Fossil fuel divestment – what are the issues?
By UNISON, Sep 18 2019 01:43PM
UK local authority pension funds hold investments of over £16 billion in coal, oil and gas companies. These companies’ actions are making climate change worse, threatening all our futures. There are ethical and financial reasons for local authorities to sell, or disinvest their pension holdings in these fossil-fuel companies. Local government pension funds have a duty to act in their members’ best interests and this is met by ensuring financial performance and by acting in the best interests of society at large. Pensions are for our future security. Climate change is one of the biggest threats to that security.
Divesting from fossil fuel companies should not negatively affect the financial performance of funds - plenty of mainstream alternative investment options exist which have no or very low fossil-fuel investments and can perform as well as, if not better than, indices with fossil fuels in them.
Falkirk LGPS’s Statement of Investment Principles recognises the need to act as responsible owners, supporting the transition to a low carbon global economy, consistent with the aims of the Paris 2016 Climate Change agreement to limit temperature increases by 2050 to a maximum of 2oC. The Committee believes that ongoing “engagement with investee companies is preferable to divestment” but, “where, over a considered period there is no evidence of a company making visible progress towards carbon reduction, we believe that divestment should be actively considered”.
The engagement approach to climate change could be successful with vehicle manufacturers or power utilities because for both of these there are viable alternative business models that can be adopted, such as electric vehicles and renewable power. But for the fossil fuel exploration and production sector, all the oil and gas majors have current and future business models overwhelmingly based on fossil fuel extraction with no prospect of change within the timescales required by the Paris Climate Change Agreement goals. Engagement is therefore an unfit strategy for pension funds to use with these fossil fuel exploration and production companies. Engagement also carries greater financial risks than divestment because, if it is not successful, there is a high risk of exposure to stranded-assets as momentum gathers to cease using fossil fuels altogether.
With respect to Falkirk LGPS’ July newsletter stating BP and Shell taking positive action to adapt their business model, neither company has a good track record. Companies like Shell continue to show themselves ill-placed to fund the renewables transition, with their core business of oil and gas always pulling them back to their old ways. The most realistic plan for these companies would be to wind down their extraction activities over time to zero.
The truth is that by planning to continue extracting fossil fuels well into the 21st century, these oil companies will remain some of the world’s biggest climate criminals. Their announcements may be small positive steps (aimed at distracting campaigners) but organisations that are some of the world’s biggest climate polluters need to take a series of giant leaps to undo the chaos they are creating.
While we wait for Shell to become sustainable we should divest and put our money behind genuinely green companies. If and when BP or Shell make plans to be zero-carbon, we could always reinvest!
Send your e-mail (sample below) to firstname.lastname@example.org:
Dear Councillor McCue
I am concerned about climate change that is happening now and as a member of Falkirk Council Pension Fund I believe it is morally and financially misguided that our pension funds are invested in companies dedicated to finding and burning more oil, gas and coal.
I call on my Pension Fund to adopt a policy of divestment from fossil fuels.
Signed . . . . . . . . . . . . . . . . . .
Address . . . . . . . . . . . . . . . . .