We are a collection of Surrey residents and organisations calling for Surrey County Council's Pension Fund to remove our pension funds from investments in fossil fuels. Surrey Pension Fund is using tax payer money to fund climate breakdown and the destruction of ecosystems that life on earth depends on.
Despite several years of warnings, the previous SPF committee oversaw losses of over £50m in the 12 months to May 2020 - and a whopping £130m since Fossil Free Surrey began calling for divestment in May 2017.
As such. we make one simple demand of the new SPF Committee :
That Surrey County Council, and Surrey Pension Fund, commit to complete divestment from fossil fuel companies - no Surrey resident should have to be complicit in driving mass extinction or passing an unihabitable planet to our children.
Surrey Pension Act Now has conducted an assessment of Surrey Pension Fund's response to the climate emergency and falling value of fossil fuel share prices. This report identifies the key areas the previous SPF committee have failed their responsibilities in managing the pension funds.
The full report can be found here. It's an 8 minute read, but if pensions don't hold your attention for 8 minutes (and who could blame you), we have summarised the main points for you below. Further down this page you'll find our open letter to the Surrey Pension Fund, co-signed by several high-profile national and Surrey based organisations.. If you would like to support this campaign please contact us.
Assessing The Previous Surrey Pension Fund Committee's Performance
A: Engagement, the fund's chosen strategy, is not working.
A1. Measurement of progress. The Transition Pathway Initiative objectively assesses the carbon plans of major companies. In its latest report, October 2020, it reported that no major fossil fuel energy company had aligned its emissions pathway with limiting climate change to 2°C. This shortfall is the clearest sign of the ineffectiveness of engagement.
The carbon plans of each fossil fuel company (FFC) owned by SPF can be seen at a glance in the graphs of carbon performance from 2019 to 2050, measured in carbon emissions. For example, BP had a carbon intensity of 73.5 gCO2/MJ in 2019; this was projected to reduce only to 58.6 in 2050 while the required emissions intensity to achieve below 2oC is 9.98. Unless BP’s plans change radically, they will contribute to an increase of over 3.5oC.
B. Abysmal financial returns from the fossil fuel sector.
Once a market leader, the fossil fuel sector has been a poor investment for a decade. Financial returns have been abysmal. The energy sector, which does not include renewable energy, was the worst in the Standard & Poor’s 500 over the ten years to 2019.
Considering this underperformance, it is no surprise that two major financial management and advisory firms, BlackRock and Meketa, have separately concluded that divestment from fossil fuels improves, not weakens, investment returns. Their studies show that divestment from fossil fuels is a responsible course of action for the fiduciary duties of an investment fund.
In line with these findings, the Fund has suffered. In the period between May 2017 and end 2020, the Fund would have been £125 million higher if the Committee had divested, as they were urged to do.
This does not affect the pensions of members, which are guaranteed. These losses are paid for by Council Tax payers, through the increased contributions that local authorities, as major employers, have to make.
C. The risk of stranded assets vs the energy opportunity of this decade
Climate change is acknowledged to be a first order risk to investments. Out of 550 investment professionals at 40 institutions in 2019, 44% agreed that the financial impact of climate change in investment outcomes over the next 20 years would be substantial, with a further 8% thinking the impact would be extreme.
Vast swathes of oil, gas and coal reserves will likely never be extracted and burnt because doing so would intensify global warming, worsening freak weather events and threatening the loss of farmland and huge population displacement. That could leave FFCs with stranded assets. The amount involved would be breathtaking. Around $900bn — one-third of the current value of big oil and gas companies — would evaporate if governments commit to restrict the rise in temperatures to 1.5C.
COP 26 is likely to drive global action to reduce carbon emissions to a minimum 2 degrees C and ideally to 1.5 degrees C. Markets will price in the risk of asset write downs by the world’s oil and gas companies. That may happen gradually but there is a risk of a sharp collapse in asset prices. The effects of writing off stranded assets would be felt across the business world. It would be one of the biggest ever shifts in the allocation of capital.
D. Fund members are ill-informed and not consulted
When asked by members about the Fund’s investments in fossil fuels, SPF accepted that their communications to all members could have been improved and specifically that they had not disclosed that members' money is invested in oil and gas. This is becoming an increasingly high-profile issue led by organisations such as Make My Money Matter.
Not only are members kept in the dark about how their money is used, there is increasing evidence that, once pension members are asked how they want their money invested, they clearly want their money to support climate friendly investments. In Summer 2020, the UK’s largest pension provider, NEST, announced divestment plans, which they supported by carrying out a YouGov poll of members, which showed 67% in favour of climate friendly investments and only 4% against.
When asked by a pension member to carry out a similar consultation in late 2019, the then Chair suggested that an exercise like this would be difficult to carry out. Perhaps the Committee placed little value on the views of their members, or they anticipated what the result would have been.
E. The compelling moral argument for divestment.
Fiduciary duty allows pension trustees to consider moral arguments in addition to financial considerations. Section B above shows that divestment is financially prudent and hence the moral argument is a legitimate, and indeed a necessary, consideration.
In order to avoid grave, substantial, and unnecessary harm, SPF has a collective moral responsibility to transition away from fossil fuels in line with the Paris Agreement’s targets of keeping global warming well below 2°C above pre-industrial levels with the aspiration of holding warming to 1.5°C. SPF should not own or profit from companies which continue to invest heavily in oil exploration and extraction even as the planet burns, who fund organisations that attempt to mislead climate science and who lobby against environmental regulations.
SPF has on occasion suggested that selling shares of fossil fuel companies would be “washing our hands of the problem” and only result in these shares being owned by other organisations.
This handwashing argument is morally bankrupt. It may be true that in the eyes of those harmed by climate change, they are not concerned who is carrying out the harm. However, it makes a difference to the person doing the harm. Investing in fossil fuels morally tarnishes the Fund by making SPF complicit in the injustices of the fossil fuel industry.
Owning and profiting from FFs is plain wrong. SPF has an opportunity to provide moral leadership, influencing others by your decision to divest.
F. Border to Coast Pension Pool
The working relationship between SFP and Border to Coast Pension Pool (BCPP) is work in progress. It should not however be used to obscure debate of the issues raised in this document. As the Communications Manager of BCPP, Ewen McCulloch made clear in April 2021, in reply to our questions about investment and climate change:
“We appreciate your interest to discuss our investment approach with us. However, the issues you wish to discuss remain the responsibility of our Partner Funds – it is the day-to-day administration and implementation that has been delegated to Border to Coast……. they remain responsible for these issues. Given the continuing stewardship responsibilities of our Partner Funds, we would strongly suggest you seek to discuss these issues with our Partner Funds rather than ourselves.”
Ask yourself “If I were investing today, would I choose to hold fossil fuel investments?”
2. Review and categorise the carbon performance of each FFC you own as follows:
Category A: Shares in those FFCs which are fully compliant with Paris requirements or are making sustained and rapid progress towards these requirements.
Category B: Shares where there is no reasonable prospect of compliance or the risk of absolute loss is clear and pressing. These should be divested.
If, as we believe likely, no companies can legitimately be placed/retained in Category A, you should announce your intention to divest all fossil fuel shares, encouraging all other local authority pension funds to carry out their own analysis and subsequent divestment.
3. Agree with your engagement partners measurable, timed objectives covering all owned companies which are:
engaged in the fossil fuel business, including its infrastructure
financial institutions providing funding or raising capital for fossil fuel companies
other companies in the highest carbon intensity sectors of the economy.
Further, acting in collaboration with other shareholders, support binding resolutions at AGMs.
4. Implement your strategic ESG policies by giving clear, explicit instructions to your investment managers, both direct and those under BCPP, to give priority to ESG and SDG factors in their dealings. Consider climate risk as a separate category of financial risk, rather than one of many ESG factors.
5. Carry out a risk assessment of the financial impact of stranded assets across your portfolio.
6. Ensure your members are fully aware that their money is invested in fossil fuels. Consult your members on this and act in accordance with their wishes.
7. Expand your investment in alternative energy providers, and in companies and sectors which will support the development of the green economy of the future. Avoid rear-view mirror investing.
8. Clarify the delineation of your asset allocation authority as between yourselves and the Border to Coast Pension Pool which supports your investment activities. In future avoid the current situation where you each appear to shift responsibility to the other for this critical investment function.
9. Insist that BCPP either establish internally or engage an external manager to offer both low carbon and alternative energy funds as investment options.
Surrey Pension Act Now
As the Government made clear in January 2021, climate change is expected to have a significant impact on pension schemes’ assets, both due to the physical risk associated with a warmer planet and the transition risk that movement towards a low carbon economy brings in the form of lower valuations of many sectors of the economy. Without intervention, pension schemes will be overexposed to the financially-material risks of climate change.
The new Surrey Pension Fund (SPF) Committee has the opportunity to ask a key question “If I were investing today, would I choose to hold these investments?” The analysis below is designed to help Committee members to answer that question and fulfil your responsibilities, both to your members and to mitigate the impact of climate and biodiversity loss.
SPF’s performance over the last four years is analysed in six related areas, followed by recommendations for action. In summary, by continuing to own fossil fuels, SPF pursued a climate risk strategy which was sub-optimal. Simultaneously, this strategy resulted in lower financial returns, increased risks and was morally indefensible.