Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I am pleased to be in the Seanad today to take Second Stage of the Fossil Fuel Divestment Bill 2016.

This was a Private Members' Bill drafted by Deputy Thomas Pringle. I take this opportunity to record the Government's appreciation of this valuable initiative. In particular, I thank Deputy Pringle and his staff for their constructive engagement with officials in the Department of Finance, which led to substantial amendment of the Bill in the Dáil. I believe the Bill before us today is better and more robust for this process.

The purpose of the Bill is, in brief, to restrict the Ireland Strategic Investment Fund from being invested in fossil fuel companies. The direct scope of the Bill is, therefore, relatively limited. However, it is part of a broader movement away from reliance on fossil fuel investment and on fossil fuels themselves.

There is a market-making aspect to the Bill in that restricting fossil fuel investments may help to drive further investment in sustainable and alternative energy. It is vital that we collectively work towards reducing the State's fossil-fuel dependency if we are to play our part in addressing the urgent problems of climate change.

This Bill will amend the National Treasury Management Agency (Amendment) Act 2014. This is the Act under which the Ireland Strategic Investment Fund, ISIF, was established, and which sets out its investment mandate. Senators will recall that the funding for the ISIF came originally from the National Pensions Reserve Fund. The ISIF is partly invested in Irish banks under the directed portfolio. The investment mandate for the balance of the ISIF is to achieve a commercial return in a manner designed to support economic activity and employment In the State.

The Bill will operate by further developing the investment mandate to include an effective prohibition on certain investments. This will be achieved by inserting a new section 49A into the 2014 Act, the text of which is set out in section 1, paragraph (b), of this Bill.

Section 49A(1) sets out key definitions for the purposes of the section. Notably, a fossil fuel undertaking is defined as an undertaking for which at least 20% of its turnover is derived from exploration for, or extraction or refinement of, fossil fuels, or a holding undertaking or higher holding undertaking of such an undertaking. Where a fossil fuel undertaking is part of a group structure, the group is also a fossil fuel undertaking if the aggregate group turnover in respect of fossil fuel activity exceeds that 20% threshold.

The State's climate change obligations and the national transition objective are defined as having the same meaning that they do in the Climate Change and Low Carbon Development Act 2015.

Section 49A(2) contains the key provision of the Bill. It specifically requires the NTMA, which is the custodian of the ISIF, to endeavour to ensure that the assets of the ISIF are not invested in a fossil fuel undertaking within the meaning of the section. Where the NTMA becomes aware that assets of the ISIF are invested in a fossil fuel investment, it is required to divest the fund of those investments as soon as practicable. This may arise if, for example, the fossil fuel aspect of a business or group increases substantially in value relative to the rest of the business, or where a business or group divests a substantial portion of non-fossil-fuel assets. In that case, the NTMA will be required to divest from the business or group within a reasonably short timeframe.

Section 49A(3) requires the NTMA to endeavour not to invest in indirect investments unless it is satisfied that those investments are unlikely to have more than 15% of their assets invested in fossil-fuel undertakings. Indirect investments include investment vehicles such as pooled funds. Where the NTMA invests in such instruments, it targets low exposure to fossil-fuel undertakings. However, the nature of those investments means that the underlying asset pool and the value of individual assets within the pool is dynamic. If the tolerance threshold is set too low, it may effectively lock the NTMA out of any such indirect investments. Accordingly, a 15% limit has been stipulated.

The 15% limit specified is very much an upper ceiling, not a target; it is set at that level to allow for the fact that short-term factors can cause significant fluctuations in the value of assets. In practice, the target exposure will continue to be very much lower. Provision is also made in this subsection that the Minister may, by order, decrease the maximum percentage exposure permitted. When the NTMA has experience implementing these new rules, the Minister will be able to determine whether it is practical to reduce that 15% maximum.

Section 49A(4) provides a limited exemption from the restriction on direct investment. Direct investment in a fossil fuel undertaking may be permitted only if the NTMA has satisfied itself that the investment concerned is consistent with the achievement of the national transition objective, the implementation of the State's climate change obligations and Government policy as notified to the NTMA by the Minister for Communications, Climate Action and the Environment. This exemption is provided to ensure that investment in a project is not automatically prohibited where its aim is to assist in transition or increase efficiency. Subsection (5) puts in place a specific reporting obligation that the NTMA must report that it is using the subsection (4) exemption when it announces the investment in question. This is a transparency measure to ensure that any such investment will be clearly identified and open to scrutiny.

Finally, going back to paragraph (a) of section 1, this provision amends section 49 of the 2014 Act to require the NTMA to report on measures it takes in accordance with the new section 49A. This will include the reasonable measures it takes to confirm that it complies with the restrictions on investment, the cases in which the investment has been used, if any, and what investments it has divested from.

The Bill is relatively short, but will have a significant effect on how the NTMA invests the ISIF. I understand the NTMA's preparations are already under way and I welcome this.

I will also give the House an indication on timing. The Bill itself does not have a commencement date, which means that it commences on enactment. However, this will not give full force to the Bill's requirements. This is because the new provisions are being inserted in an Act which requires commencement orders.This means that to come into effect, the new amending provisions will have to be commenced separately under the 2014 Act. As the provisions will have immediate effect, meaning that the divestment requirement will apply from the date of commencement, there will be a short delay before commencement. The NTMA’s preparations for full and meaningful implementation of the new provisions are well advanced, but they will need to be completed prior to commencement. Therefore, the Minister intends to give full effect to the provisions of the Bill once the NTMA confirms that its preparations are complete. He expects to be in a position to do so during quarter one of next year.

I commend the Bill to the House.