Friends of the Earth presses UK local authority funds on climate risk disclosure

A campaign to push UK local authority pension funds to disclose how they manage climate risk has been started by campaign group Friends of the Earth, as the country’s schemes start the process of pooling into “British Wealth Funds”.

Using the Freedom of Information Act, under which local authority bodies are obliged to respond unless it’s commercially sensitive to do so, Friends of the Earth has asked each local authority pension scheme to disclose what steps are being taken to address the financial risk posed by climate change.

In the letter to schemes, seen by Responsible Investor, Friends of the Earth says there are strong grounds that it is the fiduciary duty of directors and trustees to evaluate the material financial risks associated with climate change.

Friends of the Earth has a number of specific queries, including whether the scheme is signed up to the Principles for Responsible Investment; how much the fund spends on ESG engagement services with examples of any activity related to climate change in the last ten years; and how the fiduciary duty to manage carbon bubble risk will be translated into either an investment mandate or Statement of Investment Principles (SIP) of LGPS pooled structures.

In October 2015 UK Chancellor [Finance Minister] George Osborne revealed plans to bundle local government pension scheme holdings into pooled groups of around £25bn each. It is expected that six or seven pools will form, with most based on local or pre-existing relationships.Commenting on the campaign, Luke Hildyard, Policy Lead: Stewardship and Corporate Governance at the Pensions and Lifetime Savings Association (PLSA), the pension fund body, said: “The questions raised are important ones.

“Climate risk is a major concern for pension funds, and many are already taking steps to address it by, for example, reviewing their investment portfolios, supporting shareholder resolutions at company AGMs or placing more demanding responsible investment expectations on their asset managers.”

Simon Bullock, senior campaigner at Friends of the Earth, said: “The Paris Climate Agreement is very clear the world is now on a path to radically cut coal, gas and oil pollution. And so, companies insisting on continuing to explore for new unburnable fossil fuel reserves present a major stranded asset risk. We think pension funds’ fiduciary duty means they should be examining these climate risks in much more depth.”

The campaign follows a drive last year to release details of the fossil fuel holdings of every local authority pension fund in the UK to kick-start a divestment campaign targeting the sector.

The campaign, led by Fossil Free UK, was supported by Friends of the Earth.

Fossil Free is also supporting this new campaign, alongside NGO Community Reinvest, calling for divestment from fossil fuels and reinvestment in the real economy.