With news of Climate Emergency getting more troubling every month its easy to feel hopeless and wonder what you can do. May has announced Net Zero Carbon a UK by 2050, but can we really trust the Tories to deliver when they’ve effectively banned onshore wind, supported fracking, sold off our Green Investment Bank and scrapped our Zero Carbon Homes law?
You might have decided its time to take matters into your own hands, having meat free days and recycling your food waste, but did you know, up to 20% of your pension might be invested in climate wrecking fossil fuels? When the House of Commons digital engagement team put this question to an online poll ahead of a Westminster Debate on the topic, 73% of people expressed concern about the risks of these investments.
Despite four times more oil and seven times more coal than we could ever use already sitting on the books of companies like BP and Exxon, it is likely that our retirement funds are being spent, in part, to explore for even more fossil fuels.
Why? Because pension funds are used to managing money for short term returns and crossing their fingers that long term returns will follow. They are not listening to the voices of younger savers that expect returns and a planet to spend them in – not too much to ask!
To top it off the average fossil company is spending just 1.3% of CAPEX on renewable energy investment. A reckless strategy for our pensions and our planet.
Today, its a lottery for pension holders as to whether their trustees and the fund managers who their money is invested with are taking these issues seriously. The majority are not. Yet unpicking this risky position is too complex to achieve for the average individual pension holder.
Lib Dems are already making progress on the issue, Sir Ed Davey has this month started a process this month of debating in Westminster how we can compel all pension funds to manage these risks on behalf of pension holders and also addressed 500+ investors in the City this week with a simple message – the UK is aiming for Net Zero Emissions by 2050 – banks and investors operating in the UK should now be subject to the same requirements.
After all, 250 MPs have signed the DivestParliament pledge to ask their own pension trustees to remove risky fossil fuels from their own portfolio. All these MPs should prioritise the same changes for every pension holder in the UK. And things are happening already. In a speech made by Pensions Minister Guy Opperman this week he praised the “very important debate [bought forward by the Lib Dems] on the nature of long-term investment of pension funds” but the ministers solution? In his words, to ’nudge’ the industry along is not nearly enough given that in London we finance businesses responsible for 15 times the emissions of the entire UK.
A Lib Dem government would go much further, according to plans being finalised this month for a new Climate Change policy. This includes compelling companies and their investors to align with the climate goals of the UN and those that the UK Government have now committed to: to be net zero by 2050.
The good news is that clean, high returning investments exist. So carbon-free pensions won’t just be solving the climate emergency, they will also be helping pensioners switch out of increasingly risky carbon assets into much safer climate smart investments.
For Local Authority Pension Schemes there is no need to wait for national legislation. The schemes are big enough that they can demand a bespoke portfolio of high quality, fossil free investments. This is where our hundreds of Local Councillors up and down the country come in. You have the chance to lobby your council and the pension fund trustees to take this issue seriously and to start divesting from fossil fuels and investing in the future for the pension and the planet. The more fossil free, climate smart funds are created for the big pension fund holders, the more choice there will be for individual savers too, and the impact is multiplied.
The Green Lib Dems have teamed up with Friends of the Earth and Platform to support any councillor wanting to lobby their Local Authority scheme to divest from fossil fuels and move to a Climate Smart portfolio. They will launch their #LibDemDivest campaign on Saturday at the Green Lib Dem conference in Nottingham.
* Katie Critchlow is Non-Executive Director at NatureMetrics, a science start-up which monitors biodiversity using DNA and Sustainable Finance advisor to Sir Ed Davey.
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5 Comments
Maybe, in the future, pension organisations could invest in Modular Housing organisations to get away from the now controlled market system run by the big builders .Innovation in a new century should be the way to go.
”Why? Because pension funds are used to managing money for short term returns and crossing their fingers that long term returns will follow.”
Yes, that’s a key issue for UK companies generally (not just pension funds) because UK financial markets push everyone in that direction. The City sees quoted companies as gambling chips for its fun and profit (which too often involves asset-stripping). So, while in theory everyone says they want good long-term investments, in practice the appeal of short-term trading profits is irresistible plus if you don’t do it someone else will.
People complain that politicians’ maximum horizon is no further than the next election but, by the same token, for directors of quoted companies it’s no further than the next reporting update (quarterly for big companies).
So, company boards are constrained to focus on keeping speculators happy and hence on financial manoeuvrings instead of on science, engineering etc and strategic thinking around the opportunities they create and then investing patient capital in those new opportunities.
And that, in a nutshell, is why the UK is simply terrible at turning the great things coming out of its labs into profitable businesses.
I am not sure what is being suggested. Yes the aim of a pension fund looks short term. How else can this be done. We live our lives year by year. Investments are in fact diversified to minimise risk. This means that there is a need to aim for a balanced portfolio which is reviewed month by month. This will consist of equities, bonds, property and any other things which will give a return. There are many things which it would be nice to avoid investing in. The arms industry is one. This happens to be profitable though. Another is the pharmaceutical industry.
The risks of the local government scheme are in the end carried by council tax payers.
If we want to control our country’s economy to help to ensure the survival of humanity in something like a sustainable way, then that is what the government is for.
I am all in favour of looking at ways of building a movement for us all to take responsibility for the state of our planet. We might start with education. And in the meanwhile look at the Companies Act.
This is all very well intentioned and it shows a clear difference between what the LibDems believe (and did in the Coalition) and what a Tory government did.
But I am left wondering ‘How will this work?’ and ‘Might it move us in the right direction?’
The most fundamental point is: ‘what are the basic rules that Companies and Pension funds work under?’
I believe for plcs the clear legal duty of the management is to do the best financially they can for their shareholders. (what that is, is another question.) This sets up a conflict when moving from a highly profitable investment to one, which is more ethical, but less profitable.
For some investment trusts, and pension funds, ethical choices may be written into their constitutions. How many of us have actually read the relevant documents?
So perhaps this implies that the really basic issue is revising company law.
Meanwhile, it is a good campaigning point, but like a parallel initiative currently being pursued in Christian churches, not the full answer.
“The good news is that clean, high returning investments exist”
Can you give some examples please