Robert Noyes, Platform London, argues that if councils are serious about net zero, then local government pension funds must divest from fossil fuels.
From insulating heat-leaking homes to facilitating mass public transport, councils are key to effective climate action. And they are trusted to do so more than any other government body. Councils can lead the UK in a fair and just transition away from fossil fuels. In order to do this, they must first stop funding the problem they are trusted to fix.
Across the UK, local councils pump an estimated £16bn into fossil fuel companies through their pension funds, including £8bn invested into companies looking for more oil and gas to burn. That equates to 126 million barrels of oil, or an estimated 53 million tonnes of CO2 emissions. To put that into perspective, that’s more than the annual emissions of 70% of the countries on earth.
Local leaders must now decide – are you for climate action, or are you against it? If you’re for it, there’s only one option – cut off your pensions’ fossil fuel pipeline.
Around seven million people in the UK are part of a local government pension scheme (LGPS). Their money is managed by ‘administering authorities’, who often take collective responsibility for funds across multiple council areas.
At their core, pensions are a wage you agree to have paid to you later. They literally fund the future you retire into. That makes the question of what they fund quite important, for both fund members and everyone else.
For the sake of us all, it’s important we move away from funding fossil fuels as soon as possible. The International Energy Agency clearly states that development of new oil and gas fields must stop now to meet net zero pathways. And yet, most oil and gas companies are developing new fields. And local governments are funding them.
A common refrain amongst fund managers is that we must ‘engage’ with these companies in order to change them. This appears reasoned, but the harm these companies have caused in such a short period of time is almost incomprehensible – and renders this argument implausible.
Rather than showcase this using graphs or raw data, I’m going to use a surprising comparison point: Taylor Swift. More than half of the carbon emissions ever produced in human history have been produced in her lifetime. More than a quarter have been produced since she released her first album. For those of you unfamiliar with Taylor’s back catalogue, her first album came out in 2006. She was born in 1989.
In other words, most carbon emissions caused predominantly by the burning of fossil fuels have occurred since oil companies have known about the impact of their product on the climate. Given that, as of 2020, fossil fuel companies spent c.a. 1% of their average annual capital expenditure on alternative energy, an ‘engagement’ approach has categorically failed to deliver meaningful action.
For my sins, I’m a smoker. My mother obviously does not endorse this. To date, however, she has not suggested I write to Malboro to help me quit. Why would you let your pension fund follow a similar strategy? Instead, stop funding fossil fuels for good, and get your fund to divest.
If it’s bad for the environment, it’s bad for your retirement.
The good news is that you can do this fairly easily, and with little impact on your pension fund returns. If you think otherwise, check the comparative performance of the S&P 500 Index with the performance of the S&P 500 (Ex. Energy (read - fossil fuels)) over the past 10 years. The one not funding fossil fuels outperforms the one funding fossil fuels by over 200 basis points.
And lots of local government funds are already heading in that direction fast. Over 20% of LGPS funds now invest less than 1% of their fund in fossil fuels. It’s important these funds get to zero and make a public statement about why they are doing it. If your fund isn’t moving out of fossils, for people, planet, and public saving, it should!
Find out how your fund is doing by visiting UK Divest’s website.
