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Is Surrey Pension Fund Failing in its Fiduciary Duty?

Mounting evidence suggests the Surrey Pension Fund Committee is failing to uphold its legal responsibility to the fund’s beneficiaries given the committee’s ongoing refusal to properly consider divestment of the fund's fossil fuel assets. Ruling out an investment option that is aimed at managing risk potentially puts the committee in breach of its fiduciary duty.

Indeed it seems that given previous statements, Surrey Pension Fund committee is unclear as to what fiduciary duty actually means when it comes to prudence around managing risks to the fund.

So we're breaking it down for the SPF committee in this article.

Fiduciary duty consists of the dual obligations of loyalty and prudence. This means that every option must be on the table - regardless of a council or committee’s ideology - to ensure that risk to members’ pensions are properly managed. As the Law Commission put it in 2013:


“They must not fetter their discretion; they must consider relevant circumstances; and they must take advice''

Yet for the last 4 years Surrey Pension holders and campaigners alike have regularly been met with the staunch refusal of the SPF committee to give adequate consideration to divestment as a risk management strategy. Just weeks ago, SPF was issuing replies to complaints about the failure to divest from fossil fuels as follows:


'For the avoidance of doubt, while the Committee has made a firm commitment to incorporate in its investment strategy an engagement framework that seeks to recognise compliance with the UN SDGs, it has not taken any decision to divest from any specific market sector'

Why not? Because the committee's default position remains to prioritise engagement as a strategy. On 11th Dec 2020 committee chairman confirmed:


"the Pension Fund would consider disinvesting in companies where it was shown that engagement on the Committee’s core beliefs was not effective'."

Yet this engagement strategy continues to be proven completely ineffective. The fossil fuel industry is at existential risk. Big oil continues to refuse to alter their operating model, preferring to claim renewables can never provide 100% of our energy demands. As a result, these companies refuse to engage in a managed transition to a new operating model, putting themselves at risk of collapse. Big oil in fact continues to put only around 1% of their total investment into renewable energy schemes - with Shell, one of SPF's assets, as low as 0.2% in 2018.


Has a strategy of engagement ever worked when it involves trying to restructure an entire industry's core operating beliefs? Of course not. Why is the SPF committee so naive to think the energy sector will? There's a simple answer...they are putting ideology before fact.

Given the well-documented and increasingly acute risk of fossil fuel investments becoming stranded assets, the refusal to consider divestment as a legitimate method of managing risk to the pension fund cannot be considered prudent, and is therefore not consistent with fiduciary duty.

That the risk of asset stranding is rapidly increasing is highlighted by the number of investors shifting their cash from fossil fuel investments into more ethical portfolios - which have been outperforming energy investments for over a decade.

Indeed, by excluding an action that many investment managers - and indeed other pension funds - are already taking, the SPF committee is demonstrating that they are putting their ideological position ahead of fiduciary duty, and by extension wilfully ignoring the best interests of the plan's members.


There is no place for ideology in pension fund management. Let alone to - at all costs - support an ideology which is contradictory to pension holders long term interests, and has been demonstrably proven to be driving the global crisis which threatens the existence of civil society, the ecosystems that support humanity, and indeed life on earth.

The risks of SPF’s position have become vivid reality since May 2017, with the fund £130M lower at the end of September 2020 than it would have been if it had divested in May 2017. The latest losses and dividend cuts announced in the last week by BP and Shell are further indications of falling value.


graph showing declining value in fossil fuels
The red line demonstrates how poorly fossil fuels have performed over the last decade - yet Surrey Pension Fund committee refuses to ditch them

Fiduciary duty demands that asset managers have a responsibility to consider the long term interests of all of their clients. This is of particular note given the massive impact the climate crisis will have on younger generations, and the fact that there is no bottom price for assets in sectors at existential risk. The energy sector - which does not include renewables - faces existential risk, and figure 1 shows the poor performance of the energy sector over the last decade.

Taking any option off the table for investments in a sector at risk of collapse and whose shares have no bottom price, clearly puts any fund in breach of its fiduciary duty. Yet this appears to be exactly the case with Surrey Pension Fund committee's actions.

The fund managers and SPF committee appear to be prioritising ideology over prudence. As such, there is a strong argument that SPF is in violation of its duty to Surrey pension holders.

For more information on why ignoring the risks of fossil fuel investments puts pension funds in conflict with its members best interests check out this article from IEEFA.



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