Not quite so super

This is also a practice adopted for some government-controlled funds.

Since it was formed in 2006, the $65 billion Australian Future Fund has not made any public statements regarding the ethical position with which it invests, nor the specific nature of its investments, except for a brief statement (PDF 168KB) regarding how it might choose to direct its service providers to vote at shareholder meetings and on proxies.

What we do know is that the Future Fund have selected a number of investment managers and service providers that are known to have some commercial involvement in the armaments industry.

The following investment managers hired by the Future Fund are known to have invested directly in corporations involved in the production of cluster munitions:

• State Street (US): Textron Inc (US), Poongsan Corp (South Korea), Singapore Technologies Engineering (Singapore), Alliant Techsystems Inc (US), and L-3 Communications Holdings Inc (US);
• Vanguard (US): Textron Inc (US), Poongsan Corp (South Korea), Singapore Technologies Engineering (Singapore), Alliant Techsystems Inc (US), L-3 Communications Holding Inc (US), Hanwha Corp (South Korea);
• Goldman Sachs (US): Alliant Techsystems Inc (US); and
• Blackrock (US): Singapore Technologies Engineering (Singapore), L-3 Communications, Textron Inc (US), Hanwha Corp (South Korea), Alliant Techsystems Inc (US), Lockheed-Martin (US).

In addition, the following investment managers hired by the Future Fund are known to have provided loans and investment banking services to armaments manufacturers involved in the production of cluster munitions:

• State Street (US): Lockheed-Martin (US);
• Goldman Sachs (US): Alliant Techsystems Inc (US), Textron Inc (US), Lockheed-Martin (US); and
• Canyon Capital Advisers (US): Alliant Techsystems Inc (US).

It remains unknown, however, whether the Future Fund select products or construct mandates which ask these managers to exclude investments in cluster munitions. What we do know is that the Australian Government has signed but not ratified the Cluster Munitions Convention (2008).

None of this is international best practice.

For example, the $500 billion Norwegian Government Pension Fund, as well as a clearly defined ethical exclusion policy and the public disclosure of all Ethical Committee rulings, a review of the Fund’s website indicates that the following companies are excluded for their involvement in cluster munitions:

• Alliant Techsystems Inc. (US) on 30 June 2005;
• General Dynamic Corporation (US) on 30 June 2005;
• Hanwha Corporation (South Korea) on 15 May 2007;
• L-3 Communications Holdings Inc. (US) on 30 June 2005;
• Lockheed Martin Corporation (US) on 30 June 2005;
• Poongsan Corporation (South Korea) on 30 September 2005;
• Raytheon Company (US) on 30 June 2005; and
• Textron Inc. (US) on 30 June 2009.

Having formed the Ethical Council in 2004, the Fund has lifted a number of its exclusions - based on revised recommendations, fresh evidence or a change in company behaviour. Despite considerable criticism by myopic investment professionals for divesting in companies on purely ethical grounds - for both contravening investment theory and removing the ability of engaging in the company and changing behaviour - the Norwegian Fund is widely regarded as having one of the most transparent ethical exclusion mechanisms anywhere in the world.

When are Australian’s going to be afforded the same?