New figures suggest that UK local council pension funds lost up to £683 million because of failed investments in coal.
According to new calculations by Platform London, and released in conjunction with 350.org, Friends of the Earth, and Community Reinvest, failed investments in coal firms caused by the recent coal crash cost UK local council pension funds up to £683 million, with Greater Manchester’s interests in coal crashing by £148 million.
Specifically, Platform London’s calculations are based on investments by 61 individual local council pension funds made into BHP Billiton, Rio Tinto, Glencore, and Anglo American, and amounts to an estimated £683,628,983. Calculations are based on coal holdings for 61 out of the 101 local council pension funds as of the first of April, 2014, and the loss through the following 18 months to the first of October, 2015. (Platform London’s full calculations are available here.)
The news comes after Mark Carney, the governor of the Bank of England, raised concerns about investments in the fossil fuel industry, warning investors they face “potentially huge” losses from climate change action which he states could leave huge reserves of oil, coal, and gas “literally unburnable.”
“Carney is right about stranded assets,” said Mika Minio-Paluello, Platform London’s researcher. “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.”
“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.”
“There is a growing body of evidence suggesting that the financial risks associated with climate change will impact investment portfolios,” added Natalie Smith, lawyer of Client Earth. “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.”
Billions Lost in California
The potential risk to pension funds was most recently highlighted in California, after a new report found that California’s two public pension funds had lost over $5 billion over the last year due to investments in the top 200 fossil fuel companies.
“These freshly incurred losses starkly demonstrate coal’s financial risk, and illustrate the potential benefits of SB 185 to California pensioners.” said Will Lana, Partner at Trillium Asset Management, the authoring firm behind the report.
News came in at the same time as S.B. 185 was awaiting a vote in the California State Assembly, a bill that would force the divestment of both funds, CalPERS and CalSTRS. A fortnight later, the bill passed.
But with the potential loss of so much as a result of fossil fuel investments, it might have been a little too late for the millions of people relying on the two pension funds. Though CalSTRS at least had already been involved in assessing the possibility of divestment, speaking via email, Ricardo Duran, the spokesman for CalSTRS confirmed that “CalSTRS did not take a position on the bill.”
“We are assessing the level of thermal coal that meets the legislative definition and believe it may be approximately a $40 million holding,” Ricardo Duran continued. “CalSTRS’ preference is always that of engagement.”
“Even before passage of the bill, CalSTRS began its research to evaluate the portfolio for thermal coal holdings. The process began at the Investment Committee’s direction in April 2015. This was the first of a multi-step process to determine the impact of possible divestment. This assessment is expected to take 4 to 8 months.”
Global Pension Fund Divestment
We’ve seen pension funds divesting from fossil fuels for some time now, all around the world.
In November of 2014, Norway’s largest pension funds manager KLP announced that it was divesting from coal, equating to around NOK 500 million (~$75 million) — funds which would subsequently be invested into renewable energy companies.
“We are divesting our interests in coal companies in order to highlight the necessity of switching from fossil fuel to renewable energy,” said KLP’s CEO Sverre Thornes at the time.
A month later, two Canadian pension funds announced that they had signed an agreement with Spanish banking giant Banco Santander to jointly acquire a portfolio of renewable energy and water infrastructure assets which is valued at over $2 billion. In fact, pension funds the world over have been investing heavily in renewable energy — in South Africa, Denmark, and the UK.