Response to the climate change statement 2020

In September 2020, DivestWMPF and over 40 people from across the West Midlands wrote to the WMPF Pensions Committee calling on the fund to divest from fossil fuels. Letter writers received a statement from WMPF outlining the fund’s policy. This is our response to WMPF.

Summary

Divest West Midlands Pension Fund (Divest WMPF) would first like to dthank you for your comprehensive climate change statement in response to our email. The Divest WMPF team and our supporters acknowledge the significant steps already taken by the Fund and its Managers in recognising the importance of tackling climate change. It is clear to us that the Fund understands how grave the impact of planetary warming is on the global population and the disastrous future it represents.

The Fund’s inclusion in the IICC and Climate Action 100 Plus initiative, amongst others, is evidence of the goals shared with Divest WMPF and of a commitment to the stated aim of aligning with the Paris Accord 2016: limiting warming to 1.5 degrees above preindustrial levels.

In responding to the Fund, Divest WMPF would like to first address some key points within the Climate Change statement:

‘The Fund continues to believe that engagement is more likely to lead to decarbonisation than a divestment approach. There is no evidence that giving up the opportunity to influence investee companies is likely to lead to superior environmental outcome.’

When looking at ‘engagement’ we cannot leave aside the historic role that fossil fuel companies have played in the production of carbon emissions, in the obfuscation and suppression of science, in the creation of thinktanks to invalidate and create uncertainty around causes of climate change, the denial of their involvement in it and then the billions spent on deliberately misleading advertising and lobbying against climate policy.[1]

However, it is important to focus on positive outcomes where they exist and Divest WMPF would welcome clear evidence of positive outcomes resulting from WMPF’s enagagement.

The Fund states that: ‘LAPFF engaged with 170 companies in 2019’ and ‘Last year Hermes EOS has engaged with 141 companies on the matter of climate change’. It would be helpful to us if we could better understand the nature of that engagement.  Which are the companies that have been engaged with and what is their core business? Are all of the companies mentioned fossil fuel companies?

Further to this, on what basis is the ‘engagement’ being deemed fruitful? Can the Fund provide a few examples of successful engagement? For example, a measured reduction in CO2 emissions or investment in renewable technologies in alignment with the goals of the Paris Climate Accord or, ideally, the IPCC report of 2018. In what quantifiable ways has the behaviour of the fossil fuel companies changed as result of the Fund’s engagement?

And, crucially, on what basis will engagement be deemed to have failed? Again, can the Fund provide examples of where investment has been reallocated or withdrawn on this basis?

Divest WMPF is conscious of the fact that it needs to relay this information to members of the public invested in the Fund and, for this reason, it would be very helpful if the information provided could be in a form that is clear, simple and easily digestible.

‘We are pleased to see a number of oil and gas companies continue to step up their response to climate change. In February 2020 both Rio Tinto and BP pledged to cut their greenhouse gas emissions to net zero by 2050.’

It is true to say that BP has this year adjusted its business model to take account of the future threat of climate change. However, it is imperative that we look closely at the detail of that change and when we do, we can see that their pledge applies only to some of its practises and not others. For example, the changes do not include BP’s 20% stake in Rosneft which makes up 40% of the company’s oil production and 15% of its natural gas.

A report by the Transition Pathway Initiative (TPI), an organisation you cite in your statement, found that BP’s pledge would not cut the company’s emissions by the stated 50% but would in fact result in a reduction of less than 30% by 2050. The same report goes on to confirm that none of the major oil companies align with the Paris Climate Accord. All, on current pledges, will help to ensure that the planet does warm by more than the critical 2 degrees centigrade.

All of which raises the question: Is engagement the most effective route to achieving these shared goals of reducing emissions and safeguarding the future of the planet?


The Financial Prospects

Beyond addressing the questions arising out of the engagement strategy, Divest WMPF would like to briefly list some of the evidence of the financial threats to the fossil fuel sector.

Divestment on Financial grounds

The WMPF Climate Change Statement 2020 clearly acknowledges the threat that the continued extraction and burning of fossil fuels poses to the planet. It does not explicitly state the financial benefits of retaining fossil fuel investments, but we must assume that there are some, at least at present. But in continuing to look ahead to threats posed, Divest WMPF would like to draw attention to where the future financial risk has been clearly recognised by major global institutions that have chosen to divest.

“The reason we sold some $150 million in fossil fuel assets from our endowment was the reason we sell other assets: They posed a long-term risk to generating strong returns for UC’s diversified portfolios.”

Jagdeep Singh Bachher, Chief Investment Officer, University of California[2][3]

Overall, there is little evidence to suggest that a global portfolio invested to exclude fossil fuels would underperform one that included them and such a portfolio might avoid the volatility that is likely to affect the fossil fuel sector in the coming years.

University of Cambridge report which paved the way for their 2020 fossil fuel divestment[4]

Sector share prices

More broadly the fears about the future of the oil industry continue to mount and the impact on share prices is very much in evidence[5] [6]:

‘Both Exxon and Chevron are receding into the rear-view mirror of NextEra Energy Inc. The world’s biggest producer of wind and solar power has now surpassed the oil majors, leading a spectacular rally in power stocks as much of the world shuns fossil fuels to fight climate change.’ 

Bloomberg.com, October 2020[7]

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab & Co, the world’s third largest asset managers, responding to a graph produced by BCA research, said: “Perhaps an understatement to say global oil & gas dividends have collapsed.[8]

Reduced Government subsidies

President Elect Joe Biden’s climate plan includes unprecedented clean energy investments partly funded by “ending subsidies for fossil fuels”.[9] 

A recent report by Vivid Economics found that the UK government underwrites each job within the oil and gas sector to the tune of £250K. The G7 countries provided £70 billion worth of prop ups to the fossil fuel sector in 2016/17 and £80 billion in 2018. In 2016 the G7 countries pledged to phase out oil and gas subsidies by 2025.[10]

Legal challenges

In the US a number of states, including Washington DC, Connecticut, Delaware, Massachusetts, Minnesota and Rhode Island have filed lawsuits against the fossil fuel giants. [11]

“The defendants violated the District’s consumer protection law by concealing the fact that using fossil fuels threatens the health of District residents and the environment.”  

Karl Racine, Attorney General, District of Columbia, US

“a campaign of deception, orchestrated and executed with disturbing success.”

Keith Ellison, Attorney General, Minnesota, US

“We were very conscious about fashioning this lawsuit as a traditional damages action, the only differences here are that the damages are catastrophic.”

Kathy Jennings, Attorney General, Delaware, US.

“As this lawsuit shows, these companies have known for more than 50 years that their products were going to cause the worst flooding the world has seen since Noah built the Ark, and instead of warning us, they covered up the truth and turned our flooding problems into their profits..”

John Tecklenburg, Mayor of Charleston, US

Whilst we don’t yet know the likely impact of these lawsuits, the very fact that they are being filed is surely significant.


The Path Ahead?

With Birmingham City Council and Dudley Council both voting unanimously to divest from fossil fuels, what account has the fund taken of their decision?  Isn’t the WMPF, in retaining these investments, swimming against a very rapidly growing, local, national and global tide of opinion that could simply leave it with stranded assets, in much the same way as the collapse of coal prices did for UK council pensions in 2015, with a loss £683 million?[12]

In a best case, Post Covid 19 landscape, fossil fuels companies will not get back to the same levels of consumption until 2021, or in a worst case, until 2024, according to leading management consultancy firm Mckinsey & Company.  

The World Bank has stated that the energy sector was hardest hit by the current pandemic and  predicts glacial growth in the coming years:  

“Because of COVID-19, the new normal for oil-exporting emerging and developing economies arrived earlier. In the post-COVID world, these countries need to be more aggressive in implementing policies to reduce their reliance on oil revenues.”

Ayhan Kose, World Bank Group Acting Vice President for Equitable Growth, Finance & Institutions and Director for the Prospects Group[13]

Divest WMPF appreciates that the institutional investor sector has been a major advocate and driver of change in this crucial endeavour.  We also understand that Divest WMPF and WMPF managers are hoping for the same results: a planet that avoids the worst effects of catastrophic climate change. But as environmental campaigners we understand the strength of feeling amongst the pension fund holders and see desperation for real, urgent change.  

One simple fact remains: the majority of fossil fuel reserves cannot be put into the atmosphere. There is real power in investment and total investment in renewables needs to dramatically increase to replace the centrality of fossil fuels to everyday living. But with CO2 levels rising and the ill effects and costs from it mounting, instead of dragging a recalcitrant industry of reactionary companies and truculent state actors to comply with the needed reduction, should we not bypass them and redirect investments to solution based companies? Surely the pension fund holders’ preference would be for this rather than for investments that threaten the very futures they are saving for.


[1] https://www.theguardian.com/commentisfree/2020/oct/16/exxonmobil-misled-the-public-about-the-climate-crisis-now-theyre-trying-to-silence-critics

[2] https://www.latimes.com/opinion/story/2019-09-16/divestment-fossil-fuel-university-of-california-climate-change

[3] https://www.cnbc.com/2020/02/10/as-big-endowments-spurn-fossil-fuel-stocks-theres-one-thing-making-this-decision-easy.htm 

[4] https://www.cam.ac.uk/system/files/sm6_divestment_report.pdf

[5] https://www.theguardian.com/business/2020/oct/14/bp-shares-plunge-amid-low-carbon-plan-and-slipping-oil-market

[6] https://ukinvestormagazine.co.uk/bp-shares-dive-to-25-year-low-amid-climate-crisis-fears/

[7] https://www.bloomberg.com/news/articles/2020-10-07/chevron-overtakes-exxon-mobil-as-america-s-largest-oil-company

[8] https://twitter.com/LizAnnSonders/status/1318515810227441665

[9] https://joebiden.com/climate-plan/

[10] https://www.businessgreen.com/news/4021724/report-uk-export-finance-create-jobs-dumps-fossil-fuels-clean-energy

[11] https://www.washingtonpost.com/climate-environment/2020/09/14/states-cities-scramble-sue-oil-companies-over-climate-change/ 

[12] https://www.cnbc.com/2020/02/10/as-big-endowments-spurn-fossil-fuel-stocks-theres-one-thing-making-this-decision-easy.html 

[13] https://www.worldbank.org/en/news/press-release/2020/10/22/impact-of-covid-19-on-commodity-markets-heaviest-on-energy-prices-lower-oil-demand-likely-to-persist-beyond-2021 Published by Google DriveReport Abuse

West Midlands Citizens Demand Divestment

This September a campaign coordinated by DivestWMPF resulted in over 40 letters being sent to the WMPF Pensions Committee demanding divestment from the fossil fuel companies that are driving the climate crisis.

Letter writers received a statement from the fund on how they are taking action on climate change. Our full response is being sent to the Pensions Committee and letter writers. Here are our responses to some of the Pension Funds’ points:

‘The Fund continues to believe that engagement is more likely to lead to decarbonisation than a divestment approach. There is no evidence that giving up the opportunity to influence investee companies is likely to lead to superior environmental outcome.’

When looking at ‘engagement’ we cannot leave aside the historic role that fossil fuel companies have played in the production of carbon emissions, in the obfuscation and suppression of science, in the creation of thinktanks to invalidate and create uncertainty around causes of climate change, the denial of their involvement in it and then the billions spent on deliberately misleading advertising and lobbying against climate policy.

However, it is important to focus on positive outcomes where they exist and Divest WMPF would welcome clear evidence of positive outcomes resulting from WMPF’s engagement.

The Fund states that: ‘LAPFF engaged with 170 companies in 2019’ and ‘Last year Hermes EOS has engaged with 141 companies on the matter of climate change’. It would be helpful to us if we could better understand the nature of that engagement.  Which are the companies that have been engaged with and what is their core business? Are all of the companies mentioned fossil fuel companies? 

Further to this, on what basis is the ‘engagement’ being deemed fruitful? Can the Fund provide a few examples of successful engagement? For example, a measured reduction in CO2 emissions or investment in renewable technologies in alignment with the goals of the Paris Climate Accord or, ideally, the IPCC report of 2018. In what quantifiable ways has the behaviour of the fossil fuel companies changed as result of the Fund’s engagement? 

And, crucially, on what basis will engagement be deemed to have failed? Again, can the Fund provide examples of where investment has been reallocated or withdrawn on this basis?

Divest WMPF is conscious of the fact that it needs to relay this information to members of the public invested in the Fund and, for this reason, it would be very helpful if the information provided could be in a form that is clear, simple and easily digestible.

‘We are pleased to see a number of oil and gas companies continue to step up their response to climate change. In February 2020 both Rio Tinto and BP pledged to cut their greenhouse gas emissions to net zero by 2050.’

It is true to say that BP has this year adjusted its business model to take account of the future threat of climate change. However, it is imperative that we look closely at the detail of that change and when we do, we can see that their pledge applies only to some of its practises and not others. For example, the changes do not include BP’s 20% stake in Rosneft which makes up 40% of the company’s oil production and 15% of its natural gas. 

A report by the Transition Pathway Initiative (TPI), an organisation you cite in your statement, found that BP’s pledge would not cut the company’s emissions by the stated 50% but would in fact result in a reduction of less than 30% by 2050. The same report goes on to confirm that none of the major oil companies align with the Paris Climate Accord. All, on current pledges, will help to ensure that the planet does warm by more than the critical 2 degrees centigrade.

All of which raises the question: Is engagement the most effective route to achieving these shared goals of reducing emissions and safeguarding the future of the planet?

Divestment must be part of Birmingham’s Climate Plan

We are pleased to sign up to a letter from Cllr Lisa Trickett and CANWM to Birmingham City Council pushing for release their Climate Emergency Plan. There is very little time left for Birmingham to start making the emissions cuts vital to securing a livable future for all humans on Earth.

Birmingham City Council must urgently release this plan, and the plan must include divestment of all fossil fuels from the council pension (WMPF) and other investments. It is pointless to cut local CO2 emissions while funding companies who drill for oil and lobby policymakers to rollback regulations.


Here is the full letter (from here):

Dear Colleague

On Tuesday 15th September a report on Birmingham City Council’s response to the Climate Emergency is being presented to the full Council meeting. The Council declared a climate emergency in June 2019 however the Council are still not able to publish an action plan. It is vital that we create a sense of urgency and ambition to deliver a just climate transition for all our communities.

The civic family in Birmingham have come together alongside councillors and residents representing the breadth and depth of community interest in our City in a collective call to action for a just transition in Birmingham.

The attached call to action has been endorsed by a spread of civic society, green networks and grassroots organisations with cross-cutting community representation in their membership. The full list of organisations is set out below.

For those of us who are part of the Labour movement you would be heartened to know that the call to action has been endorsed by Midlands TUC, FBU, GMB WM, Unison WM, Unite and Birmingham District NEU.

We are in the process of collating the names and numerous individual responses from across the city suffice to say we have frontline workers, owners of small businesses, academics, entrepreneurs, and politicians from across the region.

In considering the report tomorrow we ask you to hear the collective voice of Birmingham’s civic community amplified through this call to action and seek a way forward that shares our ambition to create a socially just, thriving, zero carbon city. Thank you to those fellow Councillors who have already stepped forward and supported this call to action. We look forward to hearing from many more of you.

Solidarity

Lisa

Acting with the following organisations who have endorsed the call to action:

Climate Action Network West Midlands (co-sponsor of the call to action) Midlands TUC, GMB WM, Unison WM, Unite, FBU, Birmingham Youth Climate Strikers, Greener Birmingham Coalition, Friends of the Earth Birmingham, Circular Economy Club Birmingham & The Midlands, Community Energy Birmingham, Extinction Rebellion Birmingham, LGND Brum, Ecobirmingham, Sustainability West Midlands, TAWS, The Junk Food Project Birmingham, Green Lane Mosque, Birch Network, Globally Local, Let’s Grow Together, 1000 Trades, Places in Common, Brum Baby Bank, Slow Food Birmingham, Eat Make Play B16, Link Road Community Collective, Jai Jagat 2020UK, Central England Quaker Climate Emergency Action, Footsteps – Faiths for a Low Carbon Future, Eco Sutton, The Pound Project, Divest West Midlands Pension Fund, Companions for Hope.

Young People Will Not Have Their Future Stolen

When young people learnt that 40% of their exam grades were to be downgraded, it was striking to see protesting students holding placards reading “Give us fair grades not broken futures” and “How can I value a system that doesn’t value me?”. Leaders are failing young people on exams, and they are failing them on climate breakdown. This is a generation which will not roll over and have their future stolen, and this week has shown us that when they rise up, they are unstoppable.

And yet their future is still being overlooked by councils across the country as they continue to green light huge investments in fossil fuels which are driving the climate crisis and denying them a safe future. Here in the West Midlands, despite calls to divest from fossil fuels, councillors sit in pensions committee meetings and rubber-stamp a destructive policy of investing in these dirty fuels. They greenwash this policy by instead “engaging” with the fossil fuel companies, despite any evidence that this will make any difference to their fundamental business model, without any targets and without any sense of the urgency of scaling down these investments. The failure of “engagement” is demonstrated this week by a huge spike in Facebook advertising spend to convince Americans of the need to keep burning oil and gas following climate policy announcements by presidential candidate Joe Biden. If BP and Shell are serious about their climate pledges, why are they still fighting climate policy?Ef3El4tXsAAsLrc

How are pensions holders benefiting from these investments? Traditionally pensions funds like investing in fossil fuels because of dividend, but this year Shell cut dividend payments by 66% and BP cut dividends by half. WMPF is also at risk of a price crash. In 2015, the price of coal collapsed, costing local government pension funds £683 million in losses.

The fossil fuel industry knows it is threatened by combination of falling renewable technology costs and climate policy by governments. This has driven a welcome but decades-late net-zero pledge by BP.  Companies like BP do not change their ways when pension funds ask them politely.  They do, however respond when divestment starts having a material impact on their bottom line. They do respond when they can’t hire staff because their toxic business model is exposed by divestment.

Divestment protects local government pension holders and the taxpayers who underwrite their pensions. Divestment sends a strong message to the market that society will not tolerate the climate being destroyed by their actions. And divestment protects young people in the West Midlands who expect to be treated fairly and who will not stand for a degraded planet ravaged by the lethal effects of global heating.

Why is the West Midlands still funding the climate crisis?

The Covid-19 pandemic has put colossal pressure on the fossil fuel industry. In the last few months oil prices have gone negative and then bounced back to hover at a very low price. Major oil companies like Shell, BP and Total have announced their reserves are worth much less than expected, wiping billions off balance sheets. Profits have been cut, and share prices have slumped.

Meanwhile, divestment campaigns targetting Local Government Pension Funds around the Midlands have seen successes. In the past few weeks, two councils have passed divestment motions:

  • Shropshire Council (Tory-controlled) voted in support of a divestment motion calling on the county pension fund to divest from fossil fuels over a 3 year period
  • Chesterfield Borough Council unanimously passed a motion yesterday calling on the Derbyshire Pension Fund to divest from fossil fuels and to engage better with members on investments

Significantly, both of these funds are members of the LGPS Central pool, putting pressure on West Midlands councils to push West Midlands Pension Fund to divest the £ millions that it invests in fossil fuels.

We look forward to more councils in the West Midlands joining Dudley and Birmingham in stepping forward to call on WMPF to divest from fossil fuels.

The divestment motions make interesting reading, both referencing the climate emergency motions recently passed by their respective councils. We look forward to hearing from councillors in Wolverhapton who have similarly passed a climate emergency motion but have yet to call for divestment.

The text of the divestment motions passed by Shropshire and Chesterfield councils are copied below.

DivestWMPF would like to thank and congratulate the campaigners who have pressured their councils into passing these motions, and we stand in solidarity with them as they push for their Pensions Committees to update their investment strategies to formalise divestment commitments.

West Midlands Pension Fund Pensions Committee claim that continuing to invest in fossil fuel companies and “engage” with them is responsible. It is not. It is financially reckless and ethically unjustifiable. Growing numbers of people are realising that the best way to preserve our future is to divest before it is too late. We hope WMPF will join them.

Shropshire Motion

Council notes:

  • Shropshire and Telford & Wrekin Councils have both declared climate emergencies and pledged to be net zero by 2030.
  • Shropshire County Pension Fund (SCPF) currently has around £294 million invested in fossil fuel companies including Shell and BP and through asset manager BlackRock.
  • These investments are incompatible with the climate emergency declaration and the councils’ commitment to reach net zero within the next ten years.
  • Fossil fuel investments are financially risky as a result of both the Covid19 pandemic and the global transition to a more sustainable economic and environmental model. They are now being consistently out-performed by renewables.
  • Former Bank of England Governor Mark Carney warned in December 2019 that fossil fuel investments risk becoming “stranded assets” (i.e., worthless) as investors exit the sector. “A question for every company, every financial institution, every asset manager, pension fund or insurer – what’s your plan?”
  • The ‘engagement’ approach does not mitigate the financial risks the sector faces. There is also no evidence of any multinational corporation changing its core business model in response to investor pressure.

Council believes it is time for Shropshire’s flagship pension fund to commit to divestment from fossil fuels over a three year timeframe.

This would:

  • Allow for the development of ‘impact investment’ directed towards internationally recognised sustainable development goals and/or investment in a local sustainable economy.
  • Provide for a more sustainable future of all pension fund stakeholders.
  • Provide leadership in the face of the climate emergency.

This Council resolves:

To instruct the Acting Chief Executive to write to the Pension Fund Committee asking the Committee to follow best practice by;

  1. Adding a statement to their strategy that climate change constitutes financial risks to the fund.
  2. Setting a 3 year timescale for the reinvestment of funds currently invested in fossil fuel dependent assets.
  3. Developing an investment strategy consistent with sustainable development goals and developing a local sustainable economy.

Finally we recognise that fossil fuel investments constitute part of the councils ‘carbon footprint’ and so resolve that this element should be reported on within our greenhouse gas reporting for Scope 3.

Chesterfield Motion

Having declared a Climate Emergency, this Council commits with the Derbyshire Pensioners Group, Transition Chesterfield, Friends of The Earth and Divest Derbyshire in calling for the Derbyshire Pension Fund to disinvest its remaining funds in Fossil Fuels companies and to invest in Renewable Energy companies instead.”

In addition we are calling for the Derbyshire Pension Fund to strengthen engagement regarding future investment principles with all stakeholders including pension fund members and employers.