THE FINANCIAL CASE FOR DIVESTMENT

At end Jan 2021, Surrey Pension Fund is £125M worse off than it would be, had it divested in May 2017

The Surrey Pension Fund (SPF) has ignored all warning signs and shown blind faith in a strategy of 'engagement' with fossil fuel companies. This strategy has consistently proven to be completely ineffective. This gross negligence comes with a high price - no less than a whopping £125m.  This is the cost to Surrey residents of SPF's failure to divest in May 2017.

 

 

  1. 1. SPF’s fossil fuel valuation at May 2017 was £184m. On divestment, these shares would have increased by 43% to £263m by September 2020, based on the World Energy index excluding fossil fuels. Hence SPF’s engagement policy has an opportunity cost of £79m.

  2. 2. Energy shares fell by 33% over the same period. A simple but crude estimate of the valuation losses would be £184m x .33 = £61m. On this basis, the fund would be £140m (£79m + £61m) higher than its current valuation if SPF had divested in May 2017, replacing fossil fuel shares with non - fossil fuel holdings.

  3.  

  4. 3. This overstates the valuation losses as it assigns the 33% reduction in price to all the shares owned in May 2017 whilst in reality, shares will have been sold during the period at less than 45% reduction. A simple alternative is to assign the 33% reduction only to those shares held at the end of the period. This method gives a loss of £31m ( i.e. 63/.67 – 63). 

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  6. 4. Hence the actual losses, in addition to £61m opportunity costs, are between £31m and £m

  7.  

  8. 5, This range can be narrowed by calculating losses at intervals during the period as shown by the table below:

 

In the period from Sept 2020 to end Jan 2021, the Fund is estimated to increase by £23m to £86m.

Hence over the whole period, the losses due to share price changes amounts to £46m.

 

Together with the opportunity cost of £79m, this amounts in total to potential losses of £125m

Notes

  1. Taken from SPF’s reply to our FOI request received in December 2020

  2. World energy index 

  3. The 12 month period between May 2019 and 2020 is calculated by this method to be £59m which fits well with our previous work which estimated losses in this period to be over £50m.

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