Minutes:
Councillor
Canning told me earlier this year that the data in the UK Divest Report for
Friends of the Earth of February 2021 was out of date for Dorset Council (https://www.divest.org.uk/wp-content/uploads/2021/03/UKDivest_Report.pdf).
He said
that since those figures, which related to the 2019/2020 financial year, Dorset
Council had undertaken a major strategic review of its pension fund
investments. He promised an update after March 2021. The question is:
what is the current amount of investment in fossil fuels (I understand these
are indirect investments)? The figures provided by the Friends of the Earth
report are for the amount in £s of investments and the % that is of the overall
investments. It would be useful to have it in the same format to compare. So this is not a question about the carbon footprint or the
carbon intensity of the investments. The figure in the Friends of the Earth
report was £128 million in indirect investment in fossil fuels. This put Dorset
in the top 10 of local authority pension funds for fossil fuel investments.
What is the current figure?
Answer 1
As part of the government’s requirement for Local
Government Pension Scheme (LGPS) funds to pool investments the Dorset County
Pension Fund no longer holds direct investments in companies. Instead, the vast majority of its equity
investments are now in pooled investment vehicles managed by the Brunel Pension
Partnership, the LGPS investment pooling manager set up and fully owned by the
administering authorities of ten LGPS funds including Dorset.
Brunel regularly publish details on their
website of the underlying holdings in all their pooled investment
vehicles. Using this information officers have estimated that the value
of the pension fund’s investments as at 31 March 2021 in companies primarily
involved in the exploration, production, mining and/or refining of fossil fuels
was approximately £41M (1.2% of total investment assets).
It is clear that pension funds exposed to the fossil fuel system
in the coming decade will face a rollercoaster ride of disruption, write-downs,
financial instability and share price deratings as markets adjust (Hobcraft, 2020)’ in UK Divest.
https://www.divest.org.uk/wp-content/uploads/2021/03/UKDivest_Report.pdf
Does Dorset Council see itself as ultimately responsible for any losses
incurred to themselves and their Pension Fund Members by refusing to insist on
100% divestment from fossil fuels now or are Brunel Investments responsible?
Answer 2
The Dorset
County Pension Fund is part of the Local Government Pension Scheme (LGPS) which
is a national pension scheme administered locally. It is a ‘defined
benefit’ scheme which means that benefits for scheme members are calculated
based on factors such as age, length of membership and salary not investment
performance as they would be in a ‘defined contribution’ scheme.
Dorset
Council (DC) is the administering authority for the LGPS in Dorset which
provides pensions and other benefits for employees of DC, other councils and a number of other organisations within the
county. DC has delegated its responsibilities as an administering
authority to the Pension Fund Committee, which consists of five DC elected
members, three Bournemouth, Christchurch and Poole
Council (BCP) elected members, and one scheme member representative nominated
by the trade unions.
Administering
authorities are required to maintain a pension fund for the payment of benefits
to scheme members funded by contributions from scheme members and their
employers, and from returns on contributions invested prior to benefits
becoming payable. The Pension Fund Committee has a duty to scheme members and
their employers to ensure that their contributions to the pension fund are invested
appropriately to make returns sufficient to meet those obligations – and this
duty overrides any other considerations.
The Pension
Fund Committee agree the investment strategy for the pension fund then engage
external investment managers, including the Brunel Pension Partnership, to
deliver that strategy – but the Committee remain responsible for the pension
fund’s performance.
We do not
restrict our investment managers from investing in specific companies or sectors but they must consider all financially material
risks relating to their decisions, including the risks you highlight.
Also, in order to reduce its exposure to sector
specific risks such as those you have highlighted, the pension fund holds a
highly diversified portfolio of investments across sectors, geographic regions
and asset classes
A year ago the Committee discussed and agree our current investment
strategy, including a lengthy debate between divestment and decarbonisation.
If we had
followed a divestment strategy and sold all of our
fossil fuel energy stocks this would have reduced our carbon footprint by 19%
but we opted for a decarbonisation strategy. This has resulted in 20% of
our equity investments being switched into a low carbon global fund targeting a
64% reduction in our carbon footprint and committing all of our remaining
actively managed equity investments to a 7% a year reduction in carbon usage
over the next three years – so 21% overall.
So, while
the policy of divestment from all fossil fuel extraction companies may sound
better it will actually result in a higher carbon
footprint than the policy we are currently following.
Divestment
from companies means that we sell our holdings to other investors – it is a
transfer of ownership that does not directly lead to a reduction in either the
supply or demand for fossil fuels but it does remove the opportunity to
influence companies by working with them to transition to a lower carbon
future. Targeted divestment remains an option from individual companies
who will not positively engage.
I am
a Dorset County Council Pension Fund Member and I do not want my money to be
invested in companies that make money from fossil fuels, for environmental
reasons, given that we are all facing a Climate Emergency.
On
June 1, 2021, in a Money-Saving Expert Environmental Poll on ‘How important is
protecting the environment to you?' the top choice for all age categories was:
‘ I’m happy to pay more & make changes for green options.’
I choose environmentally- friendly, green energy providers for my utilities and
ensure environmentally sustainable criteria are in place before making any
other financial investments, where possible. I would therefore like my
Council Pension money not to be invested in such companies. There must be
other DCC pension fund members who would feel as I do, at this critical time in
our global climate situation.
Will Dorset Council commit to polling all its Pension Fund Members to see
whether a majority would prefer to divest from companies that profit from
fossil fuels and to put their money in ethical/green investments, or ask
whether they are happy with the current use of their money?
Answer 3
The Local
Government Pension Scheme (LGPS) is a national pension scheme administered
locally. Dorset Council (DC) is the administering authority for the LGPS
in Dorset which provides pensions and other benefits for employees of DC, other
councils and a range of other organisations within the
county.
DC has delegated
its responsibilities as an administering authority to the Pension Fund
Committee, which consists of five DC elected members, three Bournemouth, Christchurch and Poole Council (BCP) elected members, and
one scheme member representative nominated by the trade unions.
The LGPS is
a ‘defined benefit’ scheme which means that benefits for scheme members are
calculated based on factors such as age, length of membership and salary, not
investment performance as they would be in a ‘defined contribution’ scheme.
Administering
authorities are required to maintain a pension fund for the payment of benefits
to scheme members funded by contributions from scheme members and their
employers, and from returns on contributions invested prior to benefits
becoming payable.
Contribution
levels for scheme members are set nationally, and contribution levels for
scheme employers are set locally by actuaries engaged by administering
authorities. As scheme member rates cannot be changed locally and
benefits are defined, the risk of investment underperformance is effectively
borne by scheme employers.
For the
reasons set out above scheme members cannot have different investment options
available to them as could be the case with a defined contribution scheme where
the risk of investment underperformance is borne by the individual scheme
member.
Membership
of the LGPS is not compulsory and employees of scheme employers can choose to
make alternative pension arrangements that allow greater control over how their
contributions are invested. However, we would strongly recommend that
anyone considering such an approach takes appropriate independent advice before
doing so.
As one of the 'Direct Actions' within their
Climate and Ecological Emergency Strategy, will Dorset Council's Pension Fund
Committee be asking Brunel Pension Partnership to adjust and cease their
investments in fossil fuels in order to meet Dorset Council's own 'net zero by
2040' target, rather than Brunel's stated net-zero
2050 target?
I read the transcript of COP26 President Alok
Sharma’s speech at the first Net Zero Pensions summit, published June 1,2021 in
which he says:
'Today, green investments are smart investments. In the majority of the world, renewables are cheaper than new
coal and gas. Putting your money in fossil fuels creates the very real
risk of stranded assets.
He then supports and urges financial institutions to take the following
steps:
First, commit to exit coal finance. So that, together, we make COP26 the moment
we consign coal power to the past where it belongs. Second, increase
investments in climate action in developing and emerging markets. Thirdly,
protect nature. By 2025 ensure none of your investments contribute to
deforestation. And by 2030 ensure your investments are contributing to the
restoration of the natural world. Finally, disclose your climate risk in line
with the Taskforce on Climate Related Financial Disclosures, or TCFD. And
points out that this will become mandatory across most of the UK economy in
2023.
And the government will shortly introduce regulations on what this means for
pensions, to ensure trustees take account of climate change risk in each and
every decision. There is a real advantage in getting your house in order. And
early. And that in this vital year for climate action, the year of COP26, you
are playing your part in keeping 1.5 degrees alive.'
Will Dorset Council urge Brunel to sign up to the
Glasgow Financial Alliance for Net-Zero (along with other major pension
schemes, such as Aviva, BT Pension Scheme and the Church Commissioners of
England) in particular to fulfil the requirement that by 2030 they
can ‘ensure that their investments are contributing to the restoration of the
natural world?
Answer 4
You are
correct in stating the Dorset Council has committed itself to a net-zero 2040
objective. We are committed to working with partners to achieve this
target and that includes the Brunel Pension Partnership.
Brunel are
widely recognised as a ‘market leader’ within this field and their website
includes a wealth of information relating to its engagement activities with
companies, including voting records. In 2022 Brunel will complete a
‘stock take’ of their approach to engagement and divestment. If this
review concludes that companies are not taking appropriate action and
sufficient steps to manage climate risks and to enable alignment with the Paris
Climate Agreement then the Committee will need to
reconsider its approach too.
Brunel is a
member of the Institutional Investors Group on Climate Change (IIGCC) which
means that they are automatically signed up to the Glasgow Financial Alliance
for Net-Zero and Brunel’s Chief Investment Officer, David Vickers, is a member
of the Real Economy Transition workstream which forms part of this alliance.
Brunel are also a signatory to a similar initiative, the Net Zero Investor Framework (NZIF), launched in March 2021 with the aim of
helping investors become ‘Paris-aligned’.
Question
5: Caz Dennett, on behalf of South West Action on Pensions
As a coordinator for South West Action on Pensions I have recently
heard from Brunel Pension Partnership that, as part of their upcoming Climate
Stocktake Consultation this autumn, they will be taking views from others than
just the ten principal (Council / EA) stakeholders.
Given Brunel are opening up the
conversation about its investment portfolios, to complement this exercise will
Dorset County Pension Fund Committee now consult its own pensioner members’
views, in particular on the question of ongoing and planned future investments
in fossil fuel companies?
Answer 5
The Local
Government Pension Scheme (LGPS) is a national pension scheme administered
locally. Dorset Council (DC) is the administering authority for the LGPS
in Dorset which provides pensions and other benefits for employees of DC, other
councils and a range of other organisations within the
county. DC has delegated its responsibilities as an administering
authority to the Pension Fund Committee, which consists of five DC elected
members, three Bournemouth, Christchurch and Poole
Council (BCP) elected members, and one scheme member representative nominated
by the trade unions.
Administering
authorities are required to maintain a pension fund for the payment of benefits
to scheme members funded by contributions from scheme members and their
employers, and from returns on contributions invested prior to benefits
becoming payable. The Committee has a duty to scheme members and their
employers to ensure that their contributions to the pension fund are invested appropriately
to make returns sufficient to meet those obligations – and this duty
overrides any other considerations.
Members of
the public, including scheme members, can make their views known on any matter
relating to the pension fund, including those you highlight, by submitting
questions or statements to the Committee. A wider consultation would be a
costly and time-consuming exercise which we do not believe is needed.
Question 6: Julie-Ann Booker, on
behalf of Dorset Action on Pensions
Dorset Pension Fund Committee last met on 15
June 2021. Since then, on August 9, the Intergovernmental Panel on
Climate Change (IPCC) published its sixth report. UN Secretary General,
António Guterres said that the report signals ‘Code Red for Humanity’.
The report provides new estimates of the
chances of crossing the global warming level of 1.5°C in the next decades, and
finds that unless there are immediate, rapid and large-scale reductions in
greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will
be beyond reach.
We are seeing now almost daily reports of
the effects of climate change on communities around the world. In recent
days New York and New Jersey. A few weeks ago it
was Germany and Greece. There’s been lives, homes and livelihoods
lost. We have seen the destruction.
A key driver for climate change are the fossil fuel companies and the financial industry
that supports it. Fossil fuel companies remain huge polluters, producing
and selling fossil fuel products while scientists say we need a mass switch to
renewable energy and efficiency. We have the technology to move to
renewable energy sources and should be using all available financial resources
to make this happen – including pension fund financial assets.
Fossil fuel companies are responding to the
climate crisis with ‘green’ marketing, while their core business remains fossil
fuels. Their adverts are using greenwashing to distract the public from
the harm their products cause to people and planet. Some of us are old enough
to remember when giant tobacco companies did the same after the irrefutable
damage their products caused were exposed – they carried on sponsoring sporting
activities in the hope we would all thing they were doing something good, so
could be excused all the damage they were responsible for. https://www.clientearth.org/the-greenwashing-files/
Dorset Council’s strategy, agreed with their
investment managers, Brunel Pension Partnership, is to divest at 7% per year,
so it will take 15 years to divest completely – taking us to 2036. Hardly
reflecting an ‘immediate’ or ‘rapid’ response to contribute towards large-scale
reductions in greenhouse gas emissions.
In the words of Alok Sharma (who is leading
the coming COP26 climate summit), “The world is ‘dangerously close’ to running
out of time to stop a climate change catastrophe … we can’t afford to
wait two years, five years, 10 years – this is the moment.” https://www.bbc.co.uk/news/uk-58132939
Given the IPCC report has been published since
the last Dorset Pension Fund Committee meeting, when will the Committee be
tabling an agenda item to discuss the report and it’s
warnings against the backdrop of the current Dorset pension fund investment
strategy?
Answer 6
Pension funds by their very nature are
long-term investors seeking returns that will cover the pensions of its
members. It is not in their nature to respond to short-term events.
The Dorset County Pension Fund’s
investment strategy is driven by an actuarial valuation that takes place every
three years. This valuation examines a whole range of factors including
how long our pensioners are likely to be claiming for plus future rates of
inflation and interest rates.
Once we have this information
we can make decisions on the appropriate levels of risk, asset allocation,
liquidity of investments, sustainability etc.
The next triennial valuation will be
based on the situation in March 2022. We would aim to discuss its
recommendations and review our whole strategy by the end of next year.
This also fits in with Brunel’s timetable to review its sustainable policies in
2022.
The Dorset County Pension Fund has already made great
strides in reducing its exposure to fossil fuels. The Friends of the
Earth report estimated that we had £128 million invested in fossil fuel
production in 2019 and this was reduced to £41 million in March 2021.