Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

I thank Deputy Fleming for introducing this Bill and note its progress through First Stage on 19 January. He made reference to my own interests in this regard. The first Bill I introduced as a backbencher in the previous Dáil was very similar to this legislation. It concerned investment policy for our National Pension Reserve Fund, as it was at the time, and divesting from investments held at the time in nuclear weapon development companies and delivery vehicles for such devices. It never made it to a Second Stage reading, unfortunately, and did not make it to Committee Stage as a result. It is important we have the Second Stage reading of this Bill, get it to Committee Stage and get to iron out some of the issues we have with the Bill. However, these are minor in so far as the general intent of the Bill is concerned.

The intention behind the Bill is well understood by both me and the Minister for Finance and colleagues in government, including the Minister for Health, Simon Harris, and the Minister of State with responsibility for health promotion, Deputy Marcella Corcoran Kennedy. The Government considered the Bill at its meeting on Tuesday, 28 March. In doing so, the Government constructively engaged with the issues raised, in accordance with its responsibility to address and evaluate proposed legislation, irrespective of whether initiated by Government or by a Private Member, as is the case here. The introduction of this Bill is useful in that it allows the Oireachtas to have a constructive discussion on how such an important cross-cutting issue as ethical investment can be accomplished in the context of existing Government policy on tobacco control.

As I have said, the Government fully understands the intention behind the Bill and I commend Deputy Fleming for his work in preparing and introducing it.

The Government has agreed that the best approach is not to oppose a Second Reading of this Bill as it agrees with the principle behind it. Notwithstanding this, there are several uncertainties regarding the Bill's scope and detailed provisions, many of which appear to arise from the drafting of the Bill. Of course, subject to the Bill progressing, I hope that Committee Stage will afford an opportunity to address and resolve these matters. In this regard that I reaffirm the Government's commitment to work with the Deputy and other interested Members of the Oireachtas, in order to agree the best way to implement the provisions of the Bill.

I am happy to say that this Bill is in line with current Government policy on public health and tobacco control. A Programme for a Partnership Government commits the Government to making several public health interventions, one being to make Ireland tobacco free by 2025 which, in effect, would mean that less than 5% of our population would be smokers. As the Deputy may be aware, Ireland has gained a significant international reputation as a tobacco control leader in recent years and is ranked second out of 34 European countries in this regard. Ireland has implemented a wide range of progressive tobacco control policies, the most recent being the signature this week, by the Minister of Health and Minister of State with responsibility for health promotion, of a commencement order which will facilitate legislation for the standardised packaging of tobacco to come into force in September 2017. This is a further progressive step taken by Government in the important area of tobacco control. These measures are important, given that smoking is a significant cause of ill-health in Ireland, and the measures are having a real impact.

The publication of this Bill also follows some important recent developments such as the divestment by the Ireland Strategic Investment Fund, ISIF, of its tobacco holdings in December last year. Having taken all of these matters into account, the Government, at its meeting this week, took the decision not to oppose the Bill.

In his contribution on First Stage, the Deputy referred to certain tobacco investments held by ISIF and indicated that the purpose of this Bill is to prohibit such investments. As he will be aware, in December 2016 ISIF divested itself of these investments. The National Treasury Management Agency, NTMA, chief executive, Mr. Conor O'Kelly, informed the Minister for Finance that, following a review of its tobacco investments, the NTMA's investment committee had taken a decision to divest all tobacco investments. The letter from Mr Conor O'Kelly was lodged in the library of the Houses of the Oireachtas, for the information of members of the Oireachtas, on 21 December 2016.

The divestment related to all tobacco manufacturing debt and equity holdings. As part of this divestment, managers were instructed not to invest in such companies. The updated position of ISIF investments will be reflected in the NTMA's annual report which is due to be published during the second quarter of 2017. In light of this, I accept that the purpose of the Deputy's Bill is not, primarily, to prohibit such ISIF investments, given its divestment decision, but to instead prohibit the, admittedly unlikely, potential reinvestment by ISIF in tobacco companies. This is acceptable, but should be considered in the context of the concerns that I will outline shortly about a potential small level of indirect exposure under ISIF's global portfolio, and the need for a certain level of flexibility.

As outlined, notwithstanding the Government's position on it, there are some uncertainties regarding the Bill's exact objectives and the scope of its provisions, arising from what we perceive to be drafting imprecisions. The Government expects that the Bill will require significant work on Committee Stage in order to tease out the various definitions and determine exactly what the Deputy intends the legislation to cover in terms of its scope. Until we have had that opportunity, there will be a degree of speculation regarding the precise objectives and scope of its provisions. This evening provides an opportunity to quickly articulate some of these concerns.

The purpose of the Bill, as per its drafting, appears to be to seek to prohibit investments through voted expenditures in tobacco, as well as the investment by non-voted public entities, such as ISIF, in tobacco. However, it would be helpful to clarify the exact scope of the Bill's provisions and the precise details of the intended definitions. The Bill provides that an investor must be satisfied that there is not a significant probability that public moneys will be invested in a tobacco company. As the Bill appears to cover both voted and non-voted expenditure, this would impose an uncertain, and potentially onerous, level of responsibility on any public sector treasury manager in how they invest cash. For example, pension funds in the commercial and non-commercial semi-State sector might hold pooled investments or investments in market indices products. Pooled investments refer to funds from a range of sources which are aggregated for the purposes of investment. The public sector entity may not have access to the detailed investment data and, therefore, may not be in a position to fully satisfy itself to a significant level of probability that the pooled investments are not in some way exposed to tobacco investments. In addition, terms included in the Bill such as "satisfied" and "significant probability" are imprecise and are open to interpretation. In dealing with these provisions it might be advisable, for example, to set a required level of due diligence, and what form that due diligence should take, in order for the investor to be satisfied. Such pooled investments could be very small and insignificant in the context of a broad diversified portfolio, as most of the public service pension obligations are unfunded. However, in order to avoid significant compliance costs, it would be worthwhile inserting an exemption where tobacco stocks are held in small quantities of the overall investment value as part of a pooled investment fund.

The Bill also makes reference to indirect investments. These are undefined and slightly vague. Referring to the previous example regarding an investor's access to investment-related information, this broad and undefined reference to indirect investments is potentially problematic as it does not sufficiently define what types or forms of investment it seeks to cover. By way of example, while ISIF currently has no direct investment in equity and debt securities issued by tobacco manufacturing companies, its global portfolio has approximately €3.7 billion of investments in collective vehicles or investment products, some of which have exposure to tobacco companies. To be clear, this is not €3.7 billion of tobacco exposure, but of total pooled investments. These pooled investments are market indices, which would include a very minor percentage of tobacco equities or debt. ISIF estimates that, as of November 2016, approximately €17 million of the €3.7 billion is exposed to tobacco. ISIF has advised that there should be some flexibility around the term "indirect", as also suggested in regard to the pooled investment issue under public sector pensions. This would provide scope to deal with portfolio management issues that may arise.

The flexibility might be in the form of a given timeframe to divest and toleration for a low exposure threshold such as less than 0.1 of 1%. Such minimum exposure thresholds are used by funds elsewhere. Otherwise, it could be very difficult for ISIF to implement zero tolerance or full prohibition of tobacco investments. These interpretation and implementation challenges could be dealt with on Committee Stage, if the Bill progresses beyond Second Stage.

It is important to consider the public health aspect of this Bill. I am sure the Deputy is well aware that smoking is a significant cause of ill-health in Ireland. It is one of Ireland's most serious public health challenges, with the greatest burden of disease, disability and premature death falling on the most disadvantaged in society. It has been estimated to cost Irish society a total of €10.7 billion annually in health care, productivity and other costs. The Government is committed to changing that through the implementation of the tobacco free Ireland policy, and this is reaffirmed by the programme for partnership government. Ireland has implemented a wide range of progressive tobacco control policies, including: cumulative increases in excise duties; the workplace smoking ban; the ban on point of sale display and advertising of tobacco; and the ban on smoking in cars.

This week we saw the signing of a commencement order for the standardised packaging of tobacco to come into force in September 2017. This is a further progressive step taken by Government in the important area of tobacco control. These measures are having an impact and the cumulative effect of Ireland's tobacco control measures has been a decrease in the number of people smoking, as evidenced by recent surveys. Reflecting this noteworthy progress, Ireland has a significant international reputation as a tobacco control leader in the past few years.

The Government considers this to be a well-intentioned Bill. It shares Deputy Fleming's ambition to ensure that legal provisions for State investment and expenditure are in accordance with and support the Government's policy on tobacco control. Such legal provisions will further build on the progressive steps which Ireland has taken in this core area of public health policy. In all areas of public policy, the implementation of changes to existing policies or arrangements is critical to ensuring the effective achievement of the policy. Indeed, once we have agreed on what must be done, we must turn our focus on to how it should be done. In this regard, it is important to consider carefully at pre-legislative scrutiny and Committee Stage how the provisions of this Bill would be implemented.

Regulation, by way of legislation, is one of the three key levers of formal State power; together with taxing and spending. It must, therefore, be used wisely, appropriately and proportionately; and, in legislating, we must ensure not to do more harm than good. This is particularly important in respect of preventing significant sales of existing State holdings in ISIF that may be caught under the current proposed Bill.

The Government is concerned that this current Bill, with its imprecise and vague definitions, could lead to interpretation and implementation challenges. I have articulated these concerns to the House. In the context of Ireland's progress in the area of tobacco control, and the commitment of the Government to make Ireland tobacco free by 2025, I reaffirm the Goverment's commitment to work with colleagues of both Houses to resolve the aforementioned concerns on Committee Stage if the Bill progresses. It is on this basis that the Government does not oppose giving the Bill a Second Reading.

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