Agenda item

Motion to Divest Pension Funds from Fossil Fuels

SKDC notes that:
- that across the UK, local authority pension schemes invest over £16 billion into fossil fuel companies¹- driving the climate crisis and risking workers' retirement pots in the process. 

- Lincolnshire County Council who manage SKDC pensions via the West Yorkshire Pension Fund invest £94.7m out of a total fund of £3.1bn in fossil fuel production, expansion and exploration.  This places them just in the upper quartile as regards amount invested in fossil fuels.

- SKDC has declared a climate emergency and that investing pension funds in fossils fuels is inconsistent with the council’s climate ambition

- the United Nations Paris Agreement commits our governments to keep the global temperature increase to under 2 degrees and aim for 1.5 degrees. Carbon budgets produced by the Intergovernmental Panel on Climate Change, United Nations and the International Energy Agency show that preventing two degrees of warming relies on not burning the vast majority of all proven fossil fuels reserves.

- former bank of England governor, Mark Carney, has warned that fossil fuel investments risk becoming “enormous, stranded assets”, i.e. worthless, unsellable shareholdings². Pension funds have a fiduciary duty to consider the material risks of continued investment in fossil fuels. Fiduciary duty is defined by the Law Commission as “ensuring the pensions can be paid, ensuring that this is undertaken at the best possible value”.  The long-term sustainability of the SKDC  should not be put at risk by investing in companies which are in terminal decline resulting in ‘stranded assets’. Nor should the Pension Fund fail to take responsibility for the credibility and financial support it currently provides to fossil fuel companies by continuing to invest in them even as they open up new fossil fuel reserves which the world can no longer afford to burn.  

- the UN International Energy Agency (IEA) has called on financial bodies to stop investing in fossil fuel production³ and predicts that global oil demand will significantly fall by 2030. Expected action by governments to limit carbon emissions will ultimately leave fossil fuel reserves unsellable.

- pension funds have a legal duty to treat members “fairly as between them”. That means taking seriously the longer-term interests of younger members who will be most affected by the climate crisis.

- the current generation owes it to future generations to ensure we do not exceed the internationally agreed temperature increase threshold of 1.5 degrees C above pre-industrial global heating levels, by removing support for the continued production of new fossil fuels. Climate change is the greatest challenge humanity has encountered. Warming in excess of 2°C will have catastrophic consequences. In order to have a chance of staying below this maximum upper limit of warming 80% of known fossil fuel reserves must not be burnt. 

- public divestment from fossil fuel producers supports the introduction of effective climate legislation that would ensure the world achieves the level of carbon reduction required to avoid catastrophic climate breakdown.

The Council therefore commits to

1.  Call on Lincolnshire County Council Pension Scheme to urgently put in place and act on:

a) A public commitment to immediately freeze any new investment in the top 200 publicly-traded fossil fuel companies with largest known carbon reserves (oil, coal and gas)

b)  Divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds in the top 200 list and shift these funds to lower risk, ethical investments within 5 years

c) Advocate to other pension funds, including members of the Local Authority Pension Fund Forum and Local Government Pension Scheme to do the same

d) To do the above in a timely manner - by setting up a working group to report back on a strategy to bring about divestment within three months 

2.  To put in place a transparent process by which they will carry out this divestment.

3. Work with other local District and County Councils and councillors in Lincolnshire and other relevant employers in the pension scheme, to call on our shared Pension Fund to urgently and publicly end their investment in fossil fuel producing companies.

Sources:

1.  https://divest.platformlondon.org. 

2. https://www.cnbc.com/2021/10/21/climate-stranded-assets-show-the-need-for-rapid-energy-transition-carney-says.html  

3. https://www.cnbc.com/2021/05/18/stop-investing-in-fossil-fuels-to-meet-net-zero-target

Note:  Councillors Zoe Lane, Anna Kelly and Ian Stokes left the Council Chamber and did not return.

Councillor Vanessa Smith proposed the following motion:

Motion to Divest Pension Funds from Fossil Fuels

SKDC notes that:
- that across the UK, local authority pension schemes invest over £16 billion into fossil fuel companies¹- driving the climate crisis and risking workers' retirement pots in the process. 

- Lincolnshire County Council who manage SKDC pensions via the West Yorkshire Pension Fund invest £94.7m out of a total fund of £3.1bn in fossil fuel production, expansion and exploration.  This places them just in the upper quartile as regards amount invested in fossil fuels.

- SKDC has declared a climate emergency and that investing pension funds in fossils fuels is inconsistent with the council’s climate ambition

- the United Nations Paris Agreement commits our governments to keep the global temperature increase to under 2 degrees and aim for 1.5 degrees. Carbon budgets produced by the Intergovernmental Panel on Climate Change, United Nations and the International Energy Agency show that preventing two degrees of warming relies on not burning the vast majority of all proven fossil fuels reserves.

- former bank of England governor, Mark Carney, has warned that fossil fuel investments risk becoming “enormous, stranded assets”, i.e. worthless, unsellable shareholdings². Pension funds have a fiduciary duty to consider the material risks of continued investment in fossil fuels. Fiduciary duty is defined by the Law Commission as “ensuring the pensions can be paid, ensuring that this is undertaken at the best possible value”.  The long-term sustainability of the SKDC should not be put at risk by investing in companies which are in terminal decline resulting in ‘stranded assets’. Nor should the Pension Fund fail to take responsibility for the credibility and financial support it currently provides to fossil fuel companies by continuing to invest in them even as they open up new fossil fuel reserves which the world can no longer afford to burn.  

- the UN International Energy Agency (IEA) has called on financial bodies to stop investing in fossil fuel production³ and predicts that global oil demand will significantly fall by 2030. Expected action by governments to limit carbon emissions will ultimately leave fossil fuel reserves unsellable.

- pension funds have a legal duty to treat members “fairly as between them”. That means taking seriously the longer-term interests of younger members who will be most affected by the climate crisis.

- the current generation owes it to future generations to ensure we do not exceed the internationally agreed temperature increase threshold of 1.5 degrees C above pre-industrial global heating levels, by removing support for the continued production of new fossil fuels. Climate change is the greatest challenge humanity has encountered. Warming in excess of 2°C will have catastrophic consequences. In order to have a chance of staying below this maximum upper limit of warming 80% of known fossil fuel reserves must not be burnt. 

- public divestment from fossil fuel producers supports the introduction of effective climate legislation that would ensure the world achieves the level of carbon reduction required to avoid catastrophic climate breakdown.

The Council therefore commits to

1.  Call on Lincolnshire County Council Pension Scheme to urgently put in place and act on:

a) A public commitment to immediately freeze any new investment in the top 200 publicly-traded fossil fuel companies with largest known carbon reserves (oil, coal and gas)

b)  Divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds in the top 200 list and shift these funds to lower risk, ethical investments within 5 years

c) Advocate to other pension funds, including members of the Local Authority Pension Fund Forum and Local Government Pension Scheme to do the same

d) To do the above in a timely manner - by setting up a working group to report back on a strategy to bring about divestment within three months 

2.  To put in place a transparent process by which they will carry out this divestment.

3. Work with other local District and County Councils and councillors in Lincolnshire and other relevant employers in the pension scheme, to call on our shared Pension Fund to urgently and publicly end their investment in fossil fuel producing companies.

Sources:

1.  https://divest.platformlondon.org. 

2. https://www.cnbc.com/2021/10/21/climate-stranded-assets-show-the-need-for-rapid-energy-transition-carney-says.html  

3. https://www.cnbc.com/2021/05/18/stop-investing-in-fossil-fuels-to-meet-net-zero-target

The motion was seconded.

The following views were raised during the introduction to, and debate on the motion:

• Lincolnshire County Council managed the SKDC pension fund and invested £94.7 million out of the total fund in fossil fuel expansion, placing them in the upper quartile of pension schemes in terms of total monies invested in fossil fuels.
• Contributions to the pensions fund were made from a number of groups, such as Police civilians, further and higher education bodies, and transport workers.
• SKDC had previously declared a climate emergency and investing pensions funds into the fossil fuel industry was incompatible with this. To avoid global temperatures increasing by more than 2 degrees then 80% of existing fossil fuels should not be burned.
• As demand fell for fossil fuels, so would the value of its shares.
• The transition to low carbon economies was inevitable. Fossil fuel reserves would be left unsaleable.
• Councils in Islington, Southwark, Lambeth, Waltham Forest and Cardiff had already pledged to divest from fossil fuels, as had the Church of England and some 109 leading universities. Other Councils had also passed motions in favour of divestment.
• The Law Commission had confirmed that there were no legal barriers to trustees taking account of environmental and social factors and found that trustees could take account of non-financial factors where there was no risk of financial harm to the fund.
• The switch to ‘ethical’ banking was becoming more commonplace.
• Fossil fuels were finite, whereas green energy was infinite.
• Whilst the motion was presented in good faith, there was no solution being presented. The financial argument was not proven; the markets would dictate the financial argument for divestment. The Council had a responsibility to pensioners.
• Financial advice was a regulated profession, and there were no regulated opinions within this motion.

Having previously been moved and seconded, there was a vote on the motion, and the motion was LOST.