Climate change: pension funds prefer engagement to divestment

When climate change activists lobby council pension funds, they often prioritize one action over all others: divestment from fossil fuel stocks.

But while climate change is a central concern for the Local Government Pension Scheme and recognized as a significant risk to its investments as well as the environment, most funds told LGC that they retain a preference for climate change. engagement with fossil fuel companies rather than for divestment.

It’s an approach summed up by Greater Gwent (Torfaen), who said “a carbon-free portfolio is not a carbon-free world”.

He told LGC: “The pension fund has not, to date, divested any assets for reasons related to climate change. The Pension Board considers divestment to be less “responsible” in the sense that if all responsible investors (i.e. those who typically engage with companies) divest their shares, no owner will challenge the strategies boards of directors, and therefore the prospect of a positive change is therefore at a considerable disadvantage.

A few funds have established strong divestment policies. Waltham Forest said it “has exited from fossil fuel stocks, not just for climate change reasons, but for financial reasons for the fund going forward.” Croydon said its investment strategy statement “includes the divestment of fossil fuel assets.”

Rianna Gargiulo, divestment campaigner at Friends of the Earth, said only five LGPS funds have committed to fully divest from coal, oil and gas, adding: “Any climate plan that allows investment in fuels dirty fossils for the next 25 years isn’t worth the paper it’s written on. That’s why every fund must commit to divest today. This will protect people’s hard-earned retirement savings, but more importantly, will ensure there remains a world worth retiring to.

But while few funds have general divestment policies, many have highlighted how they have reduced the carbon footprint of their portfolios, often reducing their exposure to carbon-intensive stocks by investing in low-carbon index funds.

For example, Worcestershire said it “came out of a very carbon-intensive passive fund and invested £200m in a multi-factor climate fund in November 2021. While seeking exposure to five style factors , the fund moves away from carbon-intensive companies. or own fossil fuel reserves, and leans toward businesses that generate green revenue.

Paris-aligned investing, responsible investing and Taskforce for Climate-related Financial Disclosure (TCFD) reporting will be discussed at the LGC Investment Seminar at Carden Park on March 24-25. Consult the program and reserve your place here.