Local councils are facing fresh calls to withdraw the billions they invest in fossil fuel industries ahead of next month’s COP26 climate conference.
Three-quarters of UK councils have declared a climate emergency, but research shows every local government pension fund in the country invested in coal, oil or gas last year.
These investments totalled nearly £10 billion, according to the study by campaign groups Friends of the Earth and Platform.
Robert Noyes, an energy economist at Platform, said: “As we approach the UN climate talks in Glasgow this November, local councils have a simple choice.
“They can pay polluters to wreck the planet, or they can play their part in the global climate effort by ending their fossil fuel investments.”
All eyes will be on Glasgow next month, when world leaders including US president Joe Biden will gather for the UN climate conference.
It has intensified the long-running debate over the ethics of pension investments in the fossil fuel industry, particularly within the Local Government Pension Scheme - one of the UK’s largest public sector retirement schemes, administered by nearly 100 town hall funds across the country.
The amount these funds invest in fossil fuels has fallen by £6 billion since 2017, according to the research.
But while a handful of council pension committees have now decided to divest - that is, to sell off shares in the fossil fuel sector - others have rigorously defended their decision to remain invested.
This includes the Greater Manchester Pension Fund, which had an estimated £1bn invested in coal, oil and gas last year - the largest figure of any local government fund, according to the study.
Its chair, Cllr Brenda Warrington, said that by investing, they sought to change the behaviours of the energy companies while ensuring they protect the pensions of their members.
She said: “The fund will not immediately divest and pass the buck to someone else or, worse, let those who don’t care run the companies,” she said.
“Looking at oil and gas companies we believe they are critical to the world as it is now and the new future.
“They are able to generate huge cash flows from declining oil production, which can and should be invested in renewable energy and other low carbon technologies.”
Cllr Warrington said they were “some of the best placed companies to support new energy sources”, adding: “By not investing we give away the influence that we can have with these companies to investors who may care less than we do.
“This is not an outcome we want for the future for you, the fund or the generations to come.”
Pensions minister Guy Opperman has urged councils not to divest, saying it was perfectly appropriate for them to hold stocks in the likes of BP or Shell.
He branded the move “reverse greenwashing because it doesn’t actually fix the problem”, in an interview with the Financial Times.
The Local Authority Pension Fund Forum (LAPFF), which represents the majority of council schemes, said its members were taking a variety of approaches in tackling the issue.
It said some were divesting from fossil fuel-intensive companies and others had decided “that excluding all energy companies could lead to greater volatility of returns and creates its own risks”.
Mr Noyes disputed the claim that engagement with fossil fuel companies, through investment, could drive environmental improvements.
He said: “There is no change coming from continued engagement, there is only delay.
“With support for climate action at an all time high, and the financial benefits of fossil fuel funding increasingly unclear - the choice is as easy as it is simple: divest from fossil fuels, join the $14.5 trillion coalition of climate leaders in drawing a line, and invest in a future worth retiring into.”
The Department for Work and Pensions said while it was “encouraging organisations to commit to net zero in a way that works for them”, it would not set targets for divestment.
A spokesperson said: “Pressure to comply with Government-set mandatory targets would undermine trustees’ duty to invest in the best interests of their members, and would likely force immediate divestment from some stocks - regardless of whether the company is showing meaningful attempts to reach net zero or not.”
How do local authority pension schemes work?
Local authorities provide a retirement income for their employees through the Local Government Pension Scheme (LGPS), one of the UK’s largest public sector pension schemes.
The scheme is administered locally through 86 regional pension funds in England and Wales, 11 in Scotland and one in Northern Ireland. There is also a fund representing the Environment Agency.
Neighbouring councils sometimes band together to form these funds, so they do not always correspond exactly to local authority boundaries.
These funds invest the pensions of more than 6m people in financial assets, with the intention of growing this money.
Decisions on how to invest are made locally by committees usually made up of councillors, trade union representatives and other interested parties.
In recent years local pension committees have come under increasing pressure to align investments with social or environmental aims.
How much money do local authority pension funds invest in fossil fuel industries?
Local authorities across the UK had £9.9 billion invested in fossil fuels last year through their pension funds, according to research by environmental groups Friends of the Earth and Platform compiled through Freedom of Information requests.
That works out as £1,450 for each of the 6.8m members of the Local Government Pension Scheme in the UK, and about 3% of the total scheme value.
The amount local government pension schemes invest in fossil fuels is declining. Similar research in 2017 revealed £16 billion invested in coal, oil and gas industries.
How does the private sector compare?
Fossil fuel investments are very common in private sector retirement schemes, but some providers are looking to reduce their investments in the most harmful holdings.
Scottish Widows, one of the UK’s biggest pension providers with 6m customers, last year announced it was divesting £440m from companies that failed to meet its environmental, social and governance standards.
A spokesperson said they prefer to have a dialogue with carbon-intensive companies that they invest in, “to drive positive change by exerting an influence on them”.
The spokesperson said: “But there are some companies involved in activities that have such a negative impact on the planet and society that they pose an investment risk.
“Due to the nature of their businesses, or the nature of our investments in them, we believe engagement is not always appropriate and we will divest.”
Many private providers also offer customers the option of investing in more ethical alternatives to their standard funds.
Across the private and public sector combined, about 85% of Defined Contribution pension savers are in a scheme with a net zero carbon target.
Six of the top ten Defined Benefit schemes, equating to assets of over £250bn, have made net zero commitments, according to the Department for Work and Pensions.
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