Brent Pension Fund loses £8m from failure to divest from fossil fuels - but others fare worse and the Council is making progress

 

Simon Erskine campaigning outside City Hall

Divest Brent, the campaign calling on the Council to sell their holdings in fossil fuel companies like Shell, BP and ExxonMobil, received a boost after submitting a Freedom of Information request to the Council. In responding to this request the Council admitted that over the last year the Pension Fund was worth £8 million less as a result of not having divested the Fund from fossil fuel investments before the Covid pandemic. The Council is actually doing significantly better than many authorities – over the last 4 years local authority pension funds have lost £2 billion of value in fossil fuel stocks. 

 

Up until now the leading argument against divestment had been the consistently high returns from these investments. Divest Brent Co-ordinator, Simon Erskine, said that historically it was true that fossil fuel companies had been a key part of any pension fund – and indeed any investment portfolio – due to the high level of returns:

 

The world has moved on and now not only do many people think that it is inappropriate to lend support, through investment, to fossil fuel companies but the entire economic situation has changed, with plunging share values. If we are to meet the net zero by 2050 target (i.e. reduce carbon emissions by 2050 so that they are no more than the amount absorbed by planting trees and other means) we have to make dramatic reductions in the amount of fossil fuels that we burn – and ultimately stop burning them altogether. 

 

If governments fail in their duty to bring about those cuts through legislation then fossil fuel companies are also facing a world where electric vehicles are rapidly catching up with, and set to overtake, petrol and diesel vehicles; and where renewable and nuclear energy are rapidly taking over from fossil fuels as the main generators of electricity.

 

In the meantime Divest Brent has been increasing its support base through its petition, which now boasts nearly 1,400 signatories – including well over 1,100 Brent residents. 

 

Simon Erskine praised the action taken by the Council to date:

 

Not only has the Council changed its investment policy by recognising the risks of fossil fuel investments but it has also made a specifically low carbon investment as part of its Stock Market holdings – as well as making investments in renewable energy as part of its loan-stock holdings. We warmly welcome these developments – but the low carbon investment represents only 3% of the Pension Fund’s total investments. 

 

The Council has suggested that more money could be invested in the low carbon fund but there is no commitment to do so, despite it having committed to divest as part of its resolution last year to declare a climate and ecological emergency. It is not only Divest Brent that is looking for the Council to divest – more than half of the Councillors want the same thing.

 

Divest Brent is working with sympathetic councillors and is hopeful that, with the Council currently consulting on its ambitious Climate Emergency Strategy, divestment will be seen as a key part of that strategy.

 

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 (https://www.unpri.org/inevitable-policy-response/forecast-policy-scenario-equity-markets-impacts/5191.article) 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.

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.:

1.       INTRODUCTION 

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. 

2.       COMMENTS ON PROPOSED ACTION: 

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.

3.       ENGAGEMENT ISN’T WORKING: 

·         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.  

4.       OTHER LONDON BOROUGHS WHICH ARE DIVESTING: 

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.

5.       POLITICAL BACKGROUND

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.

6.       FINANCIAL RISK

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.

Brent Council urged to end pension fund investment in Fossil Fuels - how you can support the campaign

Green Party London Assembly Members Caroline Russell and Sian Berry with Brent Green Simon Erskine

Climate change campaigners are urging Brent Council to take its money out of fossil fuels.

A new campaign group, Divest Brent, launched this week. The activists hope to put pressure on the Council to “divest” from the fossil fuel industry by withdrawing any money they have invested in companies involved in digging for or burning coal, oil and gas.

Industry

Recently published figures indicate that the Council has over £37 million invested in the fossil fuel industry through its pension fund.

Campaigner and Green Party activist Simon Erskine explained that the divestment movement had already scored many victories in recent years and has become a powerful method of forcing organisations to consider their contribution to human-made climate change.

He told Wembley Matters: 

It sends a message to the industry and it raises awareness of the issue.

People may not already be aware of where their money is going and might be concerned to learn they are helping to finance the fossil fuel industry.

Fossil fuels belong to the past; they are not the answer to climate change, they are the problem.

In the same way, people no longer want to invest in tobacco or the arms trade.

Earlier this month a protest was staged outside City Hall to call for the Greater London Authority to divest from fossil fuels. The London Assembly has already passed a motion requesting the London Mayor to do exactly that.

Organisations in the UK that have committed to fossil fuel divestment so far include Oxford and Bristol city councils, the University of Glasgow and the British Medical Association. A number of London Boroughs have also committed – including neighbouring borough, Hammersmith & Fulham.

Globally more than 800 institutions (from government, faith-based, philanthropic and educational organisations etc), representing well over $5 trillion in assets, have committed to divest.

Ali Warrington, another Divest Brent campaigner, said:

It’s really exciting to bring the fastest-growing divestment movement in history to Brent. We need to act locally and ensure our representatives do what’s right and invest ethically. The companies they’re investing in are creating devastating climate change, and are insecure investments financially.

To support the campaign sign the petition HERE and email, Facebook and Tweet your friends urging them to sign.

This is the petition:

Brent Council should divest its pension fund from fossil fuel companies to protect the people of Brent. So we ask Brent Council to make a public divestment statement committing the Brent Pension Fund to:

1. Immediately freeze any new investment in the top 200 publicly-traded fossil fuel companies with largest known carbon reserves (oil, coal and gas)
2. Divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds in the top 200 list and shift these funds to lower risk, ethical investments within 5 years
3. Advocate to other pension funds, including the London Pension Fund Authority and Local Government Pension Scheme members to do the same
4. To do the above in a timely manner - by setting up a working group to report back on a strategy to bring about divestment within three months from the submission of this petition

Why is this important?

We believe divestment from fossil fuels to be not only ethically and environmentally correct, but also financially prudent.

Climate change is the greatest challenge humanity has encountered. The 20 hottest years on record have all occurred since 1981 and 2016 was the hottest ever [1]. Higher average temperatures are directly linked to extreme weather events such as heat waves, droughts, floods and storms.
Scientists have unanimously concluded that these changes are a consequence of human activity, arising from the burning of fossil fuels [2]. Moreover, this activity has resulted in unprecedented levels of air pollution, now regarded as a major world killer [3].

In a speech at Lloyd’s of London in September 2015, Mark Carney, Governor of the Bank of England said that by the time ‘climate change becomes a defining issue for financial stability, it may already be too late’. Carney warned investors that policies to address climate change ‘would render the vast majority of reserves ‘stranded’ – oil, gas and coal that will be literary unburnable’ [4].

In order to continue developing fossil fuel reserves – particularly in the difficult areas where the remaining reserves are located (including the Arctic, the mouth of the Amazon and tar sands in sensitive areas) the developing companies need investment – divestment is a way of cutting off the funds needed to carry out these damaging activities. It also sends a powerful signal to the companies and others that it is time to move away from fossil fuels towards renewable energy.

References:
[1] http://tinyurl.com/y9tkm4sn
[2] http://tinyurl.com/3e3zv
[3] http://tinyurl.com/pqgdd5q
[4] http://tinyurl.com/ycspl5sg