Delivered by Minister of State Eoghan Murphy T.D.
on behalf of
Minister for Finance Michael Noonan T.D.
DEBATE ON DÁIL (SECOND) STAGE
Ethical Public Investment (Tobacco) Bill 2017
A Cheann Comhairle,
I would like to thank Deputy Fleming for introducing this Bill to the Oireachtas and to note its progress through First Stage on 19 January of this year.
The intention behind the Bill is well understood by both myself and the Minister for Finance and colleagues in Government, including the Minister for Health, Simon Harris, and the Minister for Health Promotion, Marcella Corcoran- Kennedy.
The Government considered the Bill at its meeting on Tuesday 28th 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 the 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 the Bill.
The Government has agreed that the best approach is not to oppose a second reading of this Bill as the Government agrees with the principle of the Bill.
Notwithstanding this position, there are a number of 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 would hope that Committee Stage would afford an opportunity to address and hopefully resolve these matters. In this regard 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.
Context of Government position
I am happy to say that this Bill is in line with current Government policy on public health and tobacco control. The Programme for Partnership Government commits the Government to making a number of public health interventions, with one of these being to make “Ireland tobacco free by 2025” which, in effect, would mean that less than 5 per cent of our population would be smokers.
As the Deputy may already be aware, Ireland has gained a significant international reputation as a tobacco control leader over recent years. In this regard Ireland is currently ranked 2nd out of 34 European Countries in relation to tobacco control.
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 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 areas 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, as I will outline in a moment.
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 speech at first stage, the Deputy referred to certain tobacco investments held by the ISIF, and that the purpose of this Bill was to prohibit such investments. As the Deputy will be aware, in December 2016 the ISIF divested itself from these investments. The 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 from 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 their 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 in relation to a potential small level of indirect exposure under ISIF’s Global Portfolio, and the need for a certain level of flexibility.
Concerns regarding drafting issues
As outlined, notwithstanding the Government’s position on the Bill, 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 at Committee Stage in order to tease out the various definitions and determine exactly what the Deputy intends the scope of the Bill to cover. 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.
Due diligence and wider public sector impact
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 / non-commercial semi-state sector might hold pooled investments or investments in market indices products. Pooled investments refer to funds from a number 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 they may not be in a position to fully satisfy themselves 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.
ISIF Indirect investments
The Bill also makes reference to “indirect” investments which is undefined and 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/debt. ISIF estimates that, as of November 2016, approximately €17 million of the €3.7 billion is exposed to tobacco.
ISIF has advised that that there should be some flexibility around the term “indirect”, as also suggested in relation 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/or toleration for a low exposure threshold such as <0.1% (i.e. less than point one of one percent). Such minimum exposure thresholds are used by funds elsewhere. Otherwise it could be very difficult for ISIF to implement a zero tolerance/full prohibition regarding tobacco investments.
These interpretation and implementation challenges could be dealt with at Committee Stage, if the Bill progresses beyond Second Stage.
Positive steps by Government
It is important to consider the public health perspective of this Bill.
Given his publication of the 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 and 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 healthcare, 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. A key objective of this policy is to make Ireland tobacco free by 2025 which, in effect, would mean that less than 5 per cent of our population would be smokers.
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.
Importantly, as I mentioned earlier this week 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.
Importantly, 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 over the past number of years.
In conclusion, the Government considers this to be a well-intentioned Bill. The Government 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, it is the implementation of changes to existing polices or arrangements which is critical to ensure the effective achievement of the policy. Indeed, once we have agreed on what must be done, we must turn our focus 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. Therefore it must be used wisely, appropriately and proportionately; and in legislating we must ensure not to do more harm than good. This is particularly important in relation to 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 Government’s commitment to work with colleagues of both Houses to resolve the aforementioned concerns, at Committee Stage, if the Bill progresses.
It is on this basis that the Government does not oppose giving the Bill a Second Reading.
30 March, 2017