Tuvalu faces fossil fuel dilemma in management of its national investment fund

Tuvalu's government is indirectly investing in fossil fuel companies through its national trust fund, with documents saying the country has limited ability to stop.

An investigation by AFP found Australia-based fund managers from Mercer have been investing on Tuvalu's behalf in funds holding stakes in coal, gas and oil.

Newly released documents suggest Tuvalu will find it hard to move away from fossil fuels.

New Zealand sits on the board of the Tuvalu Trust Fund, and officials discussed investment strategy in internal documents released under freedom of information laws.

A briefing said Tuvalu had "limited ability to tailor specific investment preferences", due to the relatively small size of the trust fund.

Profits from the trust fund prop up the Tuvalu government budget.

The fund told AFP it had achieved "substantial progress in reducing portfolio carbon emissions".

It said between 2020 and 2025, the carbon footprint of its investments had dropped 42 per cent.

New Zealand's foreign affairs department said it would work with Tuvalu to make sure investment priorities were aligned with "long-term resilience".

Australia, which is also on the Trust board, said it was "supporting Tuvalu's strong approach to environmental and social governance issues".

Tuvalu has raised the trust fund with foreign donors as a means to bring money into climate projects. The UN Development Programme said the fund was a leading example of a "national climate fund" in a 2013 study.

The fund's investment objectives say it must minimise its exposure to "fossil fuel reserves and carbon emissions" where possible.

But Otago University's Sebastian Gehricke said there was little evidence this had been done, saying Tuvalu's money had not been invested in any "sustainable" funds.

"Tuvalu is arguably the most climate-exposed nation in the world," Gehricke said.

"So receiving revenue from a fund that generates its returns from many companies directly contributing to the climate crisis is not in their best interest."

Tuvalu Prime Minister Feleti Teo told AFP in June that fossil fuel investments were "not a good look" given the nation's climate advocacy.