Divesting from fuels makes environmental and financial sense
At the full meeting of High Peak Borough Council on February 16th, I'll be proposing a motion divest council funds from companies that are directly or indirectly involved in the fossil fuel industry.
In October 2019, the Council voted unanimously to declare a Climate Emergency, aiming to reach net zero carbon emissions by 2030, and to influence others to do the same. Since then, the temperature rises that cause climate change have continued and it is not clear that the Council has reduced its emissions enough to reach its target.
Fossil fuel driven industries such as transport and energy are the major contributors to climate change. If the Council is to reach its target, we must approach the problem of emissions from fossil fuels from every angle. This includes divestment, that is, examining all its investments and taking them out f any funds which directly or directly fund extraction and use of fossil fuels. This Motion proposes a relatively short deadline for divestment due to the need for urgent action.
This is not only an environmental concern. Many individuals and organisations have spoken about financial risk in investing in fossil fuels. These include Mark Carney, ex-head of the Bank of England, BP, and shareholders in Barclays. Data from investment firm AJ Bell shows the average 10-year return from UK non-ethical funds was 81% in September 2020, while for UK ethical funds it was 104%.
Even without these warnings, it is obvious from the falling, and very volatile, oil prices that oil is not a good investment. This is not a temporary blip: one cause of this risk is stranded assets, that is, assets such as oil fields which are no longer financially viable because of political and societal moves away from fossil fuels.
Because of these risks investors including local and national governments are divesting from fossil fuel companies. Locally, Derby City Council, Chesterfield Borough Council and Amber Valley Borough Council have all passed motions supporting divestment from fossil fuels. The Council’s recent moves towards more ethical investing are welcome but this still only covers about 10% of its shorter-term portfolio
In the last 4 years the value of oil company shares held by 56 local government pension funds has halved according to the Financial Times. The Derbyshire Pension Fund, which manages High Peak’s pensions, has almost £200 million invested in fossil fuel companies, all of it at risk of becoming worthless. Hence the motion includes putting pressure on Derbyshire to divest.
Divestment is the responsible choice
We are aware that the Council has to prioritise security, liquidity and yield (SLY)
when it makes investment decisions, as part of its fiduciary duty, that is, its duty to look after the money it receives from residents and businesses in the form of Council tax and business rates. Divestment from fossil fuels is compatible with these priorities. The loss of volatility and risk inherent in fossil fuel investments show they are not secure. In comparison, investment in renewable energy, for example, is likely to become more secure as government policy and markets increasingly prioritise the switch to renewables.
The liquidity criterion already applies to Council investments, so should not prevent divestment. As the market expands and diversifies for Environmental Social and Governance (ESG) investing, liquidity of new investments can be assured. Regarding yield, the data above suggests this is at best uncertain: investment trackers show that yield is consistently higher from ethical investments than conventional ones, including fossil fuels.
Mark Carney has said
“Are the people investing your money missing out on major opportunities or are they taking unnecessary climate risks, or do they think that you just don’t care? If you care about the climate, make your money matter.”
The environmental and financial arguments for divestment for fossil fuels are undeniable. Even those members who are doubtful about climate change should support this motion on financial grounds.