Future Fund studies how to assess ESG issues

The Future Fund is looking to introduce a framework by which it can make investment decisions as they may be impacted by environmental, social and governance (ESG) issues.

Paul Costello, the fund’s chief executive, said last week that all investors needed to be aware of ESG issues. The Future Fund would be taking a large part of 2008 to resolve how it handled the matter. “We will be in a better position to say how we include [ESG assessments] later this year,” he said. Costello was speaking after making a luncheon address to the Australian Financial Markets Association in Sydney. Before joining the Future Fund, Costello was known to be a keen supporter of including ESG assessments in the investment research and processes at his previous fund, New Zealand Super Fund. He had told the AFMA members that the Future Fund was now ready to embark on its active investment management program and was holding discussions with managers. This had been delayed last year because of the market volatility. He said that about one-third of the Future Fund’s equities allocation would be in Australia, because the fund received the benefit of dividend imputation. The fund’s 20 investment professionals, under chief investment officer David Neal, are split into five main teams: equity, fixed interest, infrastructure, private equity and property. The fund’s total staff is 45. Costello also said the fund was talking to the Government about a precise mandate for it to manage the $6 billion allocated by the previous government for a higher education fund. The mandate would be more complex, he said, because money would be drawn down almost from inception. The Future Fund’s drawdown does not start until 2020. “We have determined that we’re not managing liability risk (at the Future Fund). So, we manage around the return mandate that we’ve been given, which is 5 per cent real,” Costello said.