Report: UK council pension funds investing almost £10bn in fossil fuels

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Report: UK council pension funds investing almost £10bn in fossil fuels

Analysis from Friends of the Earth and Platform finds three per cent of the total value of the Local Government Pension Scheme is invested in coal, oil and gas

Local government continues to indirectly plough billions of pounds into fossil fuels through their employee pension funds, despite three quarters of local councils across England, Scotland, Wales, and Northern Ireland having declared a climate emergency, campaigners have warned.

A report published by Friends of the Earth and Platform reveals that in the 2019-20 financial year, local government pensions across the UK held £9.9bn of investments in fossil fuel companies.

The campaigners claim the report offers the most comprehensive overview to date of how local authority pension funds support fossil fuel companies, compiled after freedom of information requests were submitted to discover how 98 pension funds nationwide invested their money.

Twenty per cent of all fossil fuel investments from local government pension funds are made by just three local authority pension funds, the report notes, with Greater Manchester, Strathclyde, and the West Midlands pension funds identified as the biggest backers of fossil fuels.

The Greater Manchester Pension Fund, which counts 4.6 million members across the region, invested more than £1bn in fossil fuels in the last financial year, whereas the other two areas channelled £508m each into oil, coal ,and gas, according to the findings.

Overall, three per cent of the total value of the Local Government Pension Scheme is invested in fossil fuels, with coal accounting for one third at £3.5bn, and oil and gas the remaining £6.5bn, the report found.

Rianna Gargiulo, divestment campaigner at Friends of the Earth, urged councils to take steps to decarbonise their pension funds. “Declaring a climate emergency may garner good headlines but too often it seems to stop there,” she said. “Councils can’t make a bold claim about saving the planet while continuing to invest in fossil fuels. Local authorities have the power and duty to ensure local workers not only have a pension for their retirement, but also a future worth retiring into.”

Teesside, Dyfed, and Dorset pension funds are singled out by the campaigners for having the highest proportion of fossil fuel investments. All three invest nearly five per cent of their pension fund value in fossil fuels, according to the findings. Greater Manchester is not far behind, with 4.6 per cent of its £22bn fund sunk into coal, oil and gas.

BusinessGreen reached out to a number of local coucils and authorities whose employees pay into the lowest ranking pension funds in the report, including the Greater Manchester Authority, Glasgow City Council, Middlesbrough City Council, and the West Midlands Combined Authority for comment on the report’s findings. The councils and authorities deferred to statements produced by the pension funds themselves, some of which disputed the underlying data in the report.

A spokesperson from the Strathclyde Pension Fund said it had historically favoured pursuing decarbonisation through engagement with fossil fuel firms rather than through divestment, but confirmed it would be reappraising its future investment strategy over the coming months as it developed its first ever climate change strategy, potentially including an overarching net zero goal.

“Historically, 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,” the Strathclyde Pension Fund spokesperson said. “Instead, it has preferred to be an activist investor – pushing for improvements on everything from carbon disclosure and lowering emissions, while committing hundreds of millions of pounds into a range of renewable energy projects. However, the fund is currently refreshing and further developing its climate change strategy, including consideration of a net zero objective. That process will also include consideration of future investment strategy – with input from the fund’s board and committee.”

A spokesperson from the West Midlands Pension Fund, meanwhile, alleged the new report had overstated its exposure to fossil fuels. “We… have raised direct queries with the author in relation to the figures reported for our Fund which are inaccurate resulting in a gap and error which overstate the West Midlands’ exposure,” they said. “We have sought corrective publication of the data.”

But the spokesperson added that the West Midlands Pension Fund also preferred to use engagement over divestment to encourage companies in its portfolio to decarbonise. “The fund remains committed to supporting the goals of the Paris Accord and has brought forward the next review of its climate change strategy to 2021/22, reflecting the increased pace of developing research and policy,” they explained. “We continue to believe engagement is a more effective tool than divestment and recognise the role investors can play in continuing to drive for a timely and just transition in response to climate change, noting that no one party can achieve this alone.”

The report reveals that 10 companies account for 70 per cent of UK councils’ direct fossil fuel investments, with oil and gas majors BP, Royal Dutch Shell, and mining giant BHP together accounting for 40 per cent of all fossil fuel related investments. Platform and Friends of the Earth have published an online dashboard which sets out local authority pension fund’s investments in more detail, including which companies they hold indirect or direct shares in.

Report author Robert Noyes, campaigner and researcher at activist group Platform, urged local authorities to channel investments into companies and ventures aligned with the priorities of pension holders. “After a decade of austerity and the devastating economic impact of Covid across the UK, local councils can and should be using their pension funds to support local investment priorities,” he said. “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. Whatever your stake in your pension – imagine what world you want to retire into – and push your pension to invest in it.” 

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