Wednesday 23 October 2019

Why Brent should divest its pension fund from fossil fuels

These are notes of the presentation made by Simon Erskine, of the Divest Brent campaign to the Council's Pension Sub-Committee. The comments in small print are there to assist - they were not delivered as part of the presentation.:

Many thanks for this opportunity to comment, on behalf of Divest Brent, on the Council’s paper on Responsible Investment, with particular reference to climate change. 


In principle we welcome the analysis of the carbon footprint of the Pension Fund portfolio proposed in the Responsible investment paper but have two concerns about this:

·         Firstly there is a danger that this analysis will simply delay any action on protecting the Fund from the inherent risk of fossil fuel investment at a time of transition to a low carbon economy. We think it is therefore crucial that any proposed action should be time-limited – with the shortest possible time-scale.
·         Secondly it needs to be followed up with concrete action. I will argue that engagement is not enough – and the analysis should be a precursor to deciding how best to divest from the investments with the highest carbon footprint.


·         The Council’s policy of “engaging” with fossil fuel companies isn’t working. It has no meaningful benchmarks or timelines, little to show in the way of achievements and no clear escalation strategies for companies that fail to respond.
·         Despite many years of “engagement” not a single major oil company has re-aligned its business model with a 2ºC world. Moreover, there are no precedents for a company changing its core business model following pressure from shareholders.
·         We can provide a more detailed briefing on why engagement does not work for fossil fuel companies.  


There was talk in the paper of fiduciary duty and the policy of engagement with its fund managers rather than a policy of exclusion or divestment. With regard to climate change, this does not reflect the law or pension regulations as is clear from the number of London Boroughs that have already made a firm commitment to divestment – their pension officers will be as familiar with LGPS and pension fund rules as those in Brent. 

·         Lambeth
·         Southwark
·         Islington
·         Hackney
·         and Tower Hamlets
have all committed to fully divest – a number of other Councils have made partial commitments. All the Councils mentioned have started to divest their funds except for Lambeth which is waiting for the CIV to introduce suitable fossil-free funds to which it can transfer its investments.


We understand that the Committee’s main priority is to protect the financial security of the Pension Fund. But particularly given that all the indications are that fossil fuel investments do not provide that security, as I will discuss shortly, I was disappointed that a paper largely about the Pension Fund and climate change should be completely silent on 3 points:

1.       The Council’s 2018 manifesto commitment to divest. (“At every opportunity, redirect our investments into renewable energy projects and carbon-free or carbon neutral technologies” – although this is perhaps ambiguous, Deputy Leader Cllr McLennan confirmed in an email to me of 18.9.18 “we have Divestment as a Manifesto Pledge and we intend to meet all our pledges”)
2.       The recent declaration by the full Council of a Climate and Ecological Emergency which re-iterated this commitment.
3.       Divest Brent has so far amassed well over 1,000 signatures in favour of divestment including those of the Leader of the Council, the Environment Lead and numerous other councillors.

As mentioned earlier, we understand that the Committee’s principal concern, quite rightly, is to safeguard the financial security of the Pension Fund in order to protect the pensions of Council staff. The Responsible Investment paper suggests that this means that the Fund should continue to hold on to fossil fuel investments. Our view is the opposite. There are plenty of recent indications that fossil fuel investments have become too risky to safely hold – not only because of the danger of action by governments to reduce burning fossil fuels but also the exponential increase in electric vehicles and renewable energy will seriously impact the market for them. I can provide plenty of evidence for this but time only allows one example now: The Governor of the Bank of England, Mark Carney, has warned that investors face 'potentially huge' losses from climate change action that could make vast reserves of oil, coal and gas 'literally unburnable'. [East Sussex Briefing for Council on divestment]

7.       CONCLUSION  

In conclusion
·         The Sub-committee should urgently explore, working with other boroughs which have already made a firm commitment to divest, how to set about divesting the Pension Fund for the following reasons:
1.       As I have indicated, the Council’s current preferred option of engagement simply does not work in the context of fossil fuel companies.
2.       There is a body of legal opinion that considers trustees are at risk of being found in breach of their fiduciary duties by notdivesting when the financial risks are clear.
3.       The Council is committed to divestment and, as discussed, this will, if anything, improve the risk-adjusted financial position. The CIV currently has no appropriate funds which can deliver divestment but all the indications are that they are prioritising work to offer such funds so that they can meet the requirements of the boroughs which have already committed to divest as well as the significant number of boroughs which are considering divestment. 

·         While the Council is waiting for appropriate CIV funds to which existing funds can be moved, it should carry out the analysis suggested in the Responsible Investment paper – but an early agreed deadline should be set to ensure that it does not unduly hold back on divestment.

·         In the meantime, if the Council wishes to continue its policy of engagement, pending full divestment, it should set agreed goals for this engagement, as well as deadlines for the action required.

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