Friday 31 January 2020

Brent moves forward on reviewing pension fund investments in the light of the Climate Emergency

World Economic Foundation - Top 5 global risks in terms of likelihood
Brent Scrutiny Committee made common purpose with local pressure group Brent Divest on the case for ending investment in fossil fuels and investment in renewable energy  and low carbon funds at this week's meeting.

The situation is complicated by the fact that Brent's Pension Fund investments are now largely made through the London Collective Investment Vehicle (CIV). Change will come through action by the various local authorities represented on the CIV but there are positive signs that  things are moving with the launch of a low carbon industries fund expected within the next six months. 

There are issues about whether decisions can be made on purely ethical grounds but the financial case is now clearer with both Mark Carney at the Bank of England and Schroders warning of the poor prospects of fossil fuel investments.

The overall responsibility to ensure the best return on investments has to be balanced by the risks attached to such investments and there has been considerable change over the last few years as the WEF chart shows.   The Committee ended with a recommendation that the Pension Fund Committee would do all it could around divestment and investment in low carbon funds without detriment to the financial position of the fund.

Before the meeting Simon Erskine of Brent Divest, writing to all committee members commented:

1.       To put the discussion in context, I think it is fair to say that, although the paper refers in its title to the responsible investment policy generally, in fact it is largely about the climate emergency. By this I mean that 4 of the 8 sections of the paper under the sub-title Responsible investment (paras. 3.6 to 3.13) feature climate change, carbon footprint and renewable energy. The paper is therefore talking largely about the question of investing in fossil fuels.
2.       I think it is a moot point whether this is a discussion about ethics as suggested in the Chair’s introduction to the paper in his report. Greta Thunberg has said, in relation to the climate emergency, that “our house is on fire” – and recently that has been proved to be literally true through vast areas of Australia, which follow other exceptional wildfires throughout the world, such as in California, Canada, Siberia – and even in the UK (on Saddleworth Moor). Is it an ethical question whether or not to get out the extinguisher if your house is on fire?
3.       It is not simply a case of deciding if Brent Pension Fund can afford to dispose of its fossil fuel investments. Para. 3.11 of the paper makes it clear that “Climate change has the potential to impact all asset classes over the Fund’s lifetime” and many commentators have made clear that these investments are becoming increasingly risky – not least former Bank of England governor Mark Carney. The United Nations Principles of Responsible Investment recently carried out a study ( suggesting that, for example, oil and gas stocks could lose nearly a third of their value by 2025. Para. 3.11 of the Responsible Investment paper also points out that the Council, with its advisers, is modelling various scenarios (e.g. “business as usual” compared to robust action taken internationally to counter the climate emergency). This should help clarify the risks involved – but there seems to be no evidence at all that fossil fuel investments should be retained for financial reasons – quite the contrary.
4.       Para. 3.13 of the paper comments on a £50m investment in an infrastructure fund which will include 25% renewable energy. This is warmly to be welcomed but the priority has to be to reverse the growth in CO2 emissions and an important element of this is reducing the supply of fossil fuels. 
5.       A short-term problem is that most of the Pension Fund is now invested in the London Boroughs’ investment pool, the London Collective Investment Vehicle (LCIV), which currently has no fossil free equity funds. Recently, however, I met with the Chief Executive of LCIV who said that they were launching their first fossil free fund by the end of March and that they were aware of the need to provide a range of funds for the benefit of the increasing number of London Boroughs which have committed to divest – and indeed more than half the London Boroughs have expressed an interest in fossil free funds. There is accordingly no reason why the Council should not commit to divest when suitable alternative investments are available.
6.       One point that is not mentioned in the paper is the fact that the 2018 Brent Labour manifesto committed to divest the Pension Fund and this was reiterated in the Council’s climate and ecological emergency declaration last July.
7.       I therefore very much hope that the Committee will welcome the report on the Pension Fund’s Responsible Investment Policy and encourage the Pension Fund Sub-committee to move forward, after completing its current due diligence work as described in paras. 3.11 and 3.12 of the report,  with divesting the Fund at the earliest possible opportunity in accordance with the manifesto commitment and climate and ecological emergency declaration.

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