The Merseyside Pension Fund (MPF), which currently has millions invested in fossil fuels, has vowed to invest in clean energy and climate projects by 2030 as part of a £95 billion commitment made at COP26.
The MPF, along with other UK and Nordic pension funds, signed up to the collective agreement at the United Nation’s climate conference in Glasgow this week.
The agreement will also require pension funds to report annually on the progress of their climate investments.
Thousands of government workers across Liverpool have money invested in the MPF which is now worth more than £10 billion.
The combined assets of local authority pension funds in England run into billions of pounds and research from Friends of the Earth and Platform claimed that each one of them invested in coal, oil or gas last year.
Analysis of statistics acquired via a Freedom of Information request to Wirral Borough Council, who administer the MPF, show that as of last year, the organisation had £240 million invested in fossil fuels.
The analysis was conducted by pressure group UK Divest - a collaboration between Friends of the Earth and Platform.
Taking into account fluctuation in the stock market that figure of £240 million could now be considerably more.
MPF released its draft annual accounts last month which said the fund was making good progress on sustainability matters and was developing a climate risk strategy.
The issue of pension funds moving away from investment in fossil fuels is contentious and far from clear-cut, with the real possibility that some funds could take years to decarbonise their schemes.
The campaigners view
Robert Noyes, an energy economist at campaign group Platform and a coordinator of pressure group UK Divest, said that as the climate talks are underway in Glasgow, local councils have a simple choice.
“They can pay polluters to wreck the planet, or they can play their part in the global climate effort by ending their fossil fuel investments.
“While their net-zero adverts are appealing, not a single fossil fuel company has implemented measures to comply with the 2015 UN Paris Agreement, while in 2020, on average these companies spent just 1% of their annual capital expenditure on clean energy.
“There is no change coming from continued engagement, there is only delay.
“With support for climate action at an all time high, and the financial benefits of fossil fuel funding increasingly unclear - the choice is as easy as it is simple: divest from fossil fuels, join the $14.5tn coalition of climate leaders in drawing a line, and invest in a future worth retiring into.”
What the Merseyside Pensions Committee says
As the United Nations climate change conference COP26 is underway in Glasgow, LiverpoolWorld spoke to Green Party Councillor, Pat Cleary, Chair of the Pensions Committee which oversees the MPF.
Cllr Cleary, who has been chair for three years, says the MPF has been revising its responsible investment policy, which will come to the pensions committee at the end of this month for approval.
The fund’s investment strategy has a goal of aligning with the 2015 Paris Agreement which set 2030 as a milestone for decarbonising its portfolio and meeting full goals of the agreement by 2050.
Cllr Cleary, a Wirral Council member for Birkenhead and Tranmere, explained the MPF was the first local authority pension scheme in the UK to set climate change specific investments to tilt the fund towards renewable energy.
He said: “It’s not doing it in an obvious way like immediately pulling out money from companies like Shell and BP, but it is a way of achieving two thirds of full divestment.”
He admitted that chairing the committee can at times be frustrating as it can be difficult to make progress on the issue: “There is still a colossal way to go.
“You can look to move away from oil companies, but then you start to move into other industries and the rest of the economy such as steel or cement and applying measures for the companies carbon footprint and what each one is doing to decarbonise is quite complex.
“I’m up for re-election as a councillor next year, whatever happens I will follow this issue very closely because it matters so much.”
What else is the Merseyside Pension Fund doing to move from fossil fuels?
The MPF has over £250m invested in wind, solar, hydro and energy-from-waste projects in the UK and overseas.
Cllr Cleary said Merseyside’s local economy is playing a part and the fund has £100 million to invest locally.
A total of £32 million from this called a ‘catalyst fund’ has already been invested in local social housing such as the Wirral Waters project, which is due to create sustainable housing and thousands of jobs for the Liverpool City Region and local heat network Mersey Heat, which will build, own and operate a low carbon heat network for the 60-acre Liverpool Waters docklands regeneration project.
He warned the lack of government policy on what local authority pension funds should be doing around climate change is “holding back the pension funds from investing in the local economy and fully tapping into the money available to address the zero carbon issue”.
Cllr Cleary has spent decades campaigning on green issues and feels the Green Party’s warning about the planet is now coming to pass.
He said: “Even during my time as Chair of the Pensions Committee, there has been an explosion in moving towards responsible investment. Some local authority pension funds are moving in the right direction, but we need to move faster.
“There is also additional public concern about staying invested in oil companies.
“There’s the risk of staying invested in oils companies and those assets being potentially worthless, we are already seeing that with coal and we will see that with oil and gas.
“It is imperative for pension funds to deal with this issue so it doesn’t affect their ability to give out pensions in the future.”
The MPs view
In October, the All-Party Parliamentary Group (APPG) for Local Authority Pension Funds published a report about a ‘just transition’ to net zero carbon emissions.
The report was based on evidence from an inquiry led by MP Clive Betts and contained views from investors, community groups, industry, academics, trade unions and other non-government organisations.
Although it acknowledged that without action, climate change is set to be an environmental and human catastrophe, evidence from investors, including from local government pension scheme funds, stressed that any steps taken “had to make financial sense”.
The APPG report said that local authority pension funds should understand the risks around climate change and the social implications of reaching net zero, with an analysis of which sectors are most likely to experience change with implications for consumers, communities, workers and supply chains.
It said that: “Understanding these risks and opportunities involves developing metrics around the scale of change and fully understanding the views and concerns of stakeholders.”
The report added that funds and their managers should engage companies on transition risks and warned that investors wanted a clear position from the Government through a national policy and plan.
The Work and Pensions Committee produced its own report on pension stewardship and COP26.
The committee’s chair, MP Stephen Timms, stated: “The challenges of climate change can be met only by countries coming together. With pension investments unrestrained by borders, international agreement is going to be key if the potential for pension schemes to contribute to cutting carbon emissions is to be realised.
“Hosting COP26 provides the UK with a unique opportunity to build an international consensus on reporting standards and stewardship and the Government must seize it with both hands.”
Issues with decarbonising investments
Engagement with companies about their efforts to decarbonise is conducted on behalf of local authority funds through the Local Authority Pension Fund Forum (LAPFF).
LAPFF has written to UK companies urging them to submit a climate transition action plan at every 2022 AGM for shareholder approval.
Cllr Doug McMurdo, LAPFF chair, said that although he is “heartened” to see a number of companies putting their climate plans to a vote, he warned “the number of plans that fail to meet the goals of the Paris Agreement is alarming”.
Last month he warned: “I have always shared the view that COVID is a dress rehearsal for climate change; we must learn and take meaningful action much more quickly on both fronts.”
The Government view
Speaking at COP26, Chancellor Rishi Sunak has promised to make the UK the ‘world’s first net-zero aligned financial centre’.
Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish transition plans detailing how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050.
The announcment has come under fire from environmental campaigners who say it does not go far enough because any commitments will not be mandatory.
A spokesperson for the Department for Levelling Up, Housing and Communities said that investment decisions regarding local government pension scheme assets are made at the local level by administering authorities.
The department said that the Government intends to consult by end of 2021 on proposals to require authorities to assess, manage and report climate-related risks to their pension investments.
Speaking about the UK pensions sector as a whole, a Department for Work and Pensions spokesperson said: “We are encouraging organisations to commit to net zero in a way that works for them, and to publish a plan for doing so.
“Pressure to comply with Government-set mandatory targets would undermine trustees’ duty to invest in the best interests of their members, and would likely force immediate divestment from some stocks - regardless of whether the company is showing meaningful attempts to reach net zero or not.”