Ministers pinpoint pensions industry for climate action – finally!

Written by Rebecca Jones on 23rd May 2019

There are some days that are so Good, so gratifying and fulfilling, that we just want to jump up and punch the air, shrieking: “Yes! Yes! Woohoo!!!” Yesterday, 22 May 2019, was one of those days.

As regular Good With Money readers will know, we’ve been banging on about pensions for a while now. This is because, among other reasons, the pensions industry is the largest pot of money in the world, and right now, most of it is going into fossil fuel (as well as tobacco, arms and big banks etc.).

Imagine our joy, then, when no less than two government big-wigs come out and say that this situation needs to change. That pension funds need to divest from fossil fuels if the world is to have any hope of survival – that it’s no good having a pension if you have no planet to spend it on.

To save the world, we need to help people match their pensions with their principles

This was the message of former energy and climate change secretary and current Lib Dem MP Ed Davey, who in an impassioned speech to Parliament yesterday outlined just what we and numerous other organisations for Good have been highlighting for a while: that if we want to save the world, we need to help people match their pensions with their principles.

Current pensions minister Guy Opperman was the second parliamentarian to join the party, writing in The Times newspaper that, due to the billions and billions of pounds it manages, the global pensions industry has the the unique “ability to address climate change.” Yes Guy! Yes!

Mobilising massive money

According to the latest Global Pension Assets Study by Willis Towers Watson, the 22 major pension markets in the world now total nearly £32 trillion. To put this gargantuan number into perspective, if we divvied this up between EVERYONE IN THE WHOLE WORLD, we’d all get £4,444 each. It’s a lot of money.

Indeed, pension assets account for nearly 50 per cent of all of the managed money in the world (£62.8 trillion) and 60 per cent of the GDP of the 22 nations surveyed by Towers Watson, which includes G7 nations Australia, Canada, Japan, Netherlands, Switzerland, UK and the US. The pensions industry is, quite literally, everything.

Right now, our retirement savings are funding climate change

Despite this, though, there is such a dearth of understanding around our retirement savings that, really, it should be seen as a public interest emergency. As we outlined in ‘Your workplace pension is being invested. And probably in Exxon Mobil’, very few of us know that our pensions are invested in the markets. I know I didn’t until I started writing about money for a living.

Indeed, of the few of us that do wonder where our pension money is going every month, most assume it falls into a big pot managed by our employer and/or the government; a pot we will eventually draw on when we collect our free bus pass. Again, I know I did.

Invested our pensions are, though. And simply because of the structure of global financial markets – which are dominated by the oil and gas majors – this means our retirement savings are funding climate change.

Promises and progress

Thankfully, neither Davey nor Opperman are the first to realise this. Indeed, for more than a year now the EU Commission has been beavering away on a review of the investment industry, looking how to implement set definitions for sustainability that will be applied to major insurers like Aviva and AXA to ensure they are investing in line with EU climate commitments.

A number of sovereign wealth funds across the world are also already divesting, including the world’s  largest – Norway – which in March announced it would no longer use funds from its £800 million large fund to invest in companies exploring for oil and gas (though BP and Shell are still in, thanks to their renewable energy divisions).

Investing in fossil fuel has become one of the most risky things we can do

Norway is joined by Ireland, London and New York, all of whom have also pledged to divest from fossil fuels. Indeed, according to gofossilfuelfree.org, more than £4.95 trillion has been committed for divestment – up from just £41.2 billion four years ago.

What is more, it is actually the private sector leading the charge, with the activist group reporting that insurers – i.e. the people that manage our pensions – account for half (£2.4 trillion) of assets committed.

This is because, as Davey highlighted yesterday, investing in fossil fuels has become just about one of the most risky things we can do as a world right now. Again, to re-iterate his point: there is little point in having a pension is there is no planet to spend it on.

Public pressure

It is also because asset managers are coming under increasing pressure from shareholders – i.e. you and me – to do Good With our Money. In another win for yesterday, for example, 99 per cent of BP shareholders backed a resolution to force the oil major to make greater disclosures on its efforts to decarbonise in line with the Paris 2015 global climate agreement.

In Westminster, politicians are also taking a break from Brexit to pressure their pension provider, with a cross-party group of MPs demanding that the £700m Parliamentary Pension Fund disclose its investments in carbon-intensive industries and commit to divesting from fossil fuels.

According to Professional Pensions, the fund’s largest single holding is BP – in which it invests £11.7 million. This is closely followed by £11 million in Royal Dutch Shell.

The Parliamentary Pension Fund invests £23 million in BP and Shell

Finally, the global pensions behemoth is finally being turned because of the scale of LOSS that investing in carbon industries now represents. Again, as Davey highlighted yesterday and we frequently point out in our Good Investment Review, funds that do not invest in fossil fuels (among other nasties) have consistently returned more money to investors than those that do.

So: saving the planet, listening to shareholders, taking less risk and making more money – it seems there is little reason for the pensions industry not to divest from fossil fuels. For as long as it doesn’t, though, we’ll keep piling on the pressure.

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