Fossil fuels and pension funds: Investing for a sustainable future
The OECD has called for the “complete elimination of emissions to the atmosphere from the combination of fossil fuels in the second half of the century”. Angel Gurria, Secretary General of the Organisation for Economic Co-operation and Development, made the call at the LSE’s Grantham Institute on Climate Change last week, warning that “we are on a collision course with nature, and we need to take bold decisions to change that path.”
These bold decisions will necessarily include decisions on the 55% of pension fund portfolios currently invested in high carbon assets – an issue that the TUC will debate at its climate change conference on 21 October. As Gurria said: “The looming choice may be either stranding those assets or stranding the planet.”
His comments were echoed by the chair of the meeting, Lord Stern, who warned that the lock-in of high carbon capital infrastructure means we will face catastrophic climate change if investment patterns are not addressed.
Stern’s view is based on the report Unburnable carbon 2013: Wasted capital and stranded assets. It suggests at least two-thirds of the fossil fuels currently listed as assets by the world’s fossil fuel companies will have to remain in the ground if governments are to fulfil their pledge of keeping climate change below the danger limit of a 2 degrees C rise in global average temperatures. The UN’s Intergovernmental Panel on Climate Change (IPCC), backed by 193 governments, reached a similar conclusion at the end of September 2013.
This warning is supported by organisations including HSBC, Citi Group, Standard and Poor’s and the International Energy Agency. The Bank of England has also recognised that a collapse in the value of oil, gas and coal assets as nations tackle global warming is a potential systemic risk to the economy, with London being particularly at risk owing to its huge listings of coal.
Pension funds are also concerned. “Every pension fund manager needs to ask themselves: have we incorporated climate change and carbon risk into our investment strategy? If the answer is no, they need to start to now,” said Howard Pearce, former head of pension fund management at the Environment Agency, whose fund holds £2bn in assets
A number of trade unions are responding by supporting the ShareAction ‘Green Light’ campaign. A new report will set out specific proposals for pension funds. The University and College Union also backs the ‘Fossil Free’ campaign organised by People & Planet, which is focused on the education sector’s support for the fossil fuel industry directly through the sector’s research, their £9bn endowments and investments and their partnerships with some of the biggest fossil fuel companies in the world.
Both campaigns launch at the end of this month and both provide a way in which we can challenge corporations and governments to act.