CEFC welcomes Auditor-General report

The CEFC has welcomed the performance audit report of the Australian Auditor-General on investments by the CEFC.
The Report was tabled in the Australian Parliament today and is available on the ANAO website

Response from CEFC Chair Steven Skala AO

11 December 2020                                                                                                                          

Mr Grant Hehir
Auditor-General
Australian National Audit Office
GPO Box 707
Canberra ACT 2601

Dear Mr Hehir,

ANAO’s Performance Audit Report on Investments by the Clean Energy Finance Corporation

Thank you for your correspondence seeking comment from the Clean Energy Finance Corporation (CEFC) on the Australian National Audit Office’s (ANAO) performance audit report on Investments by the Clean Energy Finance Corporation (Report).

The CEFC welcomes the ANAO’s Report. The Report notes, amongst other things, that the CEFC has facilitated increased funding into the clean energy sector and that the CEFC has suitable arrangements in place to assess and approve investments as well as for their ongoing management.

This finding is consistent with the conclusion reached by Deloitte in conducting the 2018 Independent Statutory Review where it stated (p11) that “Our analysis through this review supports a finding that the CEFC has been effective in facilitating increased flows of finance into the clean energy sector projects it supported. The CEFC has invested its own capital in the sector, as well as attracted further private investment in the clean energy projects it supported. There is evidence to support a finding that in the absence of the CEFC a range of projects it supported may not have proceeded. However, given the nature and immaturity of a number of CEFC investments, it is difficult to measure the full impact of the CEFC’s involvement on private investment in the clean energy sector more broadly.” 

We accept all but one of the recommendations contained in your Report and their implementation will be overseen by the CEFC Board’s Audit and Risk Committee. 

Regarding the one recommendation in the Report not accepted by the CEFC, the difference in opinion would appear to stem largely from differing approaches in the way we analyse investment returns on an individual versus portfolio basis. The portfolio benchmark return is defined in the Investment Mandate and then managed consistently on a portfolio basis, and it is the CEFC’s view that this is not an integral part of each individual investment decision.  Individual investment decisions more appropriately reference the relevant market-equivalent rate of return and the maximum rate that can be achieved while still ensuring the appropriate public policy outcome.

The CEFC understands its obligation to make all reasonable efforts to target a specified benchmark and absolutely does this, while also being mindful of the Investment Mandate’s other obligations to exercise commercial rigour and to build a portfolio with an acceptable but not excessive level of risk having regard to the sector. 

The intersection between public policy outcomes, investment risk and returns, constraints over industry, asset class, financial products and geography all impact on the potential returns that can be achieved. The CEFC primarily invests for a public policy purpose. We invest in the areas of greatest policy need in order to stimulate private sector investment in emerging technologies / practices and for demonstrative effect, and therefore the investment return is largely, and by necessity, a function or consequence of the CEFC’s investment objective rather than the primary driver.

We agree with Recommendation No. 3 (a) and note that our approach to considering the ‘potential effect on other market participants’ will be focussed on those participants that are relevant to that particular market.

As the ANAO has noted, the CEFC uses very little concessionality, and overwhelmingly invests at, or very close to, current market rates of return, all while achieving a public policy outcome within the Investment Mandate risk parameters.

We would also like to highlight the CEFC’s exceptional track record of investment with no material losses to date, or expected, in the investment portfolio. This is one of the fundamental indicators of the effectiveness of selection, contracting and ongoing management of investments by the CEFC.  This has been achieved to date through careful analysis and diligence throughout the investment origination and management process and the ability to make investment decisions independently in accordance with the CEFC Act.  To this end, we have suggested the statement at paragraph 20 that the “CEFC has partially effective risk management processes in place” should delete the qualification “partially”.

We see significant value in the ANAO performance audit process and will make improvements to the CEFC’s systems and processes as a result.  Notwithstanding the comments on the one area in which we respectfully disagree, I would like to thank your staff for the professional and collegiate manner in which this audit was conducted and assure you that we are absolutely committed to implementing the ANAO’s recommendations, and to continuously improving the efficiency and effectiveness of the CEFC’s operations and governance arrangements.

Yours sincerely,

Steven Skala AO
Chair
Clean Energy Finance Corporation