Here at Divest Herts we’re campaigning to remove investments in fossil fuels from Hertfordshire County Council’s Pension Fund. We’re residents of Hertfordshire, who want our council to make a moral stand against funding climate change through investments in fossil fuel companies. But we’re not all long haired hippies, we also know that there are sound financial reasons for removing investments in the companies of the past.
The Hertfordshire pension fund has over £129 million invested in risky fossil fuel companies.
Last year at the United Nations agreed to “keep a global temperature rise this century well below 2 degrees Celsius … and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.” The UK along with many other countries have now signed this agreement. Between 60-80% of known coal, oil and gas reserves of publicly listed companies are now unusable if there is to be a chance reaching these targets.
But what does this mean if we have investments companies like Shell and BP?
The World Bank and the Bank of England are warning of the risks of investing in fossil fuel companies.
Fossil fuel companies have a duty to their shareholders to be profitable – thus to keep extracting oil, coal and natural gas. But these international targets to reduce climate change mean that fossil fuel investment carries the serious risk of stranded assets: that is, assets that lose value or become liabilities before the end of their expected economic life.
HSBC Global Research warned that `We believe the risks of this occurring are growing’ and said that:
“We expect innovation in efficiency and technological advancements, including in renewables, battery storage and enhanced oil recovery, to alter the energy mix and pricing in the energy economy, potentially resulting in further stranding of high carbon and high cost fossil fuels.”
Other experts have commented :
“There are a wide range of current and emerging environmental risks that could result in stranded assets. These risks are poorly understood and are regularly mispriced, which may result in a significant over-exposure to environmentally unsustainable assets.”
Mark Carney, Governor of the Bank of England has said in a speech about the financial implications of climate change that to meet the 2°C target, it amounted to burning between just one-fifth to one-third of the world’s proven reserves of oil, gas and coal.
This amounts to $28 trillion of stranded assets over the next two decades.
“If that estimate is even approximately correct it would render the vast majority of reserves ‘stranded’ — oil, gas and coal that will be literally unburnable.”
What should Hertfordshire County Council do?
By divesting from fossil fuels, it gives the County Council an opportunity to invest in the new economy. Pensions can be harnessed to drive energy transition, create local jobs and support local innovation. There are a number of potential opportunities for reinvestment, from offshore wind funds (e.g. Green Investment Bank, Offshore Wind Fund) and green bonds to social housing, commercial retrofitting (e.g. Low Carbon Work Place Fund) and renewable energy co-operatives.
As well as to stop risky investments which could jeopardise financial return of their pension fund, it is in the best interests of fund members for their pension fund to stop investing in environmentally harmful industries to secure a resilient environment for their retirement. Therefore, divestment from fossil fuels is fully in line with the best interests of the pension fund members and the fiduciary duties of the Pension Committee.
Fossil free funds have been reported to outperform conventional ones. It is the Pensions Committee’s responsibility to maximise the return of the fund investments. Therefore it is financially strategic for the Trustee’s to organise to sell their shares in fossil fuel companies whilst they still can.
There are a variety of fossil free fund managers available including: the Alliance Trust, Arcadian, BMO, Kames, Legal and General, Newton and WHEB. At Divest Herts we believe that it would be be a wise move for the Pensions Committee to speak to their fund managers about transitioning to a fossil free index or to appoint new fund managers who are able to.
By supporting divestment from fossil fuels, it would show the recipients of the pension fund that the council is serious about responsibly investing in their future.