Fossil Fuels: Divestment, Engagement and Derbyshire
Almost anyone who has worked for a public sector organisation in Derbyshire, for example, as a local council officer, school staff member, fireman or policeman, is likely to be involved in Derbyshire Pension Fund.
Derbyshire Pension Fund currently has over £200 million invested in fossil fuel companies. This is equivalent to over 18 years of High Peak’s yearly budget (£10.8 million for 2020-21). Overall the pension fund manages £4.9 billion of public money. Some of this is yours if you are receiving or paying into the Fund.
There are plenty of reasons why this is unacceptable. We need to leave fossil fuels in the ground because of climate change. But there are other reasons to divest from fossil fuels.
Pensions funds exist to invest the money paid in by working members so as to
ensure a decent income for current and future retired members now and in the future.
It's not only Greens who believe investing this money in fossil fuels makes no financial sense. Many mainstream players in financial services agree: Martin Carney, former Governor of the Bank of England, Ma
rk Carney, warned a carbon budget consistent with 2⁰ rise in temperatures would “render the vast majority of reserves ‘stranded’ — oil, gas and coal that will be literally unburnable.” These stranded assets could lead to losses of up to $4 trillion for corporations and investors. (“Stranded assets” are assets which will have to be abandoned as they bring in no funds for the owners or investors.) Recently, BP , one of the better oil companies in this regard, did show some signs of changing, as it sold off its petrochemical business and admitted that some of its assets will be stranded. And just this week (16th July) The Economist has declared, “The end of the age of Middle East oil is nigh.”
A brief look at indices which track invesments inluding fossil fuels against those that exlude them shows that already investing in fossil fuels just doesn’t make financial sense. This is just one example (MSCI is a US company which provides tools and information for better invesment decisions):
Technological change and the risks of investing in outdated technology
Technological change can happen very quickly ,as illustrated by these two photos.
As a new, disruptive technology (eg renewables) takes over from a large current technology (eg oil), investors in the current technology lose money around peak demand. For example, global coal demand peaked in 2014. By 2016 coal share prices had crashed, leading to UK local government pension funds losing up to £638 million because of failed investments in coal firms. Carbon Tracker suggests fossil fuel demand will peak in the 2020s, and Covid-19 is likely to bring this forward.
There have been statements from some fossil fuel companies about becoming carbon neutral, but a closer examination shows that these companies do not intend to reduce oil exploration or extraction but instead to rely on unproved carbon capute technologies. In fact, history suggests large companies don’t change their core business models to keep up with technological change; most carriage makers did not change to manufacturing cars. Polaroid is an example of a more recent failure to react to change. Despite extensive market research, Polaroid failed to recognise the implications of digital technology.
Many institutions have accepted these compelling arguments and are divesting from fossil fuels for financial as well as ethical reasons, sometimes in response to pressure from their communities.
Coming back to local councils
Pension Fund Committees have a fiduciary duty to safeguard their investments for ALL their members (i.e. current and future pensioners). An 80-year-old will not be as a affected by losses from fossil fuel invesments as a 24-year-old who may not retire for 45 years. A Council Pension Fund manager has to take this into account. Some funds argued they could not divest from fossil fuels, because “fiduciary duty” meant they had to ignore “ethical” issues. However, a recent court decision (about divesting from Israeli companies working in the Palestinian Territories) agreed that Council Pension Funds can make decisions on ethical grounds. 11 UK local government pension schemes have already made full or partial divestment commitments.
So what about Derbyshire?
The Derbyshire Pension Fund, covering all local councils and others, is managed in-house by Derbyshire County Council. The Derbyshire Pensions and Investments Committee meets 8 times a year and is ultimately responsible for investment decisions. Management of a fund of several billion pounds involves several different players, but that should not prevent the Pensions and Investments Committee taking the lead – as is its duty.
They have decided on a policy of “Engagement”, that is, somehow persuading the oil companies to change their ways. You don’t have to have an MBA from a posh business school to guess that engagement does not work. To be successful, engagement would need to force companies to close extraction sites before the end of their life and wind down fossil fuel production. There has been incremental change over the past 10 to 15 years, but that is not enough.
Derbyshire Pensions and Investments Committee has been pursuing a policy of engagment for years and achieved nothing. This is not surprising: the Manaigng Director at invesment advisers Cornerston Capital Group said: “You are not going to engage a fossil fuel company or a tobacco company out of being a fossil fule or tobacco company.” The Pensions Committee is not powerful and is not likely to persuade huge global corporations such as Shell or ExxonMobil to do anything. And anyway fossil fuel companies don’t have to listen to their shareholders:
The only effective argument the Pensions Fund has is divestment.
According to Carbon tracker - an independent financial think tank that looks into the effects of energy transiition on captial markets:
"True engagement nees the pressure created by divestment. Engagement without divestment is like a criminal legal system without a police force"
Meanwhile, fossil fuel companies continue to open new extraction sites and explore for even
more new reserves. Shell plans over 35 new oil and gas projects by 2025, according to an investor presentation from June 2019. In 2018, all major oil companies agreed projects that fall outside a “well below a 2⁰ ” budget on cost grounds. Five oil majors were forecast to put only 3% of 2019 capital expenditure towards low carbon technologies.
Divest Derbyshire (an initiative of Transition Chesterfield) and the Derbyshire Pensioners' Action Group have been working to persuade the Pension Fund to divest form fossial fuel conanies, with little result. Replies to their emails to the committee have been frankly ill-informed and unhelpful. Pension fund managers have a duty to consult members about investments but Derbyshire doesn’t do this in an accessible and effective way. So recently the two groups have conducted a survey of pension fund members. Results showed that the vast majority are unaware of where their pensions are invested and a majority have concerns about investment in tobacco, arms, fossil fuel and other companies. A large majority would like more of a say in how Derbyshire Pension Fund invests its money.
What can we do?
Write to Cllr Jim Perkins, chair of the Pension Fund in your own words, using some of these arguments (email Jim.Perkins@Derbyshire.gov.uk )
Join Divest Derbyshire mailing list (email email@example.com )
Press releases and other media releases; Divest Derbyshire and the Derbsyhrie Pensioners' Action Group have just issued a release about the survey of memebers.
Engage young people (or anyone) whose family etc may have worked for Derbyshire public sector
Motions on Divestment – ask your councillor. ChesterfieldTown Council has just passed a motion asking the Council to divest. All local councils in Derbyshire are members of the main pension fund.