stage, or, given the severity of what we are facing into, we have to actually make these tough choices.
Ms Finola Finnan:
From Trocáire’s perspective, we are looking for a just transition. We recognise that it has to take account of people who are impacted on, whether through job losses or transition, but we need to transition from fossil fuels to renewables. We recognise that we need to avoid the cliff edge scenario and definitions which would allow it. Staying true to the spirit of the Bill and what is required of it is the ask from our perspective, as well as recognising the impact it will have on the poorest members of the world.
Ms Cliona Sharkey:
Having spoken to Deputy Thomas Pringle and people who have worked on these issues internationally, there is an understanding it is often the case that certain ESG, environmental, social and corporate governance, criteria would not necessarily apply to small and medium-sized enterprises and that whatever application normally applies could also be used in the case of the Fossil Fuel Divestment Bill. Importantly, the passage of the Bill will send a signal to the companies in question that to survive and thrive, they will have to transition. The ISIF can be a support in that regard, whether as an immediate or back investor.
It is only a matter of time. The clock is already ticking and has ticked down a lot.
There is talk about the State’s dependency on fossil fuel imports. It is argued that because the Bill prohibits the direct support of fossil fuels it will potentially prevent investment in strategic infrastructure required to carry from Britain or elsewhere energy supplies which originated from fossil fuels. Is that a valid suggestion? These are some points the Minister will make before the committee and it is important for us to hear counterarguments in that regard.
By the same token, one can not invest in an offshore wind farm because the same infrastructure will be used that is already in place in the State. Electricity is generated at the Moneypoint plant, by wind farms and peat-burning stations in the midlands. By the same token, one could make the argument that electricity supplies generated by an offshore wind development on the Arklow Bank or in the Atlantic could not be brought ashore because one would be using existing transmission networks, but I do not think that argument is valid. The idea is to transition which means that we will need existing transmission information networks to carry renewable energy supplies.
Deputy Gerry Adams’s Bill deals with the storage and marketing of fossil fuels. It also deals specifically with financial vehicles and collective investments which, under this definition, could be a fossil fuel company. Accordingly, the investment could be in several aspects of a company's business, inlcuding the storage, production or extraction of fossil fuels. The question arises as to how it would divest itself of this investment. Do the delegates believe the marketing and storage of fossil fuels should be included in the definition of a fossil fuel company? Is it wide enough in scope to capture what is required?
The definition, as it stands, does not include marketing, but it does cover storage. If there was a need to include marketing, it is something we could look at relatively easy on Committee Stage. There is a provision dealing with pooled resources and that the ISIF have a bundle of investments. This relates to the first part of the Deputy’s question. It may legally be tied to a period for them.
They will have to facilitate that period. It may be more than five years but the intent would be that those investments would not be renewed subsequently.
I thank the witnesses for providing the information. I know Ms Sharkey wants to come in on this. It is an excellent effort on the part of Deputy Pringle and the witnesses who are supporting the legislation, and my party will support it as much as we can so that it might pass through the Oireachtas as quickly as possible. Hopefully we can have all-party support to send out the clear statement, not only to the ISIF in terms of its investments but also to the world regarding where Ireland stands on this important matter.
Ms Cliona Sharkey:
To follow on from Deputy Pringle, regarding the definition, the objective of the Bill is to send a political and public message and its intention is to advance the transition in Ireland, not to hinder it. Those issues regarding the definition can be looked at again at amendment stage to see what is ambitious, practical and implemental in the Irish context and what might serve to advance the transition.
Returning to Deputy Doherty's point about energy security, if we step back, the bigger picture is that the greatest risk to energy security is a failure to decarbonise in a timely manner. That is the message we are trying to signal. The need to prioritise our investment in the solutions rather than the infrastructure in industries that will have to be phased out. There must also be an understanding that the grey area where continued investment might be needed and the Bill can and should make provision for that, while ensuring that there is a strict criteria to ensure those investments remain to the spirit and purpose of the Bill.
I know that there is a time constraint so I will be brief. I welcome the delegation and thank Deputy Pringle for bringing forward the legislation. We are not getting into the detail of this until we get to Committee Stage of either House, but where is the line drawn in regard to investment or who has the final say over whether something is a good project and is within the criteria or that it is not within the criteria?
Trócaire does magnificent work in Africa. The population of Africa is growing, it will grow by a billion by 2050, and all those people will have to have food and they will have to provide much of this food themselves. There are small companies such as McHale Farm Machinery, Malone Farm Machinery, Keenan, and many other farm machinery companies throughout the country who, I presume, could be getting funding from the State bank, ISIF. These are machines that will be driven by tractors that run on fossil fuels. Where would the witnesses draw the line? Would it be in the manufacture of those machines, or in the funding of those small companies? Would they say that this is a company that would be covered by this legislation? Would it stop investment in some of those companies? Who decides that the investment can or cannot be made in those companies because it does not fit the criteria of the legislation?
Ultimately ISIF would have to decide if it meets the obligations that are contained within the legislation. It can be provided for that SMEs up to a certain size could be exempted from the responsibilities under it. It depends on where one sets that size. It has to be set at a level that continues to maintain the impact of the Bill and its intent. That would have to be considered in relation to the amendments and amendments could be worked out on that.
Is Deputy Pringle saying all SMEs could be exempt? Will there be a criteria for SMEs because that could be a thorny issue when one gets into the legislation, when one starts saying that a certain company could not get funding. They could be employing people in rural areas, or wherever. This could be a thorny issue.
It could present difficulties but we are presuming the ISIF would be the only source of funding available to a company in that position. It is something that has to be taken into account in the future in the transition from fossil fuels and the movement away from their use. Depending on the size of the SME, they might come in under the exemptions that could be included in the Bill. It comes down to a decision relating to size and how one decides on the size, if it was turnover or other factors. That would have to be considered.
Ms Cliona Sharkey:
As mentioned earlier, existing best practice on the application of ESG standards to SMEs could be applied in the context of this Bill. The work ISIF does supporting SMEs in applying these standards, even if they are not applied to them at the moment, can be used in the context of the Bill. It can be used both to send a political signal and an investor signal but also provide practical support to encourage them to transition away from current fossil fuel dependent processes and activities.
The answer to the question that I heard was that in the context of the transition, and everyone would recognise that we are in transition, businesses need to embrace that too. So although down the line, those businesses-----
My understanding is the point being made is that a transition period has to be developed for the SME sector in order to let that happen. It cannot be a straight line, and then that is it. There has to be a transition period where SMEs would be advised to observe the change in terms of their future and their own investment and direction. It is a sensible way to deal with the question that Senator Burke and Deputy Doherty raised.
I thank the witnesses for their contribution. We will suspend for a few moments while the witnesses change. It will be a quicker transition than last week.
Mr. Kieran Bristow:
I thank the joint committee for inviting us to meet it. I would like to tell members about three things: how the ISIF’s investment activity is supporting Ireland’s transition to a low-carbon economy; how the term “fossil fuels” relates to a very broad category in which some are at the high-carbon end of the spectrum such as peat and coal, while others such as natural gas have a role to play in the short term as we transition to a low-carbon economy; and how, as implementers of this legislation, we wish to minimise unnecessary transaction costs across the global investment portfolio and also avoid potential unintended consequences within the Irish portfolio.
I will address each of these points in more detail, but first I will give a brief overview of the lSlF and how it is addressing climate risk and decarbonisation as part of its long-term strategy to invest In Ireland. The Oireachtas requires the ISIF to invest on a commercial basis in a manner designed to support economic activity and employment in Ireland. The ISIF has approximately €8.5 billion available for investment, with €2.8 billion already directly committed to investments i Ireland across a wide range of projects and sectors. This investment has attracted a further €5.3 billion worth of commitments to Ireland from private sector co-investors, which means that to date €8.1 billion has been committed to Ireland as a result of ISIF activities. The remainder of the ISIF's assets are invested globally in bonds, equities and other assets. In effect, the ISIF is managing two portfolios at the same time. It is gradually selling a portfolio of global investments and using the proceeds to build a portfolio of Irish investments. Liquidating one portfolio, while building another, requires two very different approaches. The liquidation of the global portfolio is expected to conclude in the next five years under the fund’s global portfolio transition strategy. This means that divestment in the timeframe envisaged by the fossil fuel Bill is well underway.
Whether we are selling assets or investing in new ones, the ISIF is always conscious that it must act as a long-term, sustainable and responsible investor. The fund’s sustainability and responsible investment policy emphasises climate change as a priority for us. As a global investor and universal owner, the fund’s strategy has been focused on active ownership, risk mitigation and positive influence, rather than excluding sectors or companies. Its predecessor, the National Pensions Reserve Fund, was a founding signatory to the principles for responsible investment. The fund is also a long-term supporter of the CDP.
Turning to the three points I made at the outset, the ISIF is investing to support the transition to a low-carbon economy and actively targets investments that will be part of that transition. For example, all of its investments in Ireland in the energy sector are targeted at facilitating, in line with public policy, Ireland’s transition to a low-carbon economy. Given the structure of the economy and the energy sector, this requires the ISIF to be able to work with and invest in existing Irish energy providers. It is important that it be allowed to retain this ability if it is to be successful in continuing the important work of supporting the transition to a low-carbon economy. While we understand the draft Bill does not intend to remove this ability, as currently worded, it could be interpreted as limiting the ability of the ISIF to invest in a wide range of sectors, including SMEs, ICT, health care and infrastructure.
Turning to my second point, we emphasise the importance of distinguishing between high-carbon fossil fuels at the dirty end of the spectrum and those at the opposite end such as natural gas. We are considering a process that could potentially see the exclusion of investment in companies where the level of risk to the fund’s assets would be inappropriate to the given rate of returns. Other sovereign funds such as those of Norway and France have also excluded the heaviest carbon emitters such as coal in the first instance. In the context of the Bill, the ISIF believes tightening the definition of a fossil fuel company or focusing on those companies with the highest negative carbon impact may be appropriate in the first instance. For example, eliminating fossil fuel companies engaged in coal extraction and processing could have a significant environmental impact.
Turning to my third point, I draw the committee’s attention to some potential implementation issues such as transaction costs and unintended consequences within the Irish portfolio. The ISIF is already in the process of selling its global assets. We expect to complete this divestment programme in the next five years, the time envisaged in the Bill. However, it is important to note that selling in a shorter time period runs the risk of increasing transaction costs substantially. The ISIF would have a strong preference for scope to be given to allow divestment to take place in a manner that is in line with the fund’s current global portfolio transition strategy and which would not add to our anticipated transaction costs. The Fossil Fuel Divestment Bill is largely focused on the global portfolio, but it is within the growing Irish portfolio that we foresee some potential unintended consequences of the current draft Bill, in particular, where we have invested indirectly. For example, SME funds may be supporting local businesses such as service stations, distribution companies or home heating fuel suppliers. This, again, points to the current broad definition of fossil fuel company which is perhaps unintentionally wide and the fact that even very limited levels of indirect exposure via funds would be prohibited.
I will conclude by returning to the ISIF’s Irish energy strategy. The fund invests in a manner that is aligned with Government policy and focused on Ireland’s commitments across a variety of policy initiatives, including the Climate Action and Low Carbon Development Act 2015, the COP21 Paris Agreement and the national decarbonisation and energy security objectives for the economy. Decarbonisation is a complex issue, particularly for Ireland where economic activity is likely to remain dependent on fossil fuels, especially gas, for an extended period - not years but decades. The fund’s energy strategy has an €800 million allocation which is entirely focused on sustainable energy investment that seeks to enable Ireland’s transition to a low-carbon economy. The strategy was developed in close consultation with the Department of Communications, Climate Action and Environment. It is also informed by the fact that the current Irish energy market is largely dependent on imported fossil fuels and that 75% of our electricity is derived from fossil fuels. While we would all prefer that this was not the case, this is the present day context in which the fund is operating. It actively targets investment in companies which prioritise renewable energy, while reducing fossil fuel dependency. It is focused on new sustainable energy infrastructure, business models and technologies which leverage Ireland’s natural resources.
Energy investments to date include €155 million directly committed to a wide range of renewable energy projects such as the Dublin waste to energy initiative, NTR wind energy generation and Greencoat Renewables plc. Indirectly, via a series of SME funds and infrastructure and forestry investments totalling over €500 million, the fund is supporting renewable energy, power efficiency and onshore wind energy projects and emissions management. The ISIF’s current pipeline has approximately €300 million worth of potential investment opportunities across a range of renewable technologies, including wind, solar and biomass. It is also exploring more transformative investments under its innovation strategy, ranging from electric vehicles to energy efficient data centres to storage solutions, that together have the potential to shift the ways citizens and businesses will consume energy into the future.
Despite this commitment to renewable energy sources, in the interim the economy will remain dependent on fossil fuels. To enable it to reduce its reliance on fuels such as peat, coal and oil, the fund may see merit, in line with its mandate, in investing in lower carbon fossil fuel based transition solutions such as gas storage and infrastructure. We respectfully request the committee to be mindful of the unintended consequences that could inadvertently inhibit our ambitions to progress the use of low-carbon alternatives to fossil fuels. This will mean specifically addressing potential issues likely to arise in the Irish portfolio such as the broad definition of fossil fuel company, the consideration of commonly used thresholds, the treatment of direct investment versus indirect investment and the fact that the Bill will essentially prohibit ISIF investment in a renewables project in semi-State or private utilities such as Bord na Móna or the ESB. The ISIF strongly believes it must retain the flexibility to invest in such entities or projects where the investment case is clearly aligned with the State achieving its decarbonisation targets.
I reiterate the ISIF’s position that it Is highly committed to investing to support the long-term transition to a low-carbon economy. The Bill has been very beneficial in increasing public awareness of climate change and bringing an opportunity to the ISIF to highlight the work we are doing to support the greater use of low-carbon alternatives to fossil fuels.
We share the goal of a successful transition to a low-carbon economy and hope that our insights will be helpful to the committee's efforts to achieve this in a way that will deliver the best outcome possible. We appreciate committee members giving their time and welcome any questions they may have.
Dr. Paul Deane:
I thank the joint committee for extending the invitation to speak at this session. I wish to acknowledge the many fine investments currently held by the Irish Strategic Investment Fund, ISIF, in its current portfolio in wind, solar and renewable energy companies across the globe and the €44 million capital committed to energy investment in Ireland at the end of 2015.
Ireland must take its climate change commitments seriously. The warming of Earth’s climate system is unequivocal and human influence on the climate is clear. Limiting climate change requires substantial and sustained reduction in greenhouse gas emissions through investment in renewable energy, energy efficiency and low-carbon technologies. The challenge to reduce greenhouse gas emissions is well understood by the Government and is reflected in the national policy on climate action and low-carbon development of 2014 and in the Climate Action and Low Carbon Development Act 2015. The national policy position establishes the fundamental national objective of achieving a transition to a competitive, low-carbon, climate-resilient and environmentally sustainable economy by 2050. Current investments held by the Irish Strategic Investment Fund in global fossil fuel companies such as China Coal Energy, Canadian Oil Sands, Yanzhou Coal Mining and many others are at odds with this vision and cannot be reconciled with current Government climate policy. These investments do not help to advance the Government's stated vision and do not contribute to an overall global reduction in greenhouse gas emissions as required by the Paris Agreement on climate change and therefore these global investments should correctly be phased out.
The global fossil fuel sector received $493 billion in subsidies last year and therefore should not require any assistance from Irish citizens or the ISIF. Ireland faces serious challenges in meeting energy and climate policy objectives and our current level of activity needs to be significantly ramped up to realise our stated national policy position. Ireland is likely to face financial costs in 2020 to purchase compliance to meet greenhouse gas emissions reduction targets and we will also have to pay for separate compliance to meet our renewable energy targets. From a climate and policy perspective, this makes Ireland one of the poorest performers in Europe.
Further investments from the Irish Strategic Investment Fund in renewable energy and low-carbon technologies in Ireland therefore should be encouraged in place of investments in global fossil fuels companies, thus sending a signal that Ireland is serious about its stated commitments on climate change. In keeping with the wider goal of the National Treasury Management Agency, NTMA, these investments should look to support economic activity and employment in Ireland and provide long-term value for the State and citizens.
In reading the Bill, I make the following two observations. Given the scale of the challenge in decarbonising our economy, the small number of energy companies in Ireland and size of the market here, I believe that all possible options should be made available to enable a transition to a low-carbon economy including the option of the Irish Strategic Investment Fund to provide investment to Irish companies that use fossil fuels to produce energy under strict conditions.
Specifically, I believe the Bill should distinguish or allow some mechanism to differentiate for investments in Irish projects that involve the use of abatement technologies with fossil fuels such as carbon capture and storage. Carbon capture and storage is an existing technology that allows the majority of emissions from conventional power plants, fuelled with fossil fuels, to be captured and stored in long-term geological storage. It can also be applied to the cement sector and other industrial processes. Carbon capture and storage means that the harmful emissions coming from fossil fuels do not reach the atmosphere and do not contribute to climate change, thus achieving the same climate objective as renewable energy.
When carbon capture and storage is used with biomass or woody crops, it allows for the possibility of a net removal of emissions from the atmosphere. These technologies are identified by our research in University College Cork, UCC, and other international research as critical components to achieving our obligations under the global Paris Agreement on climate change. In the absence of private capital for the potential development of carbon capture and storage projects in Ireland, the option of investment from the Irish Strategic Investment Fund should be available as it advances the Government’s vision of a low-carbon Ireland and enables our commitments under the Paris Agreement.
Second, I believe that the Bill, when applied to Ireland, should not preclude investments in Irish companies where that investment is dedicated to transitioning that company away from fossil fuel and significantly lowering its carbon footprint. Investments like these would advance the Government’s vision of a low-carbon Ireland and enables our commitments under the Paris Agreement. Equally, these investments, if properly structured, will provide long-term value to the State. These additions would be a constructive addition to the Bill, making it a truly transition-focused Act.
The decision for Ireland to divest from global fossil fuel companies is a very small step on the long road to a low carbon economy. Fossil fuels will remain in the global energy mix for a long time to come and the Fossil Fuel Divestment Bill’s impact on the global industry will be minimal. Its significance, however, is in the choice that we are making as a country to fully back a vision of a low-carbon, climate-resilient and environmentally sustainable economy.
In Ireland, we talk the green talk about climate action but are failing to the walk the walk and on its delivery. We have a chance with the Fossil Fuel Divestment Bill to show the world that we are finally serious about our climate change commitments.
Cuirim fáilte roimh an toscaireacht anseo. I welcome the presentations.
I wish to ask Mr. Bristow questions on the three specific points that he has raised. In the earlier session, we heard on the first point that it is about ISIF being allowed to retain its ability to allow for the transition to a low carbon economy, which is very much in line with what Dr. Deane was saying there at the very end, to allow for continued investment in companies which would be deemed fossil fuel companies but are moving to or investing in alternative methods. I believe there is probably scope there, from what I heard earlier, to deal with that in amendments.
Therefore, I want to move on to the second point that Mr. Bristow made. He talked about how this should be staggered and the dirtier end of the spectrum should be targeted first, and the rest can be moved on to at a later stage. I want Mr. Bristow to explain to the committee why he is making the argument that the legislation should focus on that, given that he has made the comment that the ISIF is divesting from its global portfolio within the five years that are laid down in the draft legislation anyway. Why would we need to target, in legislation, the dirtier end of the spectrum, when Mr. Bristow himself says that ISIF will have divested from all of these global assets within five years? He stated earlier that ISIF's investment in Ireland's energy sector is targeted at facilitating the transition to a low-carbon economy, so I presume it is not investing in the dirty end. Why would he need to water down - which I would suggest is what he is suggesting - legislation when he is really saying that he is going to do what the legislation is aimed at achieving anyway?
Mr. Kieran Bristow:
The intent of our statement was, first of all, as we have pointed out, that we will be selling out of all our global investments over the period that we have mentioned. In some sense, the global portfolio will take care of itself. The point we were trying to make was about our investments in Ireland. We see ourselves as policy-takers - we implement policy. If it was the policy in Ireland to transition to a lower-carbon economy by targeting more investment in gas, rather than the dirty end, we would like to be able to support that. I am sorry if I created some misunderstanding, but our intent was to say that we should have some flexibility to support Irish investments in gas and the transmission of gas, for example, and if the committee might consider a narrower definition, to allow us to do that. That was the intent of our statement.
We are just dealing with the island of Ireland, and there are certain fossil fuel companies that Mr. Bristow believes ISIF should still be able to invest in, because he believes they are not at the dirtier end of the spectrum.
Mr. Kieran Bristow:
There are two separate aspects to that. We would like to invest in what we have described as the cleaner end, which is gas, in support of the energy policy of the country. Second, we would like to have the flexibility to invest alongside some of the more traditional domestic energy companies where they are investing in wind farms, for example.
That is the first point on which there is broad agreement. We will hear what the Minister has to say about that but is Mr. Bristow saying that where they are investing in environmentally friendly energy, part of the work would be specifically targeted for investment? We will leave that to one side, but the question is more whether, in light of everything we hear about what is happening globally, the ISIF still wants to invest in this sort of fossil fuel activity indefinitely.
Dr. Paul Deane:
Gas will undoubtedly play an important role in Ireland's transition to a low carbon economy. Primarily, it will be coupled with carbon capture and storage devices. The commitments which Ireland signed up to under the Paris Climate Change Agreement require a drastic and dramatic curtailment in our greenhouse gas emissions. In the future most, although not all, fossil fuels will have to be coupled with some sort of ingenious technology which either captures those emissions or reduces them. The fundamental guiding principle by which to assess this kind of Bill is whether it advances the Government's position towards a low carbon and climate resilient economy? If the answer is "Yes", then it has merit and deserves scrutiny. There is a distinction. In the future, most fossil fuels, and primarily gas, will have to be coupled with some sort of storage or capture technology for us to meet our climate change objectives.
There is also a question of principle and a bigger issue which relates to how the State invests. There is around €9 billion, or certainly a large amount of money under consideration, but it is not huge in terms of the national economy and all its needs and demands. There are many areas in which the ISIF can invest, but, on a matter of principle, is it Dr. Deane's view that the State should continue to invest in gas?
The third point which has been raised relates to unintended consequences that may arise from the drafting of the Bill. Dr. Deane mentioned Bord na Mona and the ESB. Those issues can probably be dealt with during the amendment stages. Is it Dr. Deane's view that Bord na Mona or the ESB should receive funding from ISIF regardless of the type of activity they undertake or should it only apply to environmentally friendly activity?
The Government has put forward arguments regarding unintended consequences, namely, that it could possibly affect SMEs that are funded by the Strategic Banking Corporation of Ireland as well as what it would call potentially necessary infrastructure to carry energy that may originate from fossil fuel companies.
Mr. Kieran Bristow:
What we were concerned about is that we would not be able to invest in some alternative energy project because it was sponsored by or co-invested with a traditional fossil fuel company. Our comment about Bord na Mona or the ESB, to give an example, was not about whether we invested in such a company, but to make sure that we still had the flexibility to do so.
The Deputy's second point was the one we were making, namely, that we invest indirectly in SMEs. We lend money to a platform or third party which then onlends to SMEs. In that case, we are conscious that there are many SMEs who, under the current definition, would be defined as fossil fuel companies and so excluded. This would be oil carriers and so on.
From Mr. Bristow's experience and the definition the Strategic Banking Corporation of Ireland would use in terms of funding, would it be a reasonably simple amendment to exclude those SMEs from the remit of the legislation?
I am interested in this issue in principle. We need to get pre-legislative scrutiny on the detail of the legislation, but there is also the bigger issue of looking after the planet. Should the State, through its money, provide lower, cheaper loans to the person who delivers coal house-to-house rather than ruling them out from getting those cheaper loans, so that they have to go through the normal avenues of high street lending from, for example, AIB or Bank of Ireland or any other options there? In Mr. Bristow's view, should we provide those types of cheap loans given that we are trying to steer the country and the globe in a different direction?
Mr. Kieran Bristow:
It is a matter of timing, ultimately. The purpose of the Bill, and everyone's intent, is that ultimately we would not lend to people who were investing in anything related to fossil fuels but clearly there is a question of timing because that would be cutting off someone's business straight away. The very wide definition is also an issue. In a number of cases, it is not so much that companies get cheaper funding as that they are getting funding that would not be available otherwise. It is not that it is cheaper than the banks but that these companies might not get them at all otherwise. I suspect that it is mostly a matter of timing rather than cutting something off immediately.
Again, on unintended consequences, Mr. Bristow makes a point on the treatment of direct investment versus indirect investment. Can he elaborate on what he means by the treatment of direct versus indirect investment?
Mr. Kieran Bristow:
Direct investment is one where we are talking about shareholding in companies, where we directly hold the shareholding, or we can invest in a fund run by someone else which in turn owns a shareholding in a company. The main reason we invest in funds is to get value for money for the taxpayer. If we set up a bespoke investment ourselves, it costs more than investing in one that already exists. We have about €3.5 billion of the fund invested in those indirect vehicles. By our calculation about €40 million is in shareholdings in those companies. If we were forced to divest from that immediately, we would have to divest €3.5 billion.
The definition is very clear that it is direct and indirect investment, so ISIF would have no problem in principle over ruling out indirect investment in fossil fuel companies, notwithstanding what Mr. Bristow has said regarding being able to invest in those that are moving to a low carbon scenario and the only issue being timing.
I asked this question of Deputy Pringle earlier. In some cases, this will come down to whether ISIF will or will not invest in companies. Who will make the decision as to whether something qualifies for investment? The legislation will be there and ISIF will be faced with a decision over whether something qualifies. If it goes overboard and makes a decision which is barely outside the legislation, are there penalties? How will that affect the investment?
Mr. Kieran Bristow:
We have a prior example of this. There is legislation around cluster munitions but it does not state which companies come under the definition. We have essentially taken the definition of cluster munitions and have identified several companies or shares that we should not hold. Our working hypothesis is that we would do the same with this Bill. Once it is passed, we would attempt to identify all the companies which would come under its remit. In some sense, if we want to sell out of them, we would have to identify every single holding anyway. We were able to do that with the cluster munitions legislation.
Ms Emma Jane Joyce:
We have approximately 19 companies on our prohibited securities list as a result of the Cluster Munitions And Anti-Personnel Mines Act. That is implemented in all our indirect funds as required by legislation.
Obviously, the definition of "fossil fuel company", as set out in this Bill, is broad ranging. It is defined as a business which is either wholly or partly engaged in the exploration, extraction, refining, processing or delivery of fossil fuels. We have analysed our global portfolio and have come up with 153 names which would fall under that definition. That extends from the oil and gas sector to consumable fuels, from metals and mining to utilities. It even touches on the retail sector. That definition would also have to apply to the Irish portfolio.
Mr. Kieran Bristow:
We have identified the stocks for the global portfolio. We would also have to identify the Irish ones to allow us to execute and deliver on the Bill. That could be essentially what proportion of their earnings come from this and in what sector they are. We would define a set of rules which would allow us identify that.
Mr. Kieran Bristow:
If I go back to our experience with cluster munitions, one has to draw a line somewhere. Some might disagree and claim some aircraft companies should be included in that legislation. Our objective would be to ensure we did not invest in companies that the spirit of the Bill was attempting to preclude. We would have to figure out where the line should be drawn. I would think that in most cases one would identify several clear areas in which one would not invest while there would be some grey areas.
Ms Emma Jane Joyce:
We have done our analysis on our fossil fuel exposure based on the definition in the Bill, which is quite wide. As I said already, we have identified 153 individual companies which would hit on this definition. They are small in the context of the size of the fund. Direct equity holdings come to the value of €36 million.
Ms Emma Jane Joyce:
Yes. Global direct equity holdings are valued at €36 million. This would represent less than 0.5% of the total assets. In addition to that, we also have short-term debt holdings. These are short-term loans of three to five years which amount to €252 million. Accordingly, we have total direct exposure in the global portfolio of €288 million, the bulk of which is debt.
As Mr. Kieran Bristow explained, more than half of our global investments are through pooled funds. Accordingly, we have exposure to approximately €3.5 billion of pooled funds which, in turn, have some exposure to fossil fuel companies. The exposure is small in the context of the global investments. It is about €30 million.
Ms Emma Jane Joyce:
On the Irish side, from our analysis we have no current exposure to fossil fuel companies as per the current definition. We invest in a range of SME funds. Again, some of these are invested indirectly and are managed by a third party. There could potentially be future investments in those funds which could fall foul of this definition as currently worded in the draft legislation. To the best of our knowledge, we do not believe we have any direct or indirect exposure.
The largest element of the global portfolio’s exposure is the €252 million in debt instruments. Will the ISIF explain how these debt instruments come about and their type of maturity? Essentially, when would they automatically wash themselves out of the portfolio?
Mr. Kieran Bristow:
We refer to the global portfolio transition strategy which is just a fancy name for how we invest short-term in liquid assets to ensure the money is readily available for investing in Ireland. Most of the debt instruments have a maturity of five years or fewer because that is the timescale over which we expect to need the money. These instruments have an average life of about three years with a maximum of five years.
Essentially, we are talking about hundreds of thousands of euro, not hundreds of millions euro. If the fund disposed of the equity of €36 million, the transaction cost would be pretty negligible.
Mr. Kieran Bristow:
There is one proviso. That would be correct for those in the direct portfolio. Our only concern about the indirect portfolio is that we could not sell out of those particular ones but out of everything. It would be a disproportionate cost for removing one’s exposure to a relatively small amount. However, that would only be if it were done quicker than five years.
Since we have already built in the sale and the realisation of these over five years, we do not regard that there is any increased cost because that will happen anyway. It was only if we had to realise it quicker.
To recap briefly, with regard to the €36 million of direct equity holdings in the global portfolio, there is no direct barrier to disposing of those and the transaction costs are minimal, of the order of approximately 0.7%. Regarding the debt instruments, there is an average maturity of about three years remaining so those will be extinguished at that point anyway. With regard to the pooled funds, I understand that is more complex. There are €3.5 billion of pooled funds, and within that Mr. Bristow has identified approximately €30 million that currently would meet the definition.
Mr. Kieran Bristow:
In essence, we would have to sell all the €3.5 billion. While the percentage cost does not sound a lot, because it is a percentage cost now of in excess of €3 billion the actual money amount is quite large; it is in the tens of millions of euro. That is only if we were asked to do it relatively immediately. We expect to realise it over the next five years and that there would be no additional cost given the current timescale in the Bill.
-----but Mr. Bristow has a concern about being constrained in the ability to invest in companies that currently meet the definition, although there is an acceptance that the definition may lead to change to take account of the transitioning issue Mr. Deane highlighted.
Yes. I have a couple of questions. Regarding the cluster munitions Act, Mr. Bristow stated ISIF identified 19 companies in which it will not invest. He said there was some discussion about whether aircraft companies should be included. I presume that is a company like Boeing, which might make a bomber aircraft that will actually drop the bombs. ISIF has not excluded Boeing as an investment. It is not directly part of the cluster bombs industry, but its aeroplanes could be used to deliver them. Is that what Mr. Bristow is talking about?
Mr. Kieran Bristow:
It was more in reference to the point Senator Burke made. It could make a component such as a piece of metal that was used in cluster munitions. Clearly, that is an extreme example. The point I was trying to make was that there are some stocks, and it would be the case with this Bill, where it is crystal clear that we should not own them, and then there is a grey area. We might have been thinking of a company more like Lockheed Martin.
Ms Emma Jane Joyce:
There are specific definitions in the cluster munitions Act. It references manufacture of cluster munitions. Cluster munitions are defined in terms of the number of bomblets. There are precise definitions associated with the Act. In addition, any dual use components are excluded. Even with those precise definitions, because of the secretive nature of the defence industry it can be difficult to get the necessary information to establish whether a company has exposure. We err on the side of caution. We operate to a longer list than that of many other entities that prohibit cluster munitions and anti-personnel mines for that reason. We want to ensure that we are well clear of what is required by the legislation.
I am not citing it in particular. I am saying that an aircraft manufacturer that makes commercial aircraft may also make military aircraft, which could be used in the delivery of cluster bombs. It is not excluded.
Mr. Bristow said that ISIF invests indirectly through Ireland in terms of the fund. I cannot recall the name of the fund but it is administered by one of the banks. Does Mr. Bristow know how many small and medium enterprises, SMEs, would be funded that he would perceive as being fossil fuel companies as defined by this Bill?
I have a final question. Mr. Bristow said that the Bill as currently worded could be interpreted as limiting ISIF's ability to invest in a wide range of sectors including SMEs, ICT and health care, and infrastructure. Could Mr. Bristow give examples of how ICT and health care could be excluded from that?
Ms Emma Jane Joyce:
We raised these issues pointing to the definition of "fossil fuel company" in the Bill, which is very wide. The big technology companies are big energy consumers and part of their business is often to look at alternative energy sources. These are often renewable based but sometimes they are underpinned by natural gas. The current definition describes a company whose business either wholly or partly engages in the use of these fossil fuels. It is to highlight that potential risk within, say, the ICT sector.
Within the health care sector, it is the big infrastructure. A hospital or a nursing home has a backup generator which burns fossil fuels. That would fall under the processing of fossil fuels. We understand that we do not believe these issues are the intent of the Bill but it points to the wide definition, which could be legally interpreted to be very wide-ranging if not tightly defined.
Mr. Kieran Bristow:
If I may intervene, we take the Deputy's point on the hospital, but if we consider the large software companies based here, they are setting up very large server farms, for example, that consume very large amounts of electricity. Generally, they are trying to do it with alternative energy, which we would support, but as Ms Joyce said, they may also require some back-up or access to gas-based energy.
Is the witness saying that someone with a data storage facility would or could be excluded on the basis of the fact that they have a connection to the electricity grid? That would be as per the interpretation of the definition of fossil fuel companies in this Bill.
Mr. Kieran Bristow:
It is not our intent to be picky and to point out all of these issues as if we cannot invest anywhere. As the terms of the implementation of our policy involve very wide definition, however, we feel that there are some very clear and obvious areas in which we will not invest. The wider the definition, the more we have to interpret it and pick out the particular areas in which we can or cannot invest. That was our intent in making that statement.
We are joined by the Minister of State at the Departments of Finance and Public Expenditure and Reform, Deputy Michael D'Arcy. He is very welcome and I congratulate him on his appointment. He was a member of this committee so we all wish him well in his ministerial role. I invite him to make his opening statement.
I thank the Chairman for the invitation to address the committee today on the topic of the Fossil Fuel Divestment Bill 2016. As the committee is aware and as outlined on Second Stage the Bill, which does not form part of the Government's legislative programme, gives rise to a number of concerns. However, as also outlined on Second Stage, the Government is committed to working on the Bill with Deputy Pringle and with the Oireachtas so as to help ensure a beneficial outcome. In this regard, this meeting is a welcome opportunity to contribute to the committee's deliberations.
I will take the committee through the rationale for the Government's position on this Bill including the underlying concerns and priorities.
As the committee will be aware, responsibility for Ireland's energy and climate action policies comes under the remit of the Minister for Communications, Climate Action and Environment. However, as the Bill seeks to amend the Ireland Strategic Investment Fund's investment approach through an amendment to the National Treasury Management Agency, NTMA, Acts, I, as Minister of State at the Department of Finance, must lead on it. The intention behind the Bill is well understood by both I and my colleagues in Government, including the Minister for Communications, Climate Action and Environment, Deputy Denis Naughten. In that regard, I commend Deputy Pringle for the work he has done in progressing the Bill to this stage.
This Bill was published at a time of significant developments in the areas of energy and climate policy, both nationally and internationally. In considering the intentions behind the Bill, there has to be careful consideration of its wider policy implications and we must never lose sight of the continuing reality of Ireland's dependence on fossil fuels for our energy and transport needs. Therefore, the Government does not think that ISIF's investment policy should be driving national energy and climate policy. Energy and climate policy should be decided in a holistic manner with energy and climate at its core, and with all factors considered, including our environment, our economy, people's jobs and our international obligations.
The Government also has concerns that the Bill, as drafted, poses real risks to ISIF's ability to support the transition of our economy to a low carbon economy and poses risks to employment. In addition, the Bill gives rise to a number of difficulties for the Ireland Strategic Investment Fund, ISIF, which I will address shortly. We must also take into account progressive actions already adopted by ISIF in relation to fossil fuel investments.
Ireland is currently heavily reliant on fossil fuels, which accounted for 91% of all energy used in Ireland in 2015. This is broken down between oil at 48%, natural gas at 27%, coal at 10% and peat at 6%. Ireland's climate and energy priorities together govern the national decarbonisation strategy in line with Ireland's climate change commitments. The issues of decarbonisation and the long-term transition towards a low carbon economy are central to the Paris agreement. The extent of the challenge here is well understood by Government and is reflected in the National Policy Position on Climate Action and Low Carbon Development, published in 2014 and the Climate Action and Low Carbon Development Act 2015. Critically, there is consistency and coherence between Ireland's climate and energy policies.
Similarly, the energy White Paper, Ireland's Transition to a Low Carbon Energy Future 2015-2030, published in December 2015, sets out a vision to reduce greenhouse gas emissions from the energy sector by 2050. Importantly, the White Paper highlights that fossil fuels will continue to have a key role in Ireland's energy mix even in a significantly decarbonised energy sector. In light of this, continued investment in fossil fuel related technologies and businesses is a necessity.
In properly considering this Bill, we must take full account of Ireland having a very high energy import dependency with over 88% of our energy needs met through imports in 2015. We have a significant security of supply dependency on imported fossil fuels, in particular from the UK. Although Ireland has an excellent relationship with the UK in terms of energy, it is possible that this could be further complicated by Brexit in the coming years. In order to ensure continued secure supplies of energy to Ireland in the future, investment from ISIF in strategic energy infrastructure may prove very necessary. This Bill, as currently drafted, would preclude such investment.
The Bill's definition of a "fossil fuel company" is of significant concern. It states, " 'fossil fuel company' means a company whose business either wholly or partly engages in the exploration, extraction, refining, processing or delivery of fossil fuels (geological deposits);". This definition appears to encompass a wide range of companies, including Bord na Mona and the National Oil Reserves Agency, NORA. It also appears to capture any business, local, national or international, involved in the delivery of fossil fuels. This could include local distributors of oil, gas, coal and peat products to homes and businesses across Ireland. This definition would prevent ISIF credit or equity funds from supporting Irish small and medium-sized enterprises which are active in these sectors. The definition also appears to restrict investment by ISIF in companies which are developing innovative technologies that could improve the energy efficiency of fossil fuel based processes. It may also restrict investment in technologies that could lead to improved air quality.
The former National Pensions Reserve Fund, NPRF, transitioned to the Ireland Strategic Investment Fund in December 2014. ISIF has a statutory mandate to invest on a commercial basis to support economic activity and employment in Ireland. All ISIF investments, since December 2014, comply with both this double bottom-line mandate and the fund's sustainability and responsible investment policy, which sets out key principles for responsible investment.
Historically, the only category of investment which was specifically excluded from the NPRF or ISIF was cluster munitions in accordance with the Cluster Munitions and Anti-Personnel Mines Act 2008. The NTMA is now conducting a review of the exclusion of categories of investment. The review includes a case-by-case analysis of all ISIF energy holdings in order to assess their sustainability and ultimately the investment case. ISIF acknowledges that companies which are most exposed to and least prepared for transition to a low carbon economy may be candidates for divestment.
The global portfolio of the former NPRF is being sold or divested over a period of years in order to provide capital for investment in Ireland, in line with ISIF's mandate. Energy investments in the global portfolio should be considered in the context of ISIF's Irish portfolio and its significant commitment to renewables. ISIF's investment strategy, and its €800 million energy allocation, is aligned with Government policy and the State's commitment to transition to a low carbon, climate resilient and sustainable economy. ISIF published its Sustainability and Responsible Investment Policy in July 2016, emphasising climate change as part of its investment decision making process. To date, renewable energy investment commitments include €44 million for the €500 million Dublin waste-to-energy project; a €35 million commitment to NTR's onshore wind fund; investment in the Bluebay SME credit fund which made loans to Gaelectric and Mainstream, Irish headquartered renewable energy developers; and being a cornerstone investor in the Irish Infrastructure Fund, IIF, which holds a number of Irish onshore wind assets, forestry and energy efficiency technologies. These are positive developments. However, the Bill, as drafted, would lead to ISIF investments being directed away from supporting the implementation of Government policy and many companies and businesses which are vital to the functioning of Ireland's economy and society.
I thank the committee for this opportunity to outline the Government's concerns regarding this Bill. As outlined, I want to constructively work with the committee to consider the provisions of this Bill, but also the wider implications. In all areas of public policy, it is during the implementation of legislation that it is critical to balance a range of policy priorities. In reference to this Bill, it is important to consider carefully how its provisions would be implemented. We must legislate appropriately and avoid any unintended consequences of the legislation which we enact.
The Government is concerned that unintended consequences of this Bill, as drafted, could impact on the activities of both commercial semi-State and private companies which are focused on developing climate-friendly and energy-efficient policies and technologies. During his closing address on Second Stage, Deputy Pringle, as well as other contributors to the debate, indicated a willingness to work closely to allay concerns regarding potential impacts from divestment. I welcome this and I reiterate that I am committed to working closely with colleagues to achieve that same shared objective.
I welcome the Minister of State and congratulate him on his elevation and his new portfolio and wish him well, and welcome the rest of the delegation.
I take it from the Minister of State's speech that the Bill, as drafted, would require big changes to comply with current Government policy.
If those changes were made would the Government take the Bill on board?
While absolutely accepting the bona fides of the Bill, we very clearly think this is the wrong method to deal with climate change. The ISIF fund evolved from the NPRF. Put into context, this legislation would have a direct investment impact on €288 million of assets. There would be an indirect impact on a further €1 billion worth of assets. We just do not feel this is the right method to deal with climate change. We think there are better ways of doing it. We just do not feel this is the right vehicle in which it should occur.
I welcome Deputy D'Arcy as a Minister of State as opposed to a committee member, which he was up to several weeks ago. Although I was not here for his speech, I managed to see quite a bit of it on the monitor and I had read it in advance.
He and the Department have reservations about the Bill. Earlier we heard that €131 million of investments are caught up in fossil fuel on a global basis. Over time the ISIF is transitioning away from global investment. We could ask whether this is necessary but, equally, if the ISIF is doing what it will do anyway what is the real problem with this being done? I can understand the logic of stating it is a timing issue, but it seems that over time it will happen anyway. Would the definition of fossil fuels cover a company involved in plastics, as most plastics are derived from oil? Perhaps the Department has a view on whether somebody making plastic extrusions or using oil not as a fuel but as a material for a product would be included. I can see there could be reservations on this basis. If the repositioning from global to Ireland is happening anyway what is the problem?
The NPRF's objective is to get the maximum return. The ISIF fund is different. It has different criteria to meet. The funds coming from those external global funds and shares or stocks or wherever they are invested will be divested over a period as required, and there is a requirement in the State for a commercial return to have an economic impact. It is equally important that areas in the State that current market structures are not prepared to fund are funded. When the ISIF was established, I was on the committee with other members and we were not sure whether it would be as good as what we hoped, but it has proven to be. It has made much significant investment in Ireland at a time when funding was not otherwise available. The point is there is €131 million to come in. There is €288 million in funds in indirect investment. The term indirect investment creates a real concern. ISIF has invested in BlueBay and Carlyle, which fund Irish companies. By any reading of the Bill, these companies would be excluded if they had any direct or indirect attachment to the fossil fuels industry.
The €35 million that ISIF has in the SBCI, which provides funding to small and medium enterprises, could also, by the reading of the Bill, exclude those small and medium enterprises from receiving funding because of the legislation. It could be the consequence. As I said earlier, we just do not think this is the correct method to deal with it. An enormous quantity of work would have to be done to try to see exactly where is the €1 billion in indirect investment. It is a calculation. There is also the impact it could have on plastics. I am sure there are other areas in which companies could be under pressure.
Earlier I spoke to a geophysical surveying company. It has 12 high-end high-value staff in rural Ireland. These are the types of jobs we are trying to keep throughout the country. The managing director told me very clearly he does not have anything to do with the fossil fuel industry, but a geophysical surveying company could be caught under the Bill. The SBCI does not offer cheap loans. It offers loans at market rates. A company needing this support could be excluded, and it could cost, for example, 12 jobs at a point when we do not think it is quite necessary.
The ISIF and NPRF are divesting from companies not making an attempt to go down a low carbon route. It would be better if they are allowed to do this in a more co-ordinated way over a five year period. The ISIF is clearly one of the more capable funds. I am not sure whether the actions the ISIF takes to address climate change risk have been discussed. It is a long-time signatory of the principles for responsible investment. It is the only Irish asset owner which has been a signatory for more than ten years. The fund is a long-time carbon disclosure project supporter, and has actively supported the global and Irish network asking companies to disclose their carbon footprint. The fund operates a sustainable and responsible investment policy, which was published in July 2016. It is specifically focused on climate change and the steps being taken to address risk in the portfolio. At present, it is tendering for additional services in this respect. The fund is aware of risks posed by stranded assets as the world transitions to low-carbon solutions, and is committed to doing a case by case analysis of all its energy holdings to assess the sustainability and, ultimately, the investment case for these companies on an individual basis. This process is under way in those companies, and a long-term solution will need long-term financing. Divestment on a very limited basis may be appropriate. The ISIF is already doing a lot. The structure is in place to do this over a five year period. I do not believe the Bill is the best method by which to continue. We believe there could be unintended consequences that would have a cost for the small and medium enterprise sector.
The point was made that not only is there a moral argument for this but as coal and oil become less acceptable and as people move disruptive technology towards electric cars, solar power and wind, the commercial viability of these companies over time is likely to decrease. There is not just a moral argument as to why we might do this, but it makes sense, similarly to moving away from cigarettes, to move away from these types of investments, and towards new technologies once they have been proven to a certain extent and are viable and valid. I am using these figures I received in reply to a question and I do not know where the €131 million or €288 million are. Would it not be better from a commercial point of view, let alone any other argument, to move away from investing in mines in China or oil sands in Canada and reinvest the money in newer cleaner sources of energy?
I completely agree with Senator and the ISIF is doing this. It is important to understand and recognise it is doing this.
There is a process in place and the expectation is that it would be concluded in five years.
I do not want to say that it is unnecessary but that is the policy to which ISIF is adhering. The correct figure is €288 million, in terms of direct investments and €1 billion in indirect investments. We cannot ignore the fact that Ireland is very heavily reliant on fossil fuels. Approximately 91% of all our energy requirements in 2015 was met by fossil fuels - 48% by oil, 27% by natural gas, 10% by coal and 6% by peat. We are trying to move away from that heavy reliance and the Government's climate change strategy, in terms of adhering to the Paris accord, means that will happen. However, we believe that ISIF should be allowed to do it over a five year period.
I take the point that we are very heavily reliant on fossil fuels but regardless of whether the Government invests or ISIF invests, we will still be reliant on fossil fuels. The argument about being very heavily reliant on fossil fuels does not mean that we have to invest in them, or does it? What is the logic?
It does not mean that at all but we are divesting of those types of assets, particularly those that are not moving towards a low carbon structure. They are going to come under financial pressure, one way or another, in the future. We believe that ISIF is going in the right direction and that it should be allowed to continue.
The real concern is that what the Bill does with regard to direct and indirect investments means that there could be unintended consequences that could catch out a lot companies throughout the country and do a lot of damage to them.
I accept the point the Minister of State is making. Perhaps I should phrase this differently. Leaving aside the unintended consequences, is the Minister of State suggesting that what the Bill is trying to do, ISIF will be doing anyway over the next five years?
I apologise for missing the start of the meeting but I have read the Minister of State's paper. The Minister of State made reference to the fact that the Strategic Banking Corporation of Ireland, SBCI, does not provide cheap loans. That was also mentioned by the previous contributor but I would actually dispute that because it does. That is part of its rationale, to provide cheap credit to SMEs. I wanted to make that point.
I will clarify that issue, if I may. The impression seems to be that SBCI loans are cheap or are really good value but they are only a little bit cheaper than the market. In percentage terms, the amount is small. The SBCI is not 4% or 5% cheaper than the market. It is only a little cheaper.
While it is not the subject of this meeting, it has been mentioned twice, both by ISIF and by the Minister of State. The first thing that the SBCI advertised on its website was lower interest rates. The website gives the example of a loan of €400,000 through ISIF in comparison with existing leasing or loans and the difference is approximately €30,000. It is almost 50% to 60% of the cost of an existing loan in the regular market. I will park that to one side now, however, because it is not the subject of this meeting. I wanted to say that SBCI provides cheaper, flexible loans.
I missed that section of the meeting during which Deputy Michael McGrath went through the figures provided in great detail but there seems to be a mismatch in terms of those figures. The figures that were presented to this committee heretofore are €36 million in global investments and €252 million in debt instruments, which are typically between three and five years. These figures combined give the €288 million figure, with which the Minister of State agrees. We then move on to the other investments, namely the investment portfolio of €3.5 billion, which is pooled funds. The portion of that to be captured by this legislation is €30 million. That is what has been presented to us by ISIF. A figure is now being presented to us of €1 billion and it is important that we get some clarification, now or later, of how those figures can stand side by side.
The concern is that the definition of indirect investment in fossil fuels is so wide that it could catch so many areas in so many ways that are unintended. That is what we are saying. A fossil fuel company is any company whose business, either wholly or partly, engages in the exploration, extraction, refining, processing or delivery of fossil fuels. The figure we have put on this is that it could potentially catch up to €1 billion in indirect investment assets.
How can departmental officials be more knowledgeable than ISIF about how much would be captured? The latter is making and managing the investments and is completely familiar with the portfolio but has provided a figure of €30 million. We are not talking about small change here. There is a difference of almost €1 billion between the figures.
ISIF is only applying that to the €288 million - the producers and processors. The €30 million applies to the €288 million figure. The €1 billion that we are talking about relates to the €3.5 billion in the global assets under ISIF's aegis. There could be a company with an investment of X amount. The company may require a figure of multiples of that amount in order to exit because the fund or company is captured by this definition.
I do not want to labour this point but we do need to get this matter resolved. Perhaps we could do that outside of the meeting, by way of correspondence. ISIF was very clear. It said that there was €36 million in terms of the global figure and €252 million, which adds up to €288 million. That is not disputed by the Department. In regard to the €3.5 billion of pooled funds, ISIF said that €30 million would be captured by this legislation whereas the Department is suggesting that the figure is €1 billion. This must be clarified here today or clarified through correspondence to the committee.
If I am not clarifying it, I apologise. The €288 million figure covers processors and producers of fossil fuels. These are the companies that extract coal, oil, gas and so on. That is the direct investment element. The concern is that the definition is so wide that it could include companies that, as Senator Horkan said, produce plastics, for example. Such companies might be captured. There is a silage wrap producer in Gorey, for example, which could be captured by this. If a fund in which ISIF was involved had invested in that company, it could be obliged to sell those shares because the plastic wrap company is captured by the definition. I hope I am explaining this adequately.
I ask that the Department would give us a note on this because as Deputy Doherty has said, these figures were considered and, in terms of companies exposed, 153 were mentioned.
Purely fossil fuel companies.
The bank referred to a global figure of €36 million, and the figure for debt instruments was €252 million, totalling €288 million. Out of the €3.5 billion, it was stated the figure was €30 million. It was said that the figure on the Irish side was nil and that, to deal with the €30 million in terms of sales, one is looking at 0.5% to 1% in terms of costs. It was said that if there was a definition included at that stage, it would deal with the issues the Minister of State is talking about. Those that are down the pecking order, as the Minister of State described, may very well be placed into a category or under a definition that would exclude them. Maybe it is a definition that we have to consider. Those are certainly the figures we got earlier. Could we have a note on this?
I appreciate that. The issue is one of definition in terms of how both ISIF and the Department are applying this. It would be helpful to have the full information.
Is the position of the Government that it is going to vote against this legislation?
I appreciate that.
When ISIF representatives were before us, they told us they have no problem with legislation being passed that would prevent them from investing in a global portfolio including fossil fuel companies. Does the Government oppose that position?
The current policy is that is the case. It is the current legislation. The NPRF has the opportunity to invest in a company to get the maximum return. ISIF funding is divested from the global pot to invest in Irish companies that provide Irish jobs. ISIF will implement the policy. The policy is based on legislation. It is determined now in the new political arena here. Whatever the decision, the Government does not now have the opportunity to say "Yes" or "No" to this, as the Deputy knows. The matter will be decided by the parties involved if it goes to the floor of the Dáil.
First, it would be very helpful and a very strong statement if the Dáil spoke with one voice on this. It may not be possible. There is an issue in that ISIF is doing a certain amount of work anyway as a result of its divestment of its portfolio. Let us be clear: the divestment of the ISIF portfolio has nothing to do with fossil fuels. It is divesting from renewable energy. It is divesting from everything in the global portfolio so it has nothing to do with fossil fuels. The issue is whether we will send out a signal that the Parliament is saying we are recognising the emerging threat of climate change and taking action, and that State money will not be invested in fossil fuel companies in the future. That has not happened. It is a consequence of a decision we took in Parliament a number of years ago reflecting a view that we wanted to invest in Ireland as opposed to internationally but that equally means that ISIF is also selling shares in renewable energy wind farms or solar farms in which it could be investing. It has nothing to do with climate change, global warning or fossil fuels. It is a question of principle. Does the Government believe the Irish investment - our money - should not be in fossil fuel companies internationally?
The answer is that ISIF is doing that anyway. It is divesting from fossil fuel investment. That is what we are hear to talk about. We believe it is best that it be done over the five-year period in line with existing policy. We are concerned that there are companies that could be excluded from funding by the indirect consequence of the definition. That is the main concern.
Deputy Pringle's legislation matches the five-year term, which is agreed. We can nearly park that issue because ISIF is divesting anyway. It is the Government's stated objective that it happen. It is the objective within the legislation. The only question, then, is whether the Government wants a legislative block on this.
What if the definition of "fossil fuel company" were altered to ensure that indirect providers, such as a plastics company, are not affected? We can blow these matters out of proportion. I do not know whether ISIF is investing in the company with the 12 employees to whose representatives the Minister of State was talking on the last day. We can talk about the Strategic Banking Corporation of Ireland and its fund and its lending. It is a small amount of money in the context of how much is lent by the banks each year. It is not as if this is the only show in town and they are providing all this money and that the bottom will fall out of it if they cannot support the plastics company in Wexford that is making plastic to wrap silage. If the definition is altered to ensure it captures the spirit of the legislation, such that there would be no direct investment in direct fossil fuel companies and those with a large stake in terms of fossil fuels, will the Government then support the Bill?
I am asking the Minister of State to stop hiding behind the matter of indirect consequences affecting the plastics factory or the person delivering the coal from door to door, as mentioned here. I asked these questions to our guests earlier because I wanted to put their opinion on the record. In a way, the Government is hiding behind the real issue. If we deal with the definition that excludes certain companies and get to the core of it, should we be using Irish resources to invest in fossil fuel companies in Ireland? Does the Minister of State support the idea that we should bar this or not?
With regard to where those companies are involved in green energy, if the definition were altered to allow for continued investment by ISIF, in respect of which an arguable case has been made before this committee today, including by the promoter of the Bill, the issues can be dealt with. Where there is a will, there is a way. It is right to say the Government does not have a majority and that it is up to the Parliament. Legislation of this technical nature requires the support of the Department to be able to get it right. If we can address the issues I have mentioned, on which some consensus has emerged in terms of not capturing or dealing with the unintended consequences, where will the Government stand regarding the core principles of the Bill?
The core principles of the Bill have been accepted regarding the bona fides concerning what the Bill is about but we feel this is not the right tool with which to have an impact on climate change. Other Departments would have to be consulted, including the Department of Communications, Climate Action and Environment and, most likely, the Departments responsible for transport and energy. We would have to have a conversation with all those to try to ensure this Bill does not result in unintended consequences. Consider the security of supply issue concerning fossil fuels required in Ireland. We are at the end of a long chain and have been for quite some time. What happens regarding ISIF if a company investing in fossil fuels is prepared to provide capital in a partnership with the ESB, Bord na Móna or another body for an interconnector? Is it excluded? There are many unintended consequences that we believe could flow from this. We do not feel it is the correct method by which we should deal with the matter. As I said earlier, ISIF has a decent record on how it is dealing with this and trying to divest from companies that are not moving towards a low-carbon strategy.
Hang on a minute. The figures speak for themselves. Over €300 million of Irish taxpayers' money is invested in global firms abroad that are fossil fuel companies. The Minister of State is arguing that those figures could be higher with all the unintended consequences. People are involved in coal extraction and other types of activity worth €300 million. The fact they have divested from the business is a consequence of a previous decision. It has nothing to do with the record of the fund on the environment. The fund would still have been investing in these products were it not for the fact that three years ago we took a decision that all investment should be put back on Irish shores because capital expenditure had been cut dramatically. The record is not squeaky clean on this. I do not think we should try to paint a rosy picture.
I am not trying to paint a rosy picture. The National Pensions Reserve Fund had a single objective: to maximise funds on behalf of the Irish nation. The fund invested. Then, the strategy changed. It was altered and moved towards bringing the money home to invest in Irish companies to benefit Irish jobs. Without having made that decision years ago, we would not have an extra 220,000 jobs in the country at the moment.
Regardless of the current position and strategy of ISIF, does the Minister of State believe there should be no legislation to prevent the fund from investing in dirty industries that are dangerous to the environment and that add to the pressures on climate change? Does the Minister of State believe there should be no legislative change, which is what is at the core of this Bill?
I think it is important to defend the fund. Earlier, I noted the actions ISIF is taking to address climate risk. I think the record of the fund is better than most. It is the only fund in Ireland that is a signatory to the principles for responsible investment. It is important to put that on the record. Deputy Doherty used the terms "dirty" and "dangerous". I do not believe that is what ISIF is investing in.
Certain fossil fuel companies are dirty and dangerous. Earlier, someone touched on oil sands in Canada and so on. ISIF is responsible and is doing what the principle of the legislation is asking. I believe this is not the correct method by which to deal with it. It is a matter for other Departments to deal with it. This could have concerning unintended consequences and we are highlighting those unintended consequences. That is why the committee is undertaking detailed scrutiny. We are flagging that this is a concern. It is a legitimate concern at the moment.
I congratulate the Minister of State on his appointment. I am somewhat confused. The Minister of State is suggesting that ISIF is doing all this anyway and so there is no need for legislation. By the same token, he is suggesting the legislation will have no impact on what ISIF is doing already.
Earlier, the Minister of State cited the example of a small company involved in geological survey and how it has no connection to the fossil fuel industry and employs 12 people. How would such a company be affected by it?
I asked the managing director of the company whether the company had ever done work for a fossil fuel company. It has. It is approximately 3% of the work of the company. The company would be affected. The company does a small amount of work for fossil fuel companies but it is affected. If that company was fortunate enough to get funding from the Strategic Banking Corporation of Ireland, then it would be excluded and 12 jobs would be put at risk for the lower rates - they are not cheap rates - potentially available. It is an example of the small high-value companies in rural Ireland that we keep hearing about and that need support. That support would be excluded because of this Bill.
That is fair enough. There is a provision that is accepted in international investment to the effect that small and medium-sized enterprises can be exempted from what is called the environmental social and governance aspects of investment. Basically, this is to overcome the specific problem that the Minister of State has adverted to. It is perfectly reasonable for the Bill to be amended to exempt small and medium-sized enterprises from the economic, social and governance requirements in recognition of the fact they are small companies and not capable of doing what is required. It is also in recognition of the fact that ISIF is providing this funding through the Strategic Banking Corporation of Ireland. If that were achieved, the company that the Minister of State cited as an example would be exempt because it is an SME. Therefore, it would not be at risk. It is possible that even the company, cited by the Minister of State, that makes silage wrap would be exempt as well because I imagine it is covered as an SME. Notwithstanding that, the Minister of State does not believe this legislation should be enacted because it is not necessary. Is that correct?
What we are saying is that it is not the correct vehicle to impact on climate change. The unintended consequences could be grave. I realise Deputy Pringle is saying he would like to have SMEs exempted. However, that would depend on the legislation and what is changed. Let us suppose the Bill is passed on Committee, goes back to the Chamber and everyone is satisfied. A vast quantity of work would need to be done to conclude a conversation with the other Departments, including the Department of Transport, Tourism and Sport and the Department of Communications, Climate Action and Environment, to try to ensure there are no unintended consequences. Furthermore, we could have a large company prepared to act or get into a partnership with a company that may have funding or a seam of funding from a fund that is potentially backed by fossil fuels. We are concerned for several areas where there might be requirement, for example, interconnectors. No one knows where Brexit is going. We hope an arrangement or deal will be concluded. However, we may have to try to have interconnectors from here to the Continent excluding Britain. Much of our flow of energy comes from Britain. Some of our electricity comes via the North-South interconnector. Does that exclude any of those projects that may flow? This Bill will not stop it.
The Minister of State gave examples involving ESB and Bord na Móna. As part of their transition plan from fossil fuels, ISIF could fund those companies for transition projects. I do not believe ISIF could continue to fund them to build peat-burning power stations or coal-burning power stations. However, funding could be allocated as part of their transition plans. Does the Minister of State see any merit in that?
Does the Minister of State envisage ISIF getting involved in such funding? Does he believe that would be too restrictive? Does he believe the fund should still be able to invest in an upgraded Moneypoint plant for ESB?
I am referring to dealing with investment policy in terms of climate change. The Bill would have a major impact on the fund, its work and how it is managed. We have outlined the potential unintended consequences. ISIF will take instruction from the Parliament, because the Parliament will decide on policy. If we want to prevent ISIF from participating in peat-burning stations somewhere, the Parliament can do that without this Bill.
The problem is that we believe there is such a wide definition. We believe that is an error. It is as simple as that. We do not believe this is the way to deal with it.
If the Deputy were to decide to come in with an anti-peat burning Bill it would be considered. We do not think, however, that that is the method.
The Department would certainly be happy to sit down and discuss these matters. The background of ISIF is good. I am slightly concerned that terms like "dangerous industry" and "dirty fuels" were used in the Deputy's absence. ISIF has a good track record in the level of investment. It is divesting in the areas that have their head in the sand when it comes to progressing to a low carbon strategy. ISIF is taking these measures anyway.
We will now consider the discussion that we had today with the various groups that came in. The committee will make its recommendation as soon as possible as to whether we go forward and present our report. We will make that decision.