Have you thought about: Pensions & Investments?

Climate change issues affect every aspect of societies and the economy. One feature of this is the investments that organisations make, directly themselves or indirectly through pension funds, and whether these investments are in line with a positive environmental agenda.

It is an issue that hit the headlines recently - with a local authority dimension - when the Brunel Pension Partnership (BPP), which manages some £30bn for local government pension schemes and is a Barclays shareholder, lent its support to a resolution calling on the bank to stop offering loans to fossil fuel companies or those that fall foul of climate targets. This was described as the “first ever shareholder climate resolution aimed at a UK bank”.

With so many billions being invested on behalf of local authority pension schemes, including of course by various funds within the Local Government Pension Scheme (LGPS) itself, as climate change awareness and concern rises it is clearly becoming a more relevant issue that authorities know where funds are being placed. In some cases, they may want to take steps to make changes. 

What can you do now to further the climate change agenda?

The over-riding purpose of a pension scheme must be to make returns for its members, both for short-term liquidity so that benefits can be paid as they fall due and over the longer term to ensure the ongoing financial health of the fund. Indeed, since the 1985 case of Cowan vs Scargill, it has been a legal requirement that pension funds should invest in investments that are likely to make the best return and provide the best support for the pensions promise.

However at the same time, environmental, social and governance (ESG) requirements have also gained significant traction. Authorities and other organisations are required to publish ESG statements in their annual reviews with information on ethical policies, investments and shareholdings, and attitude to climate change risk.

There is no doubt that, practically speaking, leaning on the old defence of “we have a duty to invest in whatever makes the best returns” won’t pass the public opinion test. Pension funds have a duty to strive to achieve good returns, but they have ethical and environmental expectations upon them too. Moreover, if environmental concerns place the longer-term viability of the fund in doubt, there is a case to consider, even in the ‘best returns’ scenario, whether environmental concerns should be factored in even to shorter-term investment planning.

All of this means it is more important than ever for local authorities to be aware of what investments they hold and consider whether they need, over time, to make any changes. This is easiest with direct investments of course, that authorities can control themselves.

Where you have funds being invested on your behalf by a directly appointed fund manager, have you asked them about their ESG policies and looked at a breakdown of which stocks they are investing in? Does your fund manager invest in any green or ethical funds specifically? Are there any options to screen out certain types of stocks? Having this discussion lets them know the issue is important to you. If you are dissatisfied, it may be that when the contract retainer comes up for renewal, you consider moving to another fund manager.

Where funds are transferred into a wider regional fund, ask the administrators of that fund about their policies.

Change may not be possible overnight – it is about a progressive restructuring of your portfolio over time that balances financial obligations with sound climate change and ESG policy.

Three points to think about:

  • What are you invested in? Do you actually know all of the authority’s investments, both direct and through the pension fund? Have you discussed ESG issues with your fund manager and are you satisfied with their response?
  • Ensure your ESG statements are accurate. Are they complete and up to date? People – other councillors, employees, members of the public - will be studying them and examining your environmental credentials. Are your investments in line with your ESG aims and climate change philosophy?
  • Be ready with a public position. You need to have a clear position ready if asked about the investment portfolio and climate/ESG issues. You may not be able to change the situation overnight, but knowing the facts and having some clear messages about your approach will make a huge difference.


Click here to view previous articles in this series.

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