London showing the way on fossil fuel divestment

Pension funds need to consider the long-term impacts of their investment decisions. That is particularly obvious when it comes to fossil fuel companies. The evidence is unequivocal that companies cannot burn all their reserves if the world is to avoid catastrophic climate change.

That analysis doesn’t come from a Friends of the Earth or Greenpeace briefing – it is the view of Mark Carney, the governor of the Bank of England. Others have made the moral case, he highlights the financial risks of investments in companies who could find their assets ‘stranded’ as the world acts to tackle climate change.

Last night, I was speaking at a seminar chaired by the Deputy Mayor of London, in an impressive venue, the Living Room at City Hall. I was outlining a trade union perspective on divesting fossil fuel investments from my experience in local government pension funds.

View from The Living Room in City Hall

Some London funds have already taken this decision, and others are quietly moving away from these investments. The seminar heard from Southwark Council who are one of several in London who have clear policies. Leadership from Mayor and GLA is crucial. The Sainsbury Foundation also spoke at the seminar, highlighting their helpful guide to divesting and reinvesting.

It is a sign of progress that the case for divestment as set out by Platform London, is broadly accepted. The discussion in the panel session and workgroups was around the practicalities.

I outlined the importance of action on climate change and the role of the public sector in leading by example. I described the public sector duties in the Climate Change (Scotland) Act 2009 to reduce emissions, introduce adaption measures and work sustainably. This legislation had significant cross-party support in Scotland and is currently being updated in a Bill being considered by the Scottish Parliament.

While the ambition in Scotland to tackle climate change is undeniable, action on fossil fuel divestment in Scotland has been slow. This is despite national and local campaigns and even resolutions passed by councils who are the administering authorities for pension funds. Presentations have been made to Pension Boards, and a parliamentary inquiry by the Local Government Committee highlighted the issue.

There are some barriers to action by pension funds. Officials tend to adopt a conservative approach to change and dislike what they perceive to be political considerations. Too many funds are small and don't have the expertise to consider this issue thoroughly. This is one of the reasons why Scotland is looking at a structural review, which would enable funds to develop a team with the necessary expertise. 

Fiduciary duty is often wheeled out as a last-ditch defence, and it was raised by several speakers last night. I wrote a briefing on this issue for UNISON in 2015, which explains why this shouldn’t be an issue. It cites Scottish and English Law Commission reports and an opinion from Nigel Griffiths QC. In essence, pension funds are entitled to take environmental and social issues into account so long as they do not risk material financial detriment to the fund. 

Also, pension funds are not exempt from the public law duties that apply to the administering authorities. All investments involve a degree of risk, so fiduciary duty doesn't mean taking no risks. Ethical investment is rarely any riskier than other investments, and legal challenges are rare so long as funds follow a proper process.  

UNISON has also produced a useful guide on how to divest from fossil fuels. That starts with gathering information on investments before influencing the fund's investment strategy. It is import to emphasise that the policy should not only decarbonise but also adopt positive investments in the low carbon economy. 

The discussion last night also highlighted concerns over shareholder engagement strategies and the ‘Green Wash’ produced by some companies and investment advisors. We need more genuinely fossil free funds to invest in, not vague commitments like ‘low carbon’.

The campaign to divest from these risky and unnecessary investments is making steady progress across the country. The practical experience of funds is helping that development as are the growing number of national and local campaigns. London is showing great political leadership on this issue.