Former treasurer Peter Costello has defended the Future Fund's investment decisions during a sometimes feisty Senate estimates hearing in Canberra.

Mr Costello, who is the chairman of the fund, was questioned about why the fund continued to invest in fossil fuels given its decision to stop investing in tobacco companies.

Mr Costello said the fund concluded that no amount of tobacco was safe and its decision to divest those shares would not affect other investment decisions.

"I think it would be extraordinary if the government of Australia in its sovereign wealth fund said it was going to pull out of coal or gas or oil," he said.

"These are very, very important industries to Australia.

"It would be a very strange thing for a country like Australia, which exports coal and which exports gas, for its government to say we think these things are so filthy and so wrong that we won't even touch them on the stock market."

Mr Costello insisted the decision to stay out of tobacco investments should not lead to further ethical investment decisions.

"I don't like tobacco. I've got no brief for tobacco," he said.

"The only reason for not doing it is we knew immediately we did it that you would open up all of these arguments, and so the question became, is there anything that is distinctive about tobacco?

"The answer that the board came to was no amount of tobacco can be non-harmful, whereas it doesn't believe that every amount of oil is harmful or every amount of gas is harmful or every amount of coal is harmful."

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Greens senator Larissa Waters asked Mr Costello about research that suggested two-thirds of fossil fuel reserves needed to stay in the ground to avoid more than two degrees of global warming.

"I'm just going to make the point, whether I have or whether I haven't, that's not how the Future Fund makes its decisions," Mr Costello said.

"If you senator are saying there is no safe use of fossil fuel, so it is as poisonous as tobacco ... I would look at that, but there obviously is safe use.

"You know how I got here today? I flew on a plane. You asked me to come and I flew on a plane.

"Was I engaging in an absolutely harmful activity? I don't think so."

Mr Costello later accused Senator Waters of trying to make a political point.

"No, I'm genuinely seeking to understand," she replied.

Earlier the fund's managing director, David Neal, defended the approach to investing offshore including in tax havens.

"There was interest in the Future Fund's taxation arrangements," he said.

"Under its legislation, the Future Fund is not liable to pay income tax in Australia.

"It cannot minimise its Australian tax liability as it has no Australian tax liability."

Mr Neal said there was more than $105 billion in the fund.