Scottish local authorities are investing £1.7 billion in 52 fossil fuel companies blamed for causing climate chaos, according to a new report.

Pension funds for more than half a million council staff are being poured into oil, gas and coal companies despite the danger that they will crash when the carbon financial bubble bursts.

The revelation has shocked pension fund members, angered campaigners and upset trade unionists, who are all calling for fossil fuel investment to be phased out. But the investments have been defended by councils and the industry.

The company given the most money by Scotland’s 11 council pension schemes is the oil and gas giant, Shell, which received nearly £130m of investments in 2015-16. The coal and mining multinational, Rio Tinto, was given £74m, BP £64m and Exxon £44m.

Responses to requests under freedom of information law also reveal that six of the pension schemes have never discussed climate change at board level. Only three have any investments in social housing or renewable energy in Scotland.

The new report is being published today by Friends of the Earth Scotland, the trade union, Unison Scotland, and the Common Weal think tank. It concludes that Scotland’s local authorities invested £1.68bn in fossil fuel companies in 2015-16, about the same as they invested the previous financial year.

The majorities of the holdings – just over £1bn – were invested through intermediary companies. Of the remainder, £543m was invested directly in oil and gas, and £113m in coal.

Fossil fuel investments by council pension funds 2015-16

Council pension fundinvested in fossil fuels
Total£1,683m
Strathclyde£889.8m
Tayside£131.1m
North East£124.1m
Falkirk£119.6m
Lothian£104.3m
Highland£92.3m
Fife£89.6m
Dumfries & Galloway£70.5m
Shetland£30.8m
Scottish Borders£23.4m
Orkney£8.2m
source: Friends of the Earth Scotland

The Scottish local government pension scheme has 505,769 members and total funds of £35.4bn. Nearly five per cent of its funds were invested in fossil fuels, equivalent to about £3,300 for every member.

The authors highlight local authority investment in the oil major BP, which is fracking and drilling for oil in the Arctic. They also criticise the £19.5m put into the coal mining company, BHP Billiton.

Friends of the Earth Scotland is urging councillors standing for election in May to “get serious” about responsible investment. “Council pension funds have huge clout and can shape our future,” said the environmental group’s divestment campaigner, Ric Lander.

“It’s time they used this power to invest in a future worth living in. Divesting from fossil fuels is an opportunity to contribute to a brighter future and put money back into local economies.”

Unison warned that fossil fuel investments were risky. “Too many of our pension funds are investing in obsolete technologies and risking our members hard-earned contributions,” said the trade union’s Scottish Organiser, Dave Watson.

Our pension funds need to be part of the future, not the past Dave Watson, Unison Scotland

“The future of energy is green, and it is within sight. Our pension funds need to be part of the future, not the past.”

Mark Carney, Governor of the Bank of England, has warned that the vast majority of fossil fuel reserves are “unburnable” if the world is to limit climate pollution to safe levels. Some economists say that this is creating a carbon bubble that will burst, causing fossil fuel companies to collapse in value.

Globally, 701 institutions with total investments valued at £4.5 trillion have promised to pull out of fossil fuels. Four local authority pension schemes in England – Haringey, Waltham Forest, Southwark and South Yorkshire – have made commitments to cut their fossil fuel investments.

In Scotland the universities of Glasgow, Abertay, West of Scotland and Queen Margaret have committed to divest. Heriot-Watt and Edinburgh Universities have made partial commitments.

Kirsty Noble, a member of the Strathclyde pension fund, was shocked at the amount of money invested in fossil fuels. “I am concerned at the increasing risk posed by fossil fuel investment in a rapidly changing world,” she said.

“I am also concerned that government, at all levels, is not doing more to meet our crucial commitments on climate change – and to ensure pension funds are fossil free seems a no brainer.”

Jude Ferguson, a member of the Lothian pension fund, said: “What is the point in saving for a future that my pension money is helping to destroy? I want to, and believe I can invest in a future that invests in the planet.”

Louise McCafferty, a member of the North East pension fund, urged councils to rethink their investments. “If they are serious then they must divest – the fact that some haven’t even discussed it is quite unbelievable.”

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According to the new report, only three of the 11 council pension funds – Strathclyde, Falkirk and Lothian – actively invested in socially and environmentally beneficial infrastructure. They put a combined total of  £234m in renewable energy and social housing, less than one per cent of the Scotland-wide scheme’s total value.

In England the Environment Agency has said it is aiming to end most of its fossil fuel investments by 2020. The Scottish Environment Protection Agency (Sepa), whose pension investments are handled by Falkirk Council, has pressed for environmental and social responsibility to be “taken on board” when investments are being decided.

Sepa’s chief financial officer, Stuart McGregor, said: “While it is accepted that more work can be done to decarbonise the pension scheme’s portfolio, discussions are already ongoing between the Environment Agency pension fund and Falkirk Council pension scheme regarding what lessons can be learned from their current policy.”

The Convention of Scottish Local Authorities pointed out that council pension funds and committees were accountable for their decisions. “The Scottish local government pension funds make investment decisions in line with their fiduciary duty and legal obligations,” said a spokeswoman.

The industry body, Oil and Gas UK, stressed that global energy demand was going to increase and that oil and gas would still be essential for years. In 2035 more than half the world’s energy and 70 per cent of the UK’s energy will still be met by oil and gas, it predicted.

“Oil & Gas UK supports the transition to a low-carbon future,” said Mike Tholen, the group’s upstream policy director. “This must be done responsibly, while acknowledging our continuing need for accessible, affordable and reliable energy.”

Substituting coal with natural gas in power generation is one of the fastest, lowest-cost and most secure routes to decarbonisation, he argued. Oil will be “an indispensable part of the energy mix for the foreseeable future.”

Tholen maintained oil and gas were attractive investments for market-driven pension funds. “Divestment from oil and gas companies is not the answer,” he said.

“Over 70 per cent of the world’s reserves are state-owned and the largest producers of oil and gas are national oil companies. Stopping all investment in oil and gas will only make the challenge of meeting global energy demand all the greater.”

BP declined to comment, while Shell and Rio Tinto did not respond to requests to comment. BHP Billiton also stressed that fossil fuels will continue to be a significant part of the energy mix for decades.

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The 21 fossil fuel companies with most council investments

Companyinvestments by Scottish councils
Royal Dutch Shell£129.9m
Rio Tinto£74.1m
BP£64m
Exxon Mobil£44m
EOG£40.7m
Eni£31.5m
Centrica£28m
Total£25.8m
Apache£20m
BHP Billiton£19.5m
Chevron£16.6m
Lukoil£15.7m
Occidental£12.6m
Statoil£10.8m
Anadarko£9.3m
Pioneer Natural Resources£8.2m
Hess£8m
Anglo American£7.9m
Noble Energy£7.8m
Suncor Energy£7.1m
ConocoPhilips£6.3m
source: Friends of the Earth Scotland

Cover image thanks to Ken Doerr via CC by 2.0. Photo thanks to European Wind Energy Association via CC by 2.0.