LGPS funds' fossil fuel investments fall to nearly £10bn; campaigners call for further divestment

Local Government Pension Scheme (LGPS) funds hold investments of £9.9bn in fossil fuels, equivalent to £1,450 for each of the 6.8 million LGPS members in the UK, and representative of 3 per cent of the total scheme value, according to industry research.

Despite this, the report, produced by Friends of the Earth and Platform, found that there have been improvements, with this figure representing a 40 per cent fall since 2017, when £16.1bn was being invested by LGPS funds in fossil fuels.

However, it stressed that the figures only included investments in the top 200 most harmful fossil fuel companies worldwide, clarifying that if this was to include all fossil extractors and companies that contribute to the industry, this figure would be “far greater” than £10bn.

Nearly three-quarters (72 per cent) of the investments, equal to around £7bn, were invested into fossil fuels through indirect investment vehicles.

As such, the report explained that local authority pension funds are in a particularly weak negotiating position with fossil fuel majors, as only 26 per cent of their holdings in fossil fuel companies are direct.

The analysis found a combined £8bn of continued investment in fossil fuels across local council pension funds in England, whilst Scottish local council pension funds had a collective £1.2bn in fossil fuel investments.

Welsh local authority pension funds had a collective investment in fossil fuels of £538m, while Northern Irish funds had £113m in fossil fuels, the highest proportion out of the four, representing 3.4 per cent of the scheme value.

It also revealed that ten companies account for 70 per cent of local authority pension funds direct fossil fuel investments, with BP, Shell and BHP accounting for 40 per cent of total direct investments across all local authority pension funds, roughly consistent with 2017.

Despite this, the report pointed out that over three-quarters of local councils have declared a climate emergency, emphasising that, for the majority of councils, their largest carbon emissions will come from their pension fund investments.

Considering this, it urged UK councils to show their commitment to climate action by ending their investments in the companies causing climate damage.

Indeed, it noted that investing in fossil fuels is “increasingly costly” and can bring a financial risk, noting that the UK council pension funds lost over £1.75bn in oil investments over the past three years.

The report also differentiated this from an environmental, social and governance (ESG) issue, arguing instead, that this is a “classic risk issue” as the transition is "fundamentally disrupting markets".

It argued that after the “devastating” economic impact of the pandemic across the UK, local councils can use their pension funds to support local investment priorities, noting that whilst some already do, “it’s time for others to follow their lead”.

In particular, it has called on councillors to seek representation on the council pension fund committee in order to push for divestment, whilst also encouraging individuals to find out what their council invests in and promote discussion around this.

In addition to this, it has urged fund managers to implement investment beliefs that allow decarbonisation goals and risk parameters to work together, as well as putting financial performance measurement benchmarks in place alongside decarbonisation goals.

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