Byron Shire Council investments in projects linked to fossil fuel production decreased significantly after the NSW Treasury Corporation (TCorp) relaxed rules last year.
Investment reports included in last week’s agenda for the council’s ordinary monthly meeting showed the council had 56% of its investment funds lodged with fossil fuel aligned projects by the end of January 2024.
The figure was a decrease compared to 71% at the end of December 2023 and 85% at the end of the 2022-2023 financial year.
Staff credited the removal of a state covenant requiring local governments to invest TCorp loans mostly in institutions with A+ credit ratings or stronger.
Institutions offering investments in the ‘ethical’ area still mainly had lower credit ratings of BBB, or weren’t rated at all, staff said, citing credit unions as an example.
State loans to councils helped fund fossil fuel projects
Staff noted the council’s diversified approach to investment was aimed at achieving short, medium, and long-term results.
Investment was regulated by TCorp, which until late last year effectively forced NSW local governments to bank at least a quarter of their low interest TCorp loans in A rated institutions or higher.
The council wasn’t allowed at the time to invest any more than 40% of the loans in A- rated institutions, 30% in BBB+ rated institutions and 5% in institutions rated BBB- and below.
Credit ratings allowed ranged from BBB- and below, or not rated, to AAA, with councils also encouraged to invest in TCorp itself.
End of financial year 2022-2023 figures from the council showed of nearly $65 million invested at the time, 85% was helping support fossil fuel aligned projects via various bonds, term deposits and other accounts.
Council embraces TCorp loan rule changes
By the end of January 2024, TCorp borrowing and investment rules had changed under the new Labor state government, with the above rules scrapped.
The Byron Shire Council’s portfolio changed accordingly.
The council by the end of January had 39% of its investment portfolio with institutions either unrated or in the lowest credit rating bracket compared to 19% at the end of July last year.
The top AA to AAA rated institutions represented 50% of the council’s investments, roughly ten percentage points less than in July 2023.
Council doubles investment in term deposits, loses on QLD fund
Overall, council investment in term deposits nearly doubled from $27 million at the end of July 2023 to $52 million, with total capital having increased to more than $90 million.
Interest rate returns on the 18 non-fossil fuel aligned term deposits listed were mostly around five per cent.
Staff noted the average 90-day Bank Bill Swap Rate (BBSW) for January was 4.35% whereas the council’s investments had performed slightly better at 4.62%.
The BBSW is a short-term money market benchmark interest rate the Australian Securities and Investments Commission considers one of five significant financial benchmarks in Australia.
The council’s change in investments didn’t appear to make much difference to the council’s BBSW between July and January, with a figure of 4.34% reported at end of July 2023 compared to a 4.31% average.
Meanwhile, of nine other investments listed as non-fossil fuel aligned, three had increased in value, one stayed the same, and five had decreased.
None of the increases or decreases were higher than around five per cent, except for a million dollars invested in the QLD Treasury Corp, labelled a ‘Green Bond’, which had lost almost 20% in value.
Fine print: when fossil fuel projects count as non-fossil fuel
The Byron Shire Council mostly relied on the marketforces.org.au website to classify institutions as funding fossil fuel projects.
But staff noted the council may ‘from time to time’ have an investment with an institution that invested in fossil fuels but was aligned with the council’s broader definition of Environmental and Socially Responsible (SRI) investments.
Examples of SRI investments listed in council documents included resource efficiency projects, especially as they related to water and energy and renewable energy; production of environmentally friendly products; recycling, and waste and emissions reduction.
Socially productive activities included fair trade and provision of a living wage; human health and aged care; equal opportunity employers, and those that support the values of communities, indigenous peoples and minorities; and provision of housing, especially affordable housing.
Such investments would be classified as ‘no fossil fuels’ given the investment purpose, staff said.
Staff shared the example of the council’s investment in a tailored deposit account with Westpac Bank in November last year.
The fund’s investment proceeds were for ‘environmental purposes as this investment is Climate Bond Certified’, staff noted.
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