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.