The managers of a £24 billion pension fund want Glasgow councillors to keep investing in fossil fuels – despite the council declaring a “climate emergency” and preparing to host global climate talks.
Strathclyde Pension Fund (SPF) managers say that they should be allowed to keep investing over £700 million of their members’ pensions in oil and gas companies such as Shell, ExxonMobil and Chevron – despite the climate pollution they cause.
The Glasgow councillors on the SPF committee will decide whether or not to accept the recommendation on 4 March. Their meeting is set to be picketed by environmentalists who say that the fund should be ordered to stop investing in fossil fuels immediately.
The trade union Unison, which represents many of the employees who are members of SPF, supports divestment. It says more urgency is needed to tackle the climate emergency.
A financial analyst also criticises SPF’s investment in fossil fuels. Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis says that fossil fuel companies are not a good investment for shareholders.
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The SPF is the largest fund in the UK’s £300 billion Local Government Pension Scheme. It was set up to invest the pensions of those working for the old Strathclyde Council, which has been replaced by other west coast councils, including Glasgow.
The fund now invests the pensions of over 250,000 people, who are mainly public sector workers, and holds assets worth nearly £24 billion – over a hundred times the value of Celtic Football Club.
It is managed by Glasgow City Council employees who are advised by private sector investment managers. The management is supposed to be accountable to a committee of nine Glasgow councillors, six of whom are from the SNP, with one each from Labour, the Conservatives and the Greens.
The councillors on the SPF committee are trustees of the pension fund and have a legal “fiduciary duty” to act in the interests of the pension fund’s members. Whether this means only taking their financial interests into account or whether their wider interests – such as stopping climate change – can be considered is a matter of debate between the SPF’s management and divestment campaigners.
In May 2019, under pressure from campaigners, Glasgow City Council declared that there was a “climate emergency” and set up a working group which included members of the public to discuss how to tackle the emergency.
One of the group’s recommendations was that Glasgow council and the SPF divest from fossil fuels. It said there was an increasing risk of “stranded assets”. These are assets that used to be valuable but are no longer, such as a coal mine at which mining has been banned.
Divestment "is not a realistic, effective or satisfactory solution to climate change”. Report by Strathclyde Pension Fund managers
The working group recommended the SPF committee ask for a report on the risks. The committee did so and the report was written by SPF’s management and will be presented to the committee on 4 March.
The report argues that divestment “is not a realistic, effective or satisfactory solution to climate change” and asks the councillors on the committee to agree. It says divestment is ineffective, badly-targeted and would hit the value of council workers’ pensions. It suggests that there are better ways of taking action against climate change.
The report recognises that climate change is an economic risk. But it adds: “The climate change solution most frequently promoted to SPF by lobby groups is divestment from fossil fuels.
“SPF previously considered the feasibility of this in 2015 and concluded that the benefits of divestment are questionable, there would definitely be a cost, and the overall impact in terms of investment returns could be significant.”
Tom Sanzillo, who used to manage a $156 billion pension fund in New York State, disagreed. He told The Ferret that divestment is likely to increase investment returns.
“Fossil fuel stocks no longer provide financial returns sufficient to justify the risk,” he said. “Of all industries they are no longer the leader, in fact they are in last place.”
Sanzillo added that the fossil fuel industry is a “mature industry facing distressed assets and a negative outlook”.
“You don’t have to wait for a climate calamity to make a decision that these investments are not performing well,” he said. “And you don’t need the imposition of strong regulatory rules on carbon to see that the decline will take place with a more enlightened form of climate management or without it.”
The SPF report argues that companies are profitable enough to fund fossil fuel extraction themselves, and that if SPF didn’t buy their shares someone else would. Divestment does not distinguish between companies extracting more polluting fuels such as coal and less polluting ones such as gas, it says.
The report suggests that targeting the fossil fuel industry “seems arbitrary” as other industries consume fossil fuels. It says that other targets could include manufacturers, airlines, shipping companies, plastics, steel, aluminium, cement and agriculture.
Instead of divesting, the report says the possibility of SPF joining the Net-Zero Asset Owners Alliance should be researched. This is a United Nations group of institutional investors who commit to transitioning their investment portfolios to “net zero” carbon by 2050.
However, the report says this would be a “very bold commitment” which “would require very thorough consideration”. Many fossil fuel companies also produce some renewable energy and “the oil and gas industry is acting to reduce its impact on the environment”, it claims.
"It will come across as hypocritical to many that one part of the council is investing over £700 million in climate polluters whilst others are working hard to shift the city away from fossil fuels." Ric Lander, Friends of the Earth Scotland
Ric Lander, a divestment campaigner at Friends of the Earth Scotland, said the report’s authors “have fallen hook, line and sinker for the fossil fuel industry’s greenwash”.
A January 2020 report by the International Energy Agency found that investments in low-carbon businesses represent less than one per cent of oil and gas companies’ capital expenditure. The report concluded that “a much more significant change in overall capital allocation would be required to accelerate energy transitions”.
Lander said that the SPF report was “deeply embarrassing” as Glasgow gears up to host the global climate talks in November, known as COP26.
“It will come across as hypocritical to many that one part of the council is investing over £700 million in climate polluters whilst others are working hard to shift the city away from fossil fuels,” he said.
Lander added that divestment is a mainstream approach towards sustainable investing, pursued by investors like New York City and the Irish state investment fund.
Divestment is also supported by Unison. One of their officials, James Corry, sits on the SPF board, which is an advisory body of employer and employee representatives and is separate to the SPF committee.
Corry has argued in board meetings for divestment. “The clue is in the word – emergency – so we need decisive action not procrastination. There needs to be more urgent timescales,” he said.
He added that SPF should also be urgently consulting on the issue with the other affiliated local authorities, employers and pension scheme members whose collective money it is investing.
On 2 March environmentalists including Extinction Rebellion protested inside Glasgow council chambers, calling for divestment. Geraldine Clayton, a Strathclyde Pension Fund member and Divest Strathclyde campaigner asked: “How can Glasgow claim to be addressing the climate emergency when the council pension fund is invested in climate polluters?”
A spokesman for Strathclyde Pension Fund said: “SPF has consistently led among investors in supporting a just transition to a low carbon economy. However, divestment does nothing to address the climate emergency and is neither far-reaching nor radical enough to mitigate the immediate and long-term risks that climate change poses for investors.”
He added: “Instead, the fund has chosen to be an activist investor; challenging companies to improve their performance, backing renewable energy and empowering managers to make decisions that reflect its belief that climate change is a major and structural risk for the global economy.
“The fund is continuing to develop how it measures and analyses its carbon exposure and will fully integrate this with its financial modelling. This will allow it to set a clear objectives on climate change and steer future investment.”
The councillors on the SPF committee did not reply to requests for comment.
Decision on fossil fuels investment postponed
Update on 4 March 2020: The Strathclyde Pension Fund committee decided to postpone a decision on whether or not to divest from fossil fuel companies until its next meeting in September.
Green MSP Patrick Harvie welcomed the decision, saying councillors had “refused to shut the door on divestment”. However, he said “it was concerning to hear tired and largely discredited arguments about legal duties being trotted out again”.
In the meeting Green councillor, Martha Wardrop, and SNP councillor, Richard Bell, argued in favour of divestment while the SNP’s Ruairi Kelly argued against it.
The trade union Unison’s James Corry left the meeting after the chair, SNP councillor Allan Gow, did not allow him to speak in favour of divestment. Gow said he did not take his contribution because already knew what Corry’s view was. Corry told The Ferret that Gow’s decision was “outrageous”.
Poll: Do you think the Strathclyde Pension Fund should divest from fossil fuel shares?
Photos thanks to Ric Lander/Friends of the Earth Scotland.