Divestment Alone is Not Enough

The thorny issue of Oxfordshire’s Local Government Pension Scheme (OLGPS) divesting from “fossil fuel companies” came up at full council at CDC this week, in the form of a motion from the Green Party councillor.  It is true to say that it is a Recurring theme, one that superficially looks attractive, but it is, however, the least effective way of driving the change we all, regardless of our political affiliations, wish to see.  Used in isolation, blanket divestment underestimates the magnitude of the problem, fails to drive change and prevents a great deal more effective engagement.  

It is something that the OLGPS management committee,which I am a member of, have been working on for the last couple of years and residents should be in no doubt that climate change is a constant and evolving theme throughout all our investment decisions.

However, I have to say that the issue is significantly more complex than suggested in the wording of the motion that came forward.  The primary drivers of the climate crisis go much wider than simply fossil fuel companies, it is a challenge to the whole of industry and any policy needs a wider focus if it is to be effective.

However, even if you accept the premise, a simple blanket divestment policy is not the best solution, as it doesn’tdifferentiate between those companies working towards the goals of the Paris Treaty & a sustainable future and those lagging behind

Divestment simply re-allocates ownership, often pushing it into less regulated regimes with less scrupulous investors.  In fact, where the motion talked about £6.3 trillion being removed from funds supporting fossil fuels, there has been an equal and opposite investment back into these companies from those investors who have bought the shares, something that Islington and other London boroughs have come to recognise as their own divestment policies have matured and morphed into something much closer to our direction of travel.

Nor is it the case, as the motion implied, that the Church of England have divested immediately from the Fossil Fuel companies.  Not true. In fact, they have set objectives and deadlines by when they wish to see positive action from their current engagement, with divestment to follow from those companies where they determine there has been insufficient action.  They, along with others such as the Environment Agency, are at the forefront of this new muscular engagement and it is that area that the OLGPS management committee wishes to develop.

It is just not true that the strongest form of positive influence on these companies is to divest – surely a stronger influence is to engage with these companies with the option to sack the Directors if sufficient action is not taken, with divestment as a last resort?  OLGPS is very well placed to do that, by acting in concert with other schemes nationally and internationally.  The Oxfordshire fund has £2.5Billion of investments, it is merging these with a regional investment vehicle, The Brunel Partnership, which will make a £30B pool and with internationally acknowledged experts such as Faith Ward, we are working with the LGPS nationally, a group with £250B of investments and indeed beyond the local government family with initiatives like Climate 100+, an investor initiative launched in 2017 to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climatechange.  There is no end to our ambition and determination to tackle climate change at source.

In developing this muscular engagement we are keen to learn from best practice and include as wide a range of voices as possible.  That is why we have organised the first Pensions Climate Change Workshop for Members of the Pension Fund Committee, the Pension Board, Climate Lead Members from the County Council and each of the City and District Councils.  The workshop will hear from a range of expert speakers, including those proposed by Fossil Free Oxfordshire.  The aim of the workshop is to raise understanding of the key issues associated with climate change risks, the potential actions the Committee can take within the legal constraints within which it operates and develop a policy which we can share with Brunel and other Funds within the Partnership.

Acting in concert with other pension schemes, using the scale that brings to engage in the boardrooms of those contributing to the crisis, setting clear objectives, holding Directors to account and moving to have those that fail to respond dismissed through AGM’s and divesting if all that fails, will drive a modal shift in how companies operate much more effectively than walking away via divestment, when we know there are plenty who will seamlessly fill the space we leave.  We can also use that scale to drive new green investment opportunities with fund managers.  Indeed, OLGPS is already investing in renewable energy companies, both directly and via significant commitments to others through the private market portfolios run by Brunel.

In summary, the Pension Fund management committee fully recognises the existential risk associated with Climate Change and is using its expertise and financial muscle to work with others to bring about positive change, but it is complicated; pensions are highly regulated and, of course, we have a responsibility to scheme members and their dependants to make sure that we provide for their retirement.  

Moving forward in this way will not satisfy the more extreme voices, who often seem to value gestures more than outcomes and I hope we can de-weaponise the issue.  Indeed, if  divestment alone was a silver bullet, we would use it, but it is not.  It needs to be part of a much more significant muscular engagement process to drive change in every boardroom.   That is why I led the argument to oppose the motion.  It would have bound the hands of the committee and prevented them developing the muscular engagement approach that is now being pursued by more enlightened investors, including those London boroughs who started with divestment and quickly learned that it only part of the solution, not a panacea to the climate change challenge that we must all rise to.

See what I had to say at the meeting: