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UK local councils have lost up to £683 million (over US$1 billion) to their pension funds, because of failed investments into coal firms, a new study from Platform London shows.
According to the data, the most affected one — the value of Greater Manchester’s coal shareholding — has crashed by £148 million.
Platform London’s calculations are based on investments by 61 local authority pension funds into BHP Billiton, Rio Tinto, Glencore and Anglo American, and fall in share value over 18 months.[1]
Goldman Sachs has described coal as in “terminal decline”. Last week BoE Governor Mark Carney waded further into the debate, warning about the financial valuation of fossil fuel companies.
The decline in coal share prices affects the pensions of millions of bus drivers, librarians, park attendants, school workers, housing officers and care workers.
“Carney is right about stranded assets. But this is a problem for today, not tomorrow. Our local councils are risking pension funds by investing into coal and fossil fuels, as advised by City firms raking in millions in fees. The burden of failing coal companies will be dumped on the public and pensioners. Local government workers deserve more say over where their pensions are invested,” said Platform London’s researcher Mika Minio-Paluello.
“If councils had divested from coal & reinvested into public transport and social housing two years ago, then pension holders, the climate and public services would all be better off. Divest-Reinvest is a win-win-win solution,” added Ms Minio-Paluello.
The total loss is estimated as up to £683,628,983. The loss to council pension pots varies depending on how exposed to fossil fuels they are. Teeside’s coal investments lost the largest portion of its pension fund at 1.5% (£46.9m), followed by London Borough of Merton 1.4% (£6.8m). Merton also has the highest overall exposure to fossil fuels of any UK pension fund. Manchester’s holdings fell by the largest sum.
The calculations are based on data on local authority pension fossil fuel exposure released by Platform London, 350.org, Friends of the Earth and Community Reinvest, released on Sept 24th. [2]
Local council pensions funds are topped up by taxpayers, when they fall short. Losses due to fossil fuel stranded assets risk being transferred to the public.
“There is a growing body of evidence suggesting that the financial risks associated with climate change will impact investment portfolios. If pension fund trustees fail to properly manage these risks in their investment decision-making process, and there is a consequential decline in value of the pension pots of members, then trustees and investment managers could be sued for breaching their fiduciary duties.” — Natalie Smith, Lawyer of Client Earth.
In March 2014, following a clarification from the UK Law Commission on the interpretation of fiduciary duty, the Local Government Association (LGA) (England & Wales) published a legal opinion on how fiduciary duties affected the scope for a Local Government Pension Scheme (LGPS), concluding that “the precise choice of investment may be influenced by wider social, ethical or environmental considerations, so long as that that does not risk material financial detriment to the fund.”
NOTES
[1] The drop in value is based on coal holdings held on 01/04/2014, and the fall in share prices for the four companies in the 18 months until 01/10/2015.
These calculations have only been made for the 61 out of 101 local authority pension funds that provided a detailed breakdown of individual investments.
[2] This data is released as part of an ongoing campaign through Fossil Free UK to secure fossil free divestment commitments from local governments, backed by 350.org, Platform, Community Reinvest and Friends of the Earth. Friends of the Earth here refers to Friends of the Earth Scotland and Friends of the Earth, England, Wales & Northern Ireland. Fossil Free UK is a grassroots network, with all campaigning on local government lead byvolunteer groups across the country.
[3] These pension schemes including members from local schools, public transport, third sector organisations, and other civic institutions. Local councils make up a significant majority of the contributing employers.
