In the previous financial year, pension funds made nearly £10 billion in investments, including oil and gas.
According to research, local governments that have declared a climate emergency continue to invest in fossil fuels through their employee pension schemes.
The report by the campaign groups Platform and Friends of the Earth says that local governments’ pension funds held about £10 billion in fossil fuel investments in the previous financial year, including oil and gas corporations such as BP and Shell.
The Greater Manchester pension fund, administered by the Metropolitan Borough of Tameside council, had more than £1bn invested in fossil fuels.
Greater Manchester, Strathclyde, West Midlands, and West Yorkshire councils have made the most fossil fuel investments, accounting for approximately a fifth of all fossil fuel investments made by local government pension funds in the UK.
In the financial year 2019-20, the Greater Manchester pension fund, administered by the Metropolitan Borough of Tameside council, invested more than £1 billion in fossil fuels, accounting for about 5% of its pension fund.
All of these councils have declared a state of emergency due to climate change. Because boards frequently pool their pension funds, the funds do not always relate to specific local governments.
Councils have been minimising their exposure to investments with significant carbon emissions. In 2015, a similar study indicated that £14 billion was invested in fossil fuels. Teesside, Dyfed, and Dorset were among the smaller pension funds, with roughly 5% of their assets invested in fossil fuels.
BP, Shell, and BHP are responsible for almost 40% of all direct investments in fossil fuels by local government pension funds. The majority of councils’ fossil fuel investments – over £6.5 billion out of £10 billion – were in oil and gas, although coal accounted for almost a third of the total. Councils are debating whether or not to build a new coal mine in Cumbria, following public outcry when the government approved the project.
The findings, according to campaigners, suggest that local governments must take measures to ensure that public monies are not used to encourage fossil fuels.
“Declaring a climate emergency may attract wonderful headlines, but too frequently it appears to stop there,” said Rianna Gargiulo, a divestment activist with Friends of the Earth. Councils cannot claim to be preserving the environment while continuing to invest in fossil fuels. Local governments have the authority and responsibility to guarantee that local workers have a future worth retiring into, not just a pension.”
Platform advocate and co-author of the report, Robert Noyes, said: “Local councils can and should be using their pension funds to support local investment priorities. Instead of making risky bets on fossil fuels, let’s channel the wealth in our pensions to local communities and build a better world beyond the pandemic.”
Several councils informed the Guardian that they were evaluating their pension investment policies in light of their declaration of a climate emergency. Somerset County Council’s spokeswoman said: “The committee is committed to a review of its investment strategy in 2021, which will include a full review of the fund’s approach to ethical, social and governance (ESG) issues and will include a review of the approach to climate change.”
Directing Capital to a Clean Economy is Essential
Some people believe that divestment is not always the best option. Although they agreed that transitioning to a low-carbon economy was critical, a spokesperson for the Strathclyde pension fund said, “The fund has felt that divestment is a blunt tool in terms of securing that transition to a low-carbon economy and not on its own radical enough to have a meaningful impact on the climate emergency.” Instead, it has decided to act as an activist investor, lobbying for changes in areas such as carbon disclosure and emissions reduction while investing hundreds of millions of pounds in a variety of renewable energy projects.”
Others mentioned the environmental work they were doing in various parts of the country.
Steven Coutts, the leader of Shetland Islands Council, said: “We have acknowledged that there needs to be a step-change in the global response to climate change, and we are actively engaged in the energy transition, working with the oil and gas industry to transition to net-zero by electrification, utilising onshore and offshore wind.”
He also referred to the council’s work on creating a green hydrogen export business.
Cllr Andy Canning, the chair of the Dorset county pension fund, said: “We are fully supportive of the declaration of a climate emergency and have made changes that will deliver significant reductions in our carbon footprint. We intend to reduce our carbon footprint without sacrificing returns substantially.”
However, at current rates, it will take many years for some pension funds to decarbonise their plans. Work on this has been ongoing for five years, according to Wirral Council, and will continue for the next decade or more.
Cllr Pat Cleary, the chair of Wirral’s pensions committee, said: “The goal is to align the fund’s investment strategy with Paris’s timescales, which sets the period up until 2030 as our critical milestone, for further decarbonising the portfolio on the way to 2050.”
Stop Investing Assistance Money on Fossil Fuels, MPs Advise the Government
According to MPs, if the government wants to be taken seriously on the climate emergency, it should cease using assistance money to invest in fossil resources in other countries. The cross-party international development committee said the government’s investment policy “Raises issues about the UK’s credibility as a ‘Force for good’ and its commitment to net zero” in a report released just days before the UK hosts an international climate summit.
According to the MPs, the government should spend the next two years to reinvest funds in renewable energy initiatives invested overseas in fossil fuels. Currently, the CDC, the government’s development finance arm, invests in fossil fuel projects, a policy that aid groups have called “mind-boggling” and “undermining efforts” to address the climate issue.
According to estimates provided to the committee by Tearfund, the CDC’s fossil fuel portfolio is worth at least £700 million.
Because of the scope and number of exemptions granted, the research indicated that 90% of CDC’s existing fossil fuel assets would be unaffected by planned reforms to make investments more environmentally friendly.
According to Sarah Champion, the international development committee chair, it “Means addressing the social and economic difficulties of disadvantaged areas most affected by it.”
“There are certain easy moves the government should take right away — it’s a no-brainer that it should begin by terminating all investments in fossil-fuel-related initiatives,” she said.