Fossil fuel investments
Fossil fuel investments
There has been recent media coverage of the extent to which the Local Government Pension Scheme (LGPS) has invests in fossil fuels. As at September 2017 the £6.3bn Essex Pension Fund had under 3% invested in fossil fuels.
The Essex Pension Fund operates the Local Government Pension Scheme (LGPS) within the county of Essex (including the areas covered by Southend & Thurrock Unitary authorities). The Fund consists of more than 600 separate employing bodies and in total has over 150,000 individual members.
The LGPS is a defined benefit pension scheme. The pension benefits payable on retirement are guaranteed by law and are not affected by market fluctuations. The fiduciary duty of the Fund is to ensure that it has adequate monies available to pay pensions as they fall due.
In the event of liabilities exceeding assets, deficit contributions are required from the Fund’s employers and not the Fund’s individual members. Investment risk therefore sits with employers, and the Fund has a responsibility to maximise investment return within reasonable risk parameters.
The Fund’s investment strategy is determined by the Investment Steering Committee (ISC) in compliance with its fiduciary duty. The Fund expects its investment managers to take account of social, environmental and ethical considerations in the selection, retention and realisation of investments as an integral part of the normal investment research and analysis process. This is insofar as these matters are regarded as impacting on the current and future valuations of individual investments. The ISC does not place restrictions on investment managers in choosing investments. Only if the investment managers consider an investment to be of financial detriment to the Fund will disinvestment be expected.
The ISC has determined that restricting investment in areas such as fossil fuel companies may be of financial detriment to the Fund dependant on the share price now or in the future. Hence pursuing divestment goes against the ISC’s fiduciary duty and responsibilities to maximise returns and manage costs for participating employers. Divestment also reduces the Fund’s ability to influence how companies change in the future.
It should however be emphasised that the Fund has a diverse range of investments. In addition to the resources holdings, the Fund also invests in renewable energy opportunities including solar power and wind farms.
The investment strategy is subject to stakeholder consultation and regularly monitored.