The UK’s National Association of Pension Funds (NAPF), which represents some 1,300 pension funds with more than £900bn (€1.2trn) of assets, has warned that divesting from all oil and gas stocks could mean “severe losses of revenue likely over a sustained period of time”.
It comes in response to a campaign calling on UK local government pension funds to exit fossil fuels.
Next month, campaign group Fossil Free UK will release the 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 will include well-known NGOs such as 350.org and Friends of the Earth who will help co-ordinate local groups around the UK to lobby their local authority on fossil fuel divestment.
However, speaking to Responsible Investor, Will Pomroy, policy lead, corporate governance and stewardship at the NAPF said divestment was “particularly problematic and complex for UK pension funds” given the composition of the FTSE index.
“There is undoubtedly a transition taking place,” he said. “Many trustee boards are giving much thought to their level of carbon exposure and risk.”
But he added: “Any response is not immediately straightforward and will vary dependent upon the size ofthe fund, its liabilities and its investment approach.”
Pomroy said a “rapid response” such as divestment completely from fossil fuels could result in severe losses of revenue for pension funds over a long period of time.
“Any response is not immediately straightforward.”
He cited recent analysis by the consultancy Mercer that concluded climate change would give rise to investment winners and losers. “It will be important therefore to assess the risks and opportunities posed by climate change across different sectors and within different geographies,” he said.
Pomroy also said that during NAPF’s Stewardship Accountability Forums, where pension schemes quiz asset managers, questions around climate change have been a consistent theme. RI understands the issue is also coming up at similar meetings at the Investment Association, the asset management trade body.
Fossil Free UK plans to reveal how much of the £225bn (€314.7bn) collectively managed by local authority pension schemes is invested in fossil fuels on September 21.