(as presented by Peter Wallis)
Thank you for the opportunity to address this meeting. I’m very pleased that the committee is taking time to discuss this important issue.
I have been employed by Oxfordshire County Council and a member of the LGPS for 15 years. Until recently, I had not given any thought to the huge amount of work that the Fund Managers and this pension committee put into ensuring that I and other LGPS members receive a pension on retirement. I also had no idea where my money was being invested. But over the past few months I have had a lot of conversations with LGPS colleagues who, like me, are belatedly waking up to the ethical and financial implications of how our pension fund is invested. We now feel very strongly that this matters, for the reasons I’m about to set out.
I can’t think of another area of public service where user views aren’t considered important, so I welcome this signal that the Pension Fund Committee will listen to scheme members’ views on its investment strategy.
As a pension scheme member, I am delighted that the principal concern of the Committee is for our – the scheme members – best interest, as stressed by the Chief Finance Officer. As her report also says, the recent Law Commission review advised that trustees are not obliged to focus solely on short term profits when making investment decisions, but are free to consider all factors which affect the financial performance of a fund. They may also take into account non-financial factors, such as members’ views and quality of life, so long as this does not result in significant financial detriment.
As I see it, members’ interests include, first, ensuring the fund can pay our pensions when we retire by obtaining good returns and avoiding unduly risky investments, and secondly, investing in a way that protects our other long-term interests, notably protecting us from climate change
I’ll start by addressing the second of these.
Although a secure pension is important, I don’t think that financial security in old age is the only concern of LGPS members. It is also in our best interests to have a secure environment to retire into. There is unanimous scientific agreement that there is a genuine risk of runaway global warming, which could make the earth uninhabitable unless temperature rise is limited to 2 degrees. Even 2 degrees of warming will bring dangerous floods, droughts, food shortages and conflict.
When I retire I want to be living in a resilient world with clean air, where our homes and countryside are safe from flooding, one that rests securely on clean, sustainable technologies, where people have safe, secure, long-term jobs. I want that for my children and grandchildren too.
A recent report from University College London shows that existing fossil fuel reserves contain three times more carbon than can be safely burned, without exceeding a 2 degree global temperature rise. Yet fossil fuel companies are still exploring new sources of oil, coal and gas. By investing in these companies, the pension fund acts against members’ interests by lending financial support and moral legitimacy to an industry whose current business plans will push us way beyond 2 degrees.
The other, inextricably linked, area of risk, I’d like to talk about is the financial risk associated with fossil fuel investments, which is now becoming well-documented.
We know that portfolios containing no fossil fuel holdings can perform just as well as those that include fossil fuels, even before climate change legislation is passed. Moving investments out of fossil fuels need not hurt our pension fund financially. However, remaining invested in them carries an increasingly serious financial risk.
We are seeing an accelerating pace of change in relation to the future of fossil fuels. The world could soon reach a tipping point in which exploring for new fossil fuel reserves will simply have to stop, because they can’t possibly be burned. An article published last week in the Telegraph begins:
“The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero.”
Our petition calls for divestment from fossil fuels. The CFO’s report sets out an alternative to divestment: a commitment to hold fund managers to the ambitious checklist in Carbon Tracker’s transition blueprint, amounting to a process of rigorous engagement with the fossil fuel industry such as to bring about a rapid change in how energy is generated and used. The report asserts that two fund managers are appropriately assessing risk of the current investments.
As a pension scheme member, I would like to see the evidence from the Fund Managers that each of the fossil fuel companies they invest in is “taking management actions in light of a comprehensive risk assessment completed in line with the Blueprint Checklist” and the resulting decision to exclude or include companies on this basis
We have a win-win opportunity here. We are not asking The Pension Committee to sacrifice the profitability of the pension fund for our principles. We are asking you to move investments away from fossil fuel companies that are not carrying out their business in a manner consistent with the Transition Blueprint checklist because
- it removes exposure to the risk of stranded assets
- as we have seen, it need not entail any financial disadvantage
- it removes moral and financial support from the industry and puts pressure on them to change their damaging practices.
It is therefore far more compatible with your duty to pension scheme members, than is retaining these assets. I ask you to treat this with the urgency it merits.