Two of Scotland’s largest pension funds face major risks from climate change but are failing to address them, says a new report published today (9/11/18) which looks at 19 large public sector pension funds in the UK.

The Lothian and Strathclyde Pension Funds, run by Edinburgh and Glasgow Councils, were found to be failing to take adequate action to protect their £27.1 billion investments from climate risks.

The funds claim to be addressing climate risk through a process of ‘shareholder engagement’ with fossil-fuel companies. This approach involves asking fossil fuel producers such as BP and Shell to become more climate-friendly – often in direct contradiction to these firms’ business plans.

The report found that:
* Both funds had raised climate change issues with the companies they invest in, including through external contractors, but had set no clear objectives for this effort.
* Neither had provided any evidence that shareholder engagement could insulate their funds from climate risks.
* Neither had policies in place to reduce their investments in fossil fuels.
[1]

The Strathclyde Pension Fund have an estimated £803 million invested in fossil fuel companies and the Lothian Pension Fund invests £153 million in fossil fuels. [2]

The recent IPCC report laid out the need for wholesale transformation of our energy, transport and agricultural systems away from fossil fuel firms.

Shareholder engagement is ‘not a credible response’

Ric Lander, divestment campaigner with Friends of the Earth Scotland said:
“This timely report shows that Lothian and Strathclyde Pension Funds are not doing enough to protect pension holders from the risks associated with climate change. Nor are they being realistic about the wholesale changes needed to transition to a zero-carbon economy that meets the challenges climate change brings.

“Those running our pension funds are still banking on Big Oil, fracking and coal to fund our pensions in the decades to come. This strategy is just not credible. Foresighted investors are divesting from fossil fuels and investing in companies who can be part of the new, zero-carbon economy.

“Politely asking oil companies to sell less oil simply isn’t a credible response to the urgent challenge of climate change.”

The report examined the 17 largest LGPFs (15 English and 2 Scottish LGPFs) as well as the Northern Ireland LGPF and the largest Welsh LGPF (Rhondda Cynon Taf). Some of the smaller LGPFs, not included in this report, have taken stronger action to protect themselves from the financial risk posed by climate change and high carbon investments.

Waltham Forest, Southwark and Islington LGPFs have committed to divest from all fossil fuels while Hackney, Haringey and the Environmental Agency Pension Fund have made partial commitments to divest from fossil fuels.

Scottish Pension Funds falling behind

Whilst Scottish funds were falling behind, English funds including Merseyside, Lancashire, London and Avon local government pension funds were found to be pushing ahead, reducing their exposure to risky companies and setting clear goals for engaging with the companies they invest in.
A study of corporate pension funds, published by Pinsent Masons in Sunday’s Financial Times, found the that inaction on climate change was an industry-wide problem. [3]

20 SNP, Labour and Green councillors in Edinburgh and Glasgow have called on their funds to divest from fossil fuels. [4]

The Governor of the Bank of England, Mark Carney, has warned that investors face “potentially huge” losses as climate action renders vast reserves of oil, coal and gas “literally unburnable” [5].

A Scottish Government study revealed last week that increased storm intensity and sea level rise would threaten the M8, M74 and West Highland Line, as well as the Royal Alexandra Hospital in Paisley, costing billions of pounds. []

ENDS


NOTES TO EDITORS:

  1. The report, published jointly by Friends of the Earth (England, Wales and Northern Ireland), Friends of the Earth Scotland and Platform London, examined 19 large UK Local Government Pension Funds focusing on five key areas:
  • Does the Investment Strategy Statement say climate change is a material financial risk?
  • Are these risks then assessed (eg what proportion of a company’s fossil fuel reserves are likely to be stranded), and is there a clear strategy for managing these risks?
  • Is there any reduction of risk exposure via divestment out of stocks with higher transition risks, such as fossil fuel production and exploration companies, or tilts away from high carbon investments?
  • What is the fund’s approach to engagement? Are there any clear goals and deadlines for engagement, and escalation strategies if goals and deadlines are not met?
  • Is there any investment in the low-carbon transition?

The report is available at https://foe.scot/resource/report-local-gov-pension-funds-climate-risks/

2. The ‘Fuelling the Fire’ Report in 2017 revealed that Scottish Local Government Pension Funds have £1.8billion invested in fossil fuel firms https://foe.scot/resource/councils-fuelling-fire/

3. ‘Pension funds fail to insulate against climate-change risks’, (Financial Times, 4 Nov 2018)  https://www.ft.com/content/99d5c50a-30bf-39c0-b67d-6752abd7e53d

4. 16 Councillors in the Lothian region have pledged support for fossil fuel divestment of the Lothian Pension Fund, including Lord Provost Frank Ross ( The National, 27 Aug 2018)
http://www.thenational.scot/news/16600482.lothian-pension-fund-urged-to-end-fossil-fuel-investments/
A similar campaign was recently launched in Glasgow with 4 councillors giving support:
https://foe.scot/press-release/glasgow-councillors-end-investment-fracking-fossil-fuels/

5. Mark Carney warns of potential ‘catastrophic’ climate impact on financial markets (Business Green, April 2018)
https://www.businessgreen.com/bg/news/3029788/mark-carney-warns-of-potential-catastrophic-climate-impact-on-financial-markets.

6. Glasgow roads, railways and hospitals in jeopardy over climate change warns study (The Herald, 31 Oct 2018)
https://www.heraldscotland.com/news/17192144.glasgow-roads-railways-and-hospitals-in-jeopardy-over-climate-change-warns-study/

7. Friends of the Earth Scotland is
* Scotland’s leading environmental campaigning organisation
* An independent Scottish charity with a network of thousands of supporters and active local groups across Scotland
* Part of the largest grassroots environmental network in the world, uniting over 2 million supporters, 75 national member groups, and some 5,000 local activist groups.

8. About Friends of the Earth England Wales & Northern Ireland: For more than 40 years we’ve seen that the wellbeing of people and planet go hand in hand – and it’s been the inspiration for our campaigns. Together with thousands of people like you we’ve secured safer food and water, defended wildlife and natural habitats, championed the move to clean energy and acted to keep our climate stable.

9. Platform is a London-based organisation that conducts research, education, and campaigns towards a just future beyond fossil fuels.