Ecologist Special Report: Divesting from investment in fossil fuels gains momentum in the UK

By Remo Bebié, Finance Dialogue - Ecologist, May 15, 2017

Bill McKibben, Author and co-founder of 350.org is categoric that one of the key ways to tackle climate change is through financial channels: "There is no question we are currently in a state of emergency on climate change. Day in day out people are dying from the effects of climate change. There are many ways to confront this emergency and divestment allows us to get in the way of the money financing the fossil fuel projects behind this crisis.

"The fact that the fossil fuel divestment movement has grown exponentially in the last few years is the best news ever. From the Pacific Islands to South Africa, from the United States to Germany, people are standing up and challenging the power of the fossil fuel industry."

And in the UK too, the divestment movement is now gathering momentum.

Only last week, 50 MPs announced their backing of a campaign calling on parliament's £612m pension fund to divest from fossil fuels.

Faith groups too are also increasingly moving out of fossil fuel investments. Earlier this month, more than a quarter of Britain's Quaker meetings pledged to divest and the Catholic Church is also taking stand ("the Catholic fossil fuel divestment movement has gained further momentum as nine more institutions pull out of fossil fuels, citing a "political impasse" around US withdrawal from the Paris Agreement." )

In late January, the Irish Parliament voted in favour of a law requiring the country's £6.8 billion Ireland Strategic Investment Fund to divest from all fossil fuels over the next five years. The story went viral on social media.

Three weeks ago, Norway's largest private pension fund, Storebrand, launched two new fossil free funds, bringing their fossil free fund portfolio to $1.2 billion. Storebrand also warned that the Norwegian government is overly exposed to fossil fuels through its $900 billion sovereign wealth fund, even though it has already taken significant steps to reduce exposure in the past.

Momentum is gathering at such a speed in the UK it appears to be approaching a tipping point: Waltham Forest and Southwark, two local government pension schemes for boroughs in London, have pledged to fully divest from fossil fuels within the last year, while Hackney's pension fund committed to cut its exposure by 50 percent, as the FT reported recently. Among the UK's Local Government Pension Schemes, these three are on the smaller range, each managing assets between £0.74 and £1.26 billion.  

But examples also include the £2.73 billion Environment Agency's Pension Fund, which is currently ranked second in the Asset Owner Disclosure Project's 2017 ranking (first in 2016) among the world's 500 largest asset owners. The fund is widely considered a global leader in terms of aligning investment strategies with the goals called for in the Paris agreement and reducing financial risks associated with the energy transition.

UK workplace pension scheme NEST, already progressive in terms of integration of Environment, Social and Governance (ESG) issues, has recently added a specific climate tilted fund to it's portfolio. NEST cited "addressing risks and capturing opportunities associated with the move to fight climate change" as reasons for launching the fund. 

Private institutions are taking note too: Last fall, HSBC Bank UK Pension Scheme chose a new climate tilted fund as the equity default option for its £2.6 billion defined contribution (DC) scheme. The scheme's CIO, Mark Thompson, expects the move to deliver "better risk-adjusted return, protection against climate change risks, and a more powerful ESG engagement policy within a passive mandate".

Furthermore, by April 2018, most UK local government schemes are due to be integrated into eight pools, each managing between £12 and £36 billion of pooled assets (see here for a good pooling overview by IPE). Implementation of divestment pledges for individual schemes will depend on the pool structure. The schemes of the London boroughs are already being pooled through London CIV, which recently wrote that it is "focusing on investment strategies the pension fund authorities have shown most demand for, namely: global equity income; sustainable equities; emerging markets and value strategies." 

Many other pools are now in the process of hiring executives: Brunel, the pool which contains the Environment Agency's Pension Fund, and LGPS Central have named new chairs within the last month. The London Pension Fund Authority (LPFA) is currently "seeking to recruit additional Board Members with knowledge and experience of either: 1) Environmental Social and Corporate Governance issues in a pension fund, with a strong commitment to delivering divestment from fossil fuels; or 2) strategic and sustainable infrastructure investment by pension funds, with a breadth of experience across all forms of infrastructure investment." 

All this indicates that more activity may be expected from the UK's public and private institutional investors. And public pressure is rising as well as various UK local government pension schemes are engaged by campaigners as part of the Global Divestment Mobilisation (GDM) with calls for fossil fuel divestment (see here for complete list of LGPS engagements within the Mobilisation).

*The GDM is a project by 350.org, a global organisation of divestment campaigners. At the weekend just gone, there was a co-ordinated UK 'push' with campaigners calling for divestment in Doncaster, Bradford, Brighton, Birmingham and 14 London boroughs. 

*This briefing report was compiled by Remo Bebié of the Finance Dialogue, which was launched in the wake of the successful Paris agreement and its ambitious commitment to keeping the global temperature rise well below 2 degrees Celsius (WB2D). Finance Dialogue seeks to support this energy transition by catalysing a substantial redirection of capital into the low carbon economy and works with investors, financial experts, NGOs and philanthropists to deliver an integrated strategy.

Disclaimer: The views expressed here are not the official position of the IWW (or even the IWW’s EUC) and do not necessarily represent the views of anyone but the author’s.