Agenda item

Report of the County Solicitor (CSO/21/16), attached

(Councillor J Hodgson attended in accordance with Standing Order 8 and spoke to this item in support of her Notice of Motion as detailed below)

 

Notice of Motion:

 

Divestment (Fossil Fuels and Local Government Pension Scheme)

 

Devon County Council notes:

·         Devon County Council has around £157 Million invested in fossil fuels via the Local Government Pension Scheme. This is about 3.9% of its total fund and currently the 5th highest of all the Local Government Pension schemes in the UK[1]

·         The United Nations Paris 2015 Agreement commits our governments to keep the global temperature increase to under 2 degrees and aim for 1.5 degrees. Carbon budgets produced by the Intergovernmental Panel on Climate Change, United Nations and the International Energy Agency show that preventing two degrees of warming relies on not burning 60-80% of all proven fossil fuels.

·         With COP26 taking place in Glasgow in November 2021, there is increased emphasis by the UK government on showing global climate leadership, especially in relation to finance. Divesting our pension is a clear and meaningful action that can be taken at a local government level.

·         Fossil fuel investments are financially risky as a result of both the Covid19 pandemic and the global transition to a more sustainable economic and environmental model. They are now being consistently out-performed by renewables.[2]

·         Former Bank of England Governor Mark Carney warned in December 2019 that fossil fuel investments risk becoming “stranded assets” (i.e., worthless) as investors exit the sector. “A question for every company, every financial institution, every asset manager, pension fund or insurer – what’s your plan?”

·         As continued investments in fossil fuels pose material financial risks to portfolios, funds have fiduciary duties to consider the benefits of decarbonising as part of their investment strategies. Fiduciary duty is

·         defined by the Law Commission as ‘ensuring that pensions can be paid, ensuring that this is undertaken at the best possible value’.

·         Pension funds have a legal duty to treat members “fairly as between them”.That means taking seriously the longer-term interests of younger members who may well be affected more by the climate transition.

·         Continued engagement with fossil fuel companies does not stop them polluting and recent court action with Shell (DCC Treasurer’s Investment Management Report to Pension Fund Committee 17.09.21) indicates that company’s resistance to reduce its reliance on fossil fuels in line with the Paris Agreement.

 

This Council commits to:

 

1. Reviewing its Investment Strategy and developing and implementing a

Responsible Investment Policy which rules out new investments in fossil

fuel companies and divests as a matter of urgency from those fossil fuel

companies it is currently invested in.

 

2. Calls on Devon County Council’s Pension Fund to divest from fossil fuels

by requesting its representative(s) on the Pension Fund Committee to call

for the development and adoption of responsible investment policies which:

 

a. Immediately freeze any new investment in the top 200 publicly[1]traded fossil fuel companies.[3]

 

b. Divest from direct ownership and any commingled funds that

include fossil fuel public equities and corporate bonds to achieve net

zero by 2030, in line with the aspirations of our Devon Carbon Plan.

This requires a faster rate of change than the current 7% transition

per annum.

 

c. Set out an approach to quantify and address climate change risks

affecting all other investments.

 

d. Actively seek to invest in companies that will reduce greenhouse

gas emissions and minimise climate risk.

 

e. Seek investment in the Paris Aligned Benchmark via Brunel as

part of the transition.

 

3. Recognising that fossil fuel investments should be considered as part of

the council’s ‘carbon footprint’ and divesting our pension fund is one of the

most impactful steps we can take to reduce our impact on our community

and the world. A detailed report on the carbon footprint of the Devon

Pension Fund investments will be provided to this Council

 

4. Requests the Devon Pension Fund to poll its individual investors for their

views of divestment from fossil fuel companies and increased investment in

companies that support sustainable initiatives such as renewable energy.

Footnotes

[1] 2021 figures taken from the report Divesting to protect our pensions and

the planet – An analysis of local government investments in coal, oil and

gas. Available at: https://www.divest.org.uk/councils

[2] Energy Investing: Exploring Risk and Return in the Capital Markets,

Joint Report by the International Energy Agency and the Centre for Climate

Finance & Investment, Paris. Available

at: https://www.iea.org/reports/energy-investing-exploring-risk-and-return[1]in-the-capital-markets

[3] As determined by the most recent Carbon Underground 200 list.

 

The Committee considered the Officer’s factual briefing note

(CSO/21/16) which referred to this Notice of Motion.

 

The Committee also considered a recommendation now before them.

 

Member and Officer discussion points included:

 

·         the positive progress the Committee was making with its current strategy which was continually assessed and reviewed within a global context; 

·         the positive advantages in engagement whereas simple disinvestment was unlikely to achieve climate change objectives;

·         the work of the Local Authority Pension Fund Forum in terms of climate change policy and other ethical and governance issues and the national recognition of the leading work of Brunel in terms of climate change and decarbonisation strategies on behalf of the Devon Fund and other local authority partners;

·         the minority view that whilst the current strategy was effective, further and more radical and more speedy actions would be preferable; and

·         the importance of clear information and effective communications with Fund members and the process for members (current and deferred members) leaving the fund, subject to accredited and independent financial advice.

 

It was MOVED by R Franceschini, and SECONDED by Councillor G Gribble and

 

RESOLVED

 

(a) that the Devon County Council notes:

 

·      The Devon County Council Pension Fund has committed to achieving net zero investment portfolios by 2050, or sooner.

·      Significant progress has already been achieved with a reduction in the Weighted Average Carbon Intensity of the Fund’s equity investments of 37% since March 2019, and a significant reduction in fossil fuel reserves exposure.

·      The United Nations Paris 2015 Agreement commits our governments to keep the global temperature increase to under 2 degrees and aim for 1.5 degrees. Carbon budgets produced by the Intergovernmental Panel on Climate Change, United Nations and the International Energy Agency show that preventing two degrees of warming relies on not burning 60-80% of all proven fossil fuels.

·      The Devon Fund invests via the Brunel Pension Partnership, who are seen as leaders in the investment world in their approach to climate change. Brunel have played an active role in COP26 that took place in Glasgow during November 2021 including meetings with key policy makers, pressing for changes in the investment industry to support the transition to net zero. Faith Ward from Brunel sat on a panel on: “Deploying capital in the age of planetary boundaries” with Mark Carney, former Governor of the Bank of England.

·      The Devon Pension Fund has taken action to move its UK and factor based passive equity allocations to new benchmarks that will be climate transition aligned and support companies who are effectively transitioning their businesses as well as significantly reducing fossil fuel reserves exposure.

·      That the revenue obtained by fossil fuel companies from their customers dwarfs any funding they receive from equity investors, and that working with all investee companies to transition their reliance away from the consumption of fossil fuels in the course of their business is therefore the most effective means of preventing the burning of fossil fuels and generating real progress in tackling climate change.

·      As climate change poses material financial risks to portfolios, pension funds have fiduciary duties to consider the benefits of decarbonising as part of their investment strategies. Fiduciary duty is defined by the Law Commission as ‘ensuring that pensions can be paid, ensuring that this is undertaken at the best possible value’. The Devon Pension Fund fully endorses the need to address climate change risks through its investment strategy.

·      Pension funds have a legal duty to treat members “fairly as between them”. That means taking seriously the longer-term interests of younger members who may well be affected more by the climate transition.

·      Divesting shares in fossil fuel companies does not stop them polluting and continued engagement has a significant role to play in achieving progress on combatting climate change.

 

(b) that the Council, in its capacity as the Administering Authority of the Pension Fund, commits to:

 

1.    Continually reviewing its Investment Strategy and Responsible Investment policies to ensure they remain fit for purpose and effectively manage the risks posed by climate change. 

 

2.    Maintaining responsible investment policies which:

 

(a)  Seek to achieve net zero investment portfolios by 2050 or sooner.

 

(b)  Seek a reduction of between 50-75% in the Weighted Average Carbon Intensity of the Fund’s investments by 2030.

 

(c)  Continue to quantify and address climate change risks affecting all investments.

 

(d)  Actively seek to invest in companies that will reduce greenhouse gas emissions and minimise climate risk, through for example a target to invest 5% of the Fund in renewable energy infrastructure by 2025, and investment in funds that reward positive progress by companies in transitioning their businesses in line with the Paris Agreement.

 

(e)  Invest in funds that track the recently launched Climate Transition and Paris Aligned Benchmarks via Brunel as part of the Fund’s asset allocation strategy.

 

3.    Continuing to provide a detailed report on the carbon footprint of the Devon Pension Fund investments on an annual basis in the Pension Fund Annual Report.

 

4.    Consulting regularly with pension fund members on their views on responsible investment, including the Pension Fund’s policies on climate change.

 

[N.B. In accordance with Standing Order 32(4) Councillor Gent requested his  abstention from the vote and decision taken be recorded)