Decision details

Following the agreement of the mover of the motion to an alternative to add the words “including the issue of divestment,” to the last paragraph of his motion,

Council AGREED the following motion:

Motion – financial risk of climate change on pension fund – Geoff Harvey

Fossil fuel divestment was once viewed as a moral undertaking; now it is as much about reducing financial risk. In October last year, Cambridge University finally announced its aim to have no meaningful exposure to fossil fuels in its investment funds by 2030. A University report summarised the long-running debate and included this recollection from visiting American environmentalist, Bill McKibben that …. Exxon built rigs to account for climate change-related sea rise while funding climate change denialism research (Oreskes and Conway 2010). He commented “intellectual dishonesty on that scale would get you kicked out of Cambridge in a minute”. But alongside the moral arguments, were those of sound finance: ‘Overall, there is little evidence to suggest that a global portfolio invested to exclude fossil fuels would underperform one that included them and such a portfolio might avoid the volatility that is likely to affect the fossil fuel sector in the coming years.’

It has been calculated that were oil companies to extract all oil in their existing developed reserves (oil fields), this alone, when burnt, would use up the remaining available carbon budget before breaching 1.5 degrees Celsius global temperature rise compared to preindustrial levels. Yet oil companies continue with oil exploration. Last year, BP announced a £14billion asset write-down acknowledging a shift towards renewable energy. There is a real risk of remaining invested in assets that will become stranded assets; the ownership of oil reserves that will now have to remain in the ground. In 2015, UK local authority pension funds lost nearly £700milion when the market for coal collapsed. Mark Carney, the governor of the Bank of England, issued a blunt warning in 2015 that investors, like pension funds faced “potentially huge” losses as action on climate change could make vast reserves of oil, coal and gas “literally un-burnable”.

This Council has declared a climate and ecological emergency. We now know Investments in fossil fuels are not only harmful to the environment but also put the sustainable future of pensions at risk.

In December last year, the National Climate Change Committee released a paper ‘Local Authorities and the Sixth Carbon Budget’. It lists 9 ‘overarching priorities’ for local authorities and one of these relates to pensions schemes investments. ‘Local authority pension funds should disclose their approach to assessing and managing climate risks and should consider investing in Net Zero aligned schemes within their legal duties.’ This aligns with Clause 124 of the Pension Schemes Bill currently before Parliament where the Act is likely to mandate larger private sector pension schemes to manage climate change as a financial risk and to report publicly on how so.

We note from the Investment Strategy Statement of the Cambridgeshire County Council Pension Fund, ‘The Fund supports the principles of the [Financial Reporting Council] UK Stewardship Code and is working with the Fund’s advisers with the intention to sign up to the Code.’

We further note: this Code requires ‘Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities.’

The Pension Fund Committee, in partnership with Investment Sub Committee and Local Pension Board decides pensions investment strategy. Nevertheless, SCDC staff pensions are part of a Defined Benefits scheme, meaning that SCDC has a financial interest in the long-term efficiency of the fund since any future shortfall, including by failure to recognise any risks (or investment opportunities) associated with climate change, would be set against a balance sheet liability. Fiduciary obligations are aligned with the UK´s legal obligation to meet its climate goals. As a UK´s Pension Minister said of the Climate Change Act: “This legislation commits the UK to a path that pension funds must play a massive role in” which means no longer helping fund oil production and exploration and keeping within the remaining carbon budget.

This Council

- Asks the Chief Executive to write to the Pension Fund Committee, Investment Sub
Committee and Local Pension Board jointly, to request how they, on behalf of SCDC
as an employer, intend to manage the effects of climate change as a financial risk to
their investments, including the issue of divestment, and how this will be reported.