LGPS’s £10bn fossil fuel investments sparks new divestment call

New research claiming that Local Government Pension Scheme funds hold almost £10bn of assets in fossil fuel companies has prompted fresh calls for them to divest from “planet-destroying industries”.

However, the figures published by Friends of the Earth and the environmental collective Platform also suggest the proportion of LGPS assets invested in fossil fuel companies has halved over the last five years, and is below the average for large pension funds.

Today’s report, Divesting to protect our pensions and the planet, names Greater Manchester, Strathclyde and West Midlands as the funds with the largest investments in fossil fuel companies. Teesside, Dyfed and Dorset are cited as the funds with the largest proportion of their assets – about 5% – invested in this way.

The document says that total fossil fuel investments by LGPS funds stood at £9.9bn in 2020 – down from £13.8bn in 2015. This represents a halving of fossil fuel investments as a proportion of total LGPS assets, from 6% to 3%.

This reduction was largest in direct fossil fuel investments, which fell from 2.4% of all assets in 2015 to 0.8% in 2020. Indirect fossil fuel investments fell at a slower rate, from 3.6% to 2.2% over the same period.

The report says: “The overall fossil exposure of 3% is broadly consistent with, albeit slightly lower than, the findings of a recent study which suggested average fossil fuel exposure across large pensions funds in the OECD of 3.8%.”

It notes that £9.9bn remains invested in fossil fuel companies, despite 75% of councils having declared a climate emergency.

Rianna Gargiulo, divestment campaigner at Friends of the Earth, said: “Declaring a climate emergency may garner good headlines but too often it seems to stop there. Councils can’t make a bold claim about saving the planet while continuing to invest in fossil fuels.

“Local authorities have the power and duty to ensure local workers not only have a pension for their retirement, but also a future worth retiring into.”

The West Midlands Fund said the figures in the report about its investments were “inaccurate, resulting in a gap and error which overstate the West Midlands’ exposure”.

It said it “remains committed to supporting the goals of the Paris Accord” and has brought forward a review of its climate change strategy. The fund said it believes that “engagement is a more effective tool than divestment and recognises the role investors can play in continuing to drive for a timely and just transition in response to climate change, noting that no one party can achieve this alone”.

A spokesperson for Strathclyde Pension Fund said it believes the global transition to a low carbon economy is “essential”, and that this “includes the de-carbonisation of its own investments”.

They added: “Historically, though, the fund has felt that divestment is a blunt tool in terms of securing that transition to a low carbon economy and not on its own radical enough to have a meaningful impact on the climate emergency.

“Instead, it has preferred to be an activist investor – pushing for improvements on everything from carbon disclosure and lowering emissions, while committing hundreds of millions of pounds into a range of renewable energy projects.”

Dyfed Pension Fund pointed to a decision it took earlier this month to allocate assets to products which will screen out companies with exposure to fossil fuel reserves and thermal coal. At the time Chris Moore, Carmarthenshire CC’s director of corporate services, described it as “quite a substantive move forward” which would ensure the pension fund “actually responds to the low-carbon objective of this fund and reducing our investment in fossil fuels”.

The Friends of the Earth and Platform report urges councillors to pass motions “to sell all shares in fossil fuel companies within a defined number of years”. It says “engagement with fossil fuel companies is not working,” adding “this is especially undeniable in the case of local authority pension funds: their scale is too small to fundamentally change the core business model of fossil fuel majors.”

Instead, it calls for councillors to “identify local investment priorities that your pension fund can invest in”.

Greater Manchester, Teesside and Dorset pension funds were approached for comment.