Fossil Free Kirklees: Briefing for councillors
The Fossil Free Kirklees campaign is calling upon Kirklees Council and the wider
West Yorkshire Pension Fund to show climate leadership and financial prudence by
going Fossil Free and severing all financial links with the fossil fuel industry.
The campaign is supported locally by Holmfirth Transition Town, Huddersfield
Friends of the Earth, Kirklees Campaign against Climate Change, Marsden and
Slaithwaite Transition Towns and Huddersfield Quaker Meeting and already has
275+ petition signatories.
The fossil fuel divestment campaign has been named the fastest-growing divestment
movement in history. Around 200 institutions globally, with a combined asset size
of over $50 billion, have already committed to divest, including the Rockefeller
Brothers Foundation, the British Medical Association, and the Church of England. In
the UK, Oxford and Bristol city councils have agreed to divestment and, earlier this
year, Warwick University became the fourth UK university to commit to fully
divesting.
Why Fossil Free?
Research undertaken by the Carbon Tracker Initiative [1], has found that there are
already five times more fossil fuel reserves than can be burnt if internationally
agreed carbon emissions targets are to be met. In other words, 80% of known
fossil fuel reserves need to stay in the ground to prevent catastrophic
temperature rises. Our futures depend on investing in clean not dirty energy and
we believe that it does not makes good financial or ethical sense for our local council
and pension fund to be investing in companies which are trying to extract even
more unburnable oil, coal and gas.
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What this means in practice
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At present, Kirklees Council's £33 million of Surplus Treasury funds are not
directly linked to the fossil fuel industry and so it would be easy for Kirklees
Council to commit to be 'Fossil Free', as Oxford and Bristol city councils have
already done.
The West Yorkshire Pension Fund does have significant fossil fuel
investments [over 5% of WYPF's investments are in fossil fuel companies,
including £207 million invested in BP and £171 million invested in Royal
Dutch Shell] and so Kirklees Council would need to work with fellow councils
within the West Yorkshire Pension Fund to freeze and withdraw those
investments.
To go Fossil Free, investments need to be screened against the Carbon
Underground 200 - the top 200 companies with the largest known carbon
reserves (oil, gas and coal). A divestment commitment is a principled
commitment to wind down exposure to the Carbon Underground top 200
fossil fuel companies over a 5 year period.
As the Council has no direct fossil fuel investments, going Fossil Free will
have no impact on council finances. In terms of the WYPF investments,
recent academic research has shown that going Fossil Free is unlikely to be
financially detrimental in the short and medium term and in the long term
will be beneficial as removes the financial risk posed by the 'carbon bubble'. *
The financial case
A wide body of evidence has recently come to light which shows that fossil fuel
equities pose significant financial risks. As governments control carbon emissions to
meet these targets a large proportion of fossil-fuel reserves which companies
expect to extract will become stranded assets: a “carbon bubble”. Funds which are
exposed to fossil-fuel equities when this bubble bursts can expect to suffer
considerable losses.
Paul Fisher, Deputy Head of the Prudential Regulation Authority at Bank of England
said in March 2015:
“As the world increasingly limits carbon emissions, and moves to alternative energy
sources, investments in fossil fuels – a growing financial market in recent decades –
may take a huge hit.” [2]
Fisher's comments were made as the Bank of England was investigating the carbon
bubble as a contribution to a forthcoming DEFRA study. Later in March the
Governor of the Bank of England, Mark Carney expressed concern over climate
risk.[3]
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Fiduciary duty
Pension Fund Trustees owe fiduciary duties to scheme employers and scheme
members, and must act in the best long-term interests of fund members. The
position of fiduciary and public law duties in relation to investment (and
divestment) decisions taking account of environmental risks and other
environmental, social and governance (ESG) issues has been clarified in recent
years.
In March 2014 the Local Government Association (LGA) (England & Wales)
published a legal opinion on how fiduciary duties affected the scope for an LGPS
fund to incorporate ESG risks into their decision making, concluding that as long as
authority's powers are used only for investment purposes “the precise choice of
investment may be influenced by wider social, ethical or environmental
considerations, so long as that that does not risk material financial detriment to the
fund.”[4 ]
A wider review of fiduciary duties was produced by the Law Commission (England
& Wales) who stated that “the primary aim of an investment strategy is therefore to
secure the best realistic return over the long term, given the need to control for
risks. Financial risks to take into consideration included “environmental
degradation”, “poor safety record”, and “risks to a company's long-term
sustainability.” “The Law Commission's conclusion is that there is no impediment to
trustees taking account of environmental, social or governance factors where there
are or may be, financially material.”[5]
Climate Change
As a public body, Kirklees Council has a responsibility to work for the public good
and should not be financially and politically supporting the most destructive
industry on the planet. Kirklees Council has already shown great leadership in
tackling climate change with its commitments to renewable solar energy and energy
efficiency measures. In 2014 Kirklees Council supported the Tipping Point
Declaration motion, which stated, among other things, that : "urgent action is
required to avoid an increase in global temperatures that will permanently and
negatively affect many aspects of day-to-day life across the globe including here in the
UK and in Kirklees".
Supporting Fossil Free divestment within Kirklees Council and the West
Yorkshire Pension Fund are two ways that Kirklees can maintain its climate
leadership and take the action we so urgently need.
More information:
fossilfreekirklees.wordpress.com/
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Fossil Free Kirklees petition:
https://campaigns.gofossilfree.org/petitions/divest-from-fossil-fuels-55
West Yorkshire Pension Fund petition:
https://campaigns.gofossilfree.org/petitions/divest-west-yorkshire-pension-fundfrom-fossil-fuel-investments
References
* Demystifying Responsible Investment Performance, UNEPFI and Mercer,
(http://www.unepfi.org/fileadmin/documents/Demystifying_Responsible_Investment_Performance_01.pdf )
Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment, Impax Asset Management,
(http://www.impaxam.com/media-centre/white-papers/beyond-fossil-fuels-investment-case-fossil-fueldivestment )
MSCI ESG Research, Responding to the Call for Fossil-fuel Free Portfolios,
(http://www.msci.com/resources/factsheets/MSCI_ESG_Research_FAQ_on_Fossil-Free_Investing.pdf )
[1] http://www.carbontracker.org/wp-content/uploads/2014/09/Unburnable-Carbon-Full-rev2-1.pdf
[2] 'Bank of England warns of financial risk from fossil-fuel investments', The Guardian, 3 March 2015. Source:
http://www.theguardian.com/environment/2015/mar/03/bank-of-england-warns-of-financial-risk-fromfossil-fuelinvestments
[3] 'Mark Carney defends Bank of England over climate change study', The Guardian, 10 March 2015. Source:
http://www.theguardian.com/environment/2015/mar/10/mark-carney-defends-bank-of-england-climatechangestudy
[4] 'In the matter of the Local Government Association and in the matter of administering authorities under the
local government pension scheme; Opinion', p. 2, Nigel Giffin QC, 11 King’s Bench Walk, Temple, London,
Commissioned by the Local Government Association.
[5] 'Is it always about the money? Pension Trustees' duties when setting an investment strategy: guidance from
the Law Commission', The Law Commission, 1 July 2014.
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