San Francisco Pension Votes to Engage With Fossil Fuel Companies Over Climate Change; Next Step Could Be Divestment

Golden Gate Bridge

The Board of the San Francisco Employees’ Retirement System (SFERS) voted Wednesday to begin engaging with the fossil fuel companies in which it invests.

The vote opens the door for an eventual vote on divesting from fossil-fuel companies altogether – an idea that is sure to receive mixed reviews from board members and city officials.

The pension fund currently holds about $540 million in fossil fuel companies, which accounts for less tan 4 percent of the fund’s entire portfolio, according to SF Gate.

More details from SF Gate:

The board voted Wednesday to go to “level-two engagement,” meaning it will actively attempt to influence the policies of the companies in which it invests. The next step would be to move forward with divesting from the companies.

“If you want to divest, you have to start somewhere,” commission President Victor Makras said. “Our mere size and name brings something to the engagement process.”

[…]

“There is some urgency,” Supervisor John Avalos, who has led the charge, told the board. “We have to take into consideration the real (climate) changes that are happening overnight.”

The counterargument is that stocks of fossil fuel companies are a component of most major index funds, and divesting from them could limit pension-fund revenues that pay for the retirement benefits of thousands of city workers.

“I don’t think I’m in a position to do that,” said Commissioner Brian Stansbury, the only one of seven board members to vote against moving to level two. Stansbury, a San Francisco police officer, expressed concern that moving the money out of fossil fuel assets would be “financially risky.”

The San Francisco Employees Retirement System manages $20 billion in assets.

 

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Fossil Fuel Divestment Put to Vote At Dutch Pension Funds

Netherlands

The members of six Dutch pension funds will vote on whether $35 billion in fund assets should be divested from coal, oil and gas investments.

Divestment advocates filed a resolution Monday asking the six funds to sell off their fossil fuel investments by 2018, and to use shareholder power to encourage energy companies to use more sustainable practices.

The majority of the funds’ members will need to vote in favor of the resolution for it to pass.

From the Guardian:

The six funds being targeted provide pensions for academics (MP Pension), engineers (DIP and ISP), lawyers and economists (JØP), architects (AP) and veterinarians (PJD), over 200,000 people in total.

The resolution filed to each fund will ask the board to “exclude investments in the 100 largest coal companies as soon as possible, but at the latest before the end of 2018, and to engage in, and annually document, a dialogue with owned oil and gas companies to exclude their investments in high-risk extraction projects, eg tar sands, deepwater drilling and drilling in Arctic.” The votes will take place in April.

In 2014, resolutions urging divestment from the top 100 coal and top 100 oil and gas companies by 2020 were filed at three of the funds received and received significant support: MP pension (49% in favour), DIP (46%) and JØP (38%).

“I think that probably for these three pension funds, we will have a majority this year,” said Meinert Larsen. “We have the impression the pension boards are moving.”

The pension funds in question manage $35 billion in assets and cover about 5 percent of the Danish workforce.

Shareholder Engagement Produces Few Results, Says Activist Investor

windmill farm

Shelley Alpern, Director of Social Research & Advocacy at Clean Yield Asset Management, penned a piece on Monday weighing in on fossil fuel advocacy among institutional investors.

Most institutional investors have declined calls to divest from fossil fuel assets, citing their fiduciary duties as a major reason.

Instead, many have opted to use their clout as major shareholders to actively engage with companies.

But Alpern is skeptical of this tactic.

Alpern writes:

Institutional investors and asset owners owe it to themselves to understand when engagement works and when it doesn’t.

On the whole, shareholder engagement has an admirable track record. Its practitioners can take credit for many achievements: increased disclosure of corporate political spending; reduced waste, pollution and water usage; greening supply chains; broad adoption of inclusive nondiscrimination policies; and greater diversity on corporate boards. Not to mention the anti-apartheid campaigns of the 1980s.

Engagement succeeds when we can make a persuasive case that change will enhance shareholder value, reduce business or reputation risk, or both. Ethical imperatives rarely carry the day on their own.

Engagement will fail when a company with flawed policies or practices perceives them to be unalterable. As engagement with tobacco companies demonstrated, it also will not work when the goal is to change the core business model of a company.

She then looks at the track record of shareholder engagement with fossil fuel companies:

It’s been 23 years since the first climate change proposal was filed at a fossil fuel company. Using conservative estimates based on records kept by the Interfaith Center on Corporate Responsibility, at least 150 such proposals have been filed at fossil fuel companies since, and at least 650 climate proposals and dialogues on climate change have taken place at non-fossil fuel companies.

Space limitations preclude a detailed inquiry into these engagements, so let’s take a snapshot look at the most recent efforts and where things stand as of right now.

In late 2013, 77 institutional investors with more than $3 trillion in assets called on 45 companies to assess the potential for operational assets to lose value if carbon regulations become stricter and if competition from renewables takes market share.

Most coal and electric power companies didn’t provide the written responses requested. Most oil and gas companies did respond, but none acknowledged the existential threat to their activities or the need to scale them back. As former SEC Commissioner Bevis Longstreth observed, ExxonMobil not only denied that any of its reserves could become stranded, but also stated that it is “confident that future reserves, which it intends to discover and develop in quantities at least equal to current proved reserves, will also be unrestricted by government action.” With this report, Longstreth concluded, “ExxonMobil has thrown down the gauntlet after slapping it hard across the collective face of humanity.”

Two successive waves of “carbon asset risk” shareholder proposals followed this initiative, but have done nothing to budge the denialist positions held by their targets.

Read the entire piece here.

 

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An Oil Executive’s Take on Fossil Fuel Divestment

oil barrels

Pension360 has extensively covered the controversy around fossil fuel divestment – even organizations committed to sustainable investing are split on whether pension funds should divest from fossil fuel assets.

But it’s interesting to hear the take of a oil executive. The Financial Times asked Nigel Costeloe of North Country Energy for his opinion on fossil fuel divestment:

“I understand the sentiment and emotion of wanting to be good to mother earth and only use renewables. However, it cannot happen overnight or in our lifetime. There is no replacement for petrol as a transportation fuel at this time and the third world is developing rapidly and with that goes their demand for energy.

“[Given] the size in a financial sense of the coal industry (not to mention the political sense; many US coal states are Democrat and President Obama and his successors are unlikely to beat them up too badly), if they see their market share significantly decrease, they have billions of dollars to invest in clean technology.

“Oil and gas companies are not stupid either; they are making investments in other technologies. BP is no longer British Petroleum, as one of their stated ambitions is to move beyond petroleum, so they are major players in technology.

“Even if we could get enough renewables to supply us, the electrical grid is nowhere near capable of handling all the cars and trucks plugged in to charge batteries, [and there are] environmental issues around battery making and disposal.

“Lastly, even environmentalists agree that natural gas is a decent transition from coal and oil to something more renewable.”

Read more coverage of divestment here.

 

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Sustainable Investing Experts Weigh In On Fossil Fuel Divestment; Is Engagement A Better Strategy?

fossil fuels

Different pension funds have different opinions on how climate change should affect investment strategy.

Some, like Norway’s largest pension, are willing to divest from certain fossil fuels entirely.

Others, like CalPERS, prefer to use their leverage as major shareholders to engage with companies rather than divest. Many others cite their fiduciary duties to pensioners as a reason they can’t divest from fossil fuels.

What do sustainable investing experts have to say? The Financial Times talked to them:

“The idea that shaming an industry will somehow reduce greenhouse gas emissions is not correct,” says Jonathan Naimon, managing director of Light Green Advisors, a New York asset management firm that specialises in environmental sustainability investing. “It isn’t like divestors are bringing any solutions to the table.”

“It’s actually projects and technologies that reduce emissions and the people developing them are in energy supply companies as well as energy-using companies,” he adds.

[…]

But Bill McKibben, the US environmental activist and writer who co-founded the 350.org climate campaign group spearheading the divestment push, says engagement strategies only suited some companies.

“If we have a problem with Apple paying Chinese workers bad wages you don’t need to throw away your iPhone and boycott Apple stock. You need to put pressure on them so they pay people better and the price of an iPhone goes up a dollar and everyone’s happy,” he says.

But he argues fossil fuel extraction companies are a very different case because their value is so dependent on their reserves of oil, gas and coal. “There’s no way that engagement can persuade them to get out of this business as long as it remains a profitable business,” he says

“The idea that anyone else is going to merrily persuade Chevron or BP that they want to be in the renewables business or something is nuts,” he says. He argues this would only happen with government pressure and that in turn would require the dilution of energy companies’ political power by efforts such as the divestment movement.

[…]

Carbon Tracker itself does not recommend a pure divestment strategy.

“We’re not advocating blanket divestment,” said Anthony Hobley, the group’s chief executive. “We think both engagement and divestment together will achieve more. The sum is greater than the parts because either alone isn’t going to achieve the ultimate objective of a climate-secure energy system.”

What does an oil executive think about fossil fuel divestment? Click here to read his take.

 

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UK Environmental Regulator Accused of “Clear Conflict of Interest” In Pension Fund Investments

big ben

A report by the Independent claims that the pension portfolio of the UK’s Environment Agency – the government body charged with protection of the environment in England – contains numerous investments in industries that the Agency regulates.

The portfolio holdings may present a conflict of interest for the Agency.

From the Independent:

The Environment Agency (EA) has been accused of having a “clear conflict of interest” after an Independent on Sunday investigation found the UK regulator’s pension fund invests millions in controversial industries which it then regulates. In the UK the EA’s pension fund – worth a huge £2.3bn – invests in companies investing in fracking, incineration and nuclear power, all of which the Agency is involved in regulating.

Globally, the fund also invests millions in chemical and mining companies, including diamond mining; tobacco and alcohol companies; arms manufacturers; a gambling company, as well as Starbucks which has been repeatedly accused of tax avoidance.

The pension details are contained in a response to a Freedom of Information request from the EA, which lists the companies it had a stake in as of March this year, its latest available audited information. And its investments are in marked contrast to the Agency’s public image of being a leading “responsible” investor that integrates “environmental, social and governance considerations into all decision-making.” The Agency champions its commitment that by 2015 “25 per cent of the fund will be invested in the sustainable and green economy”.

Despite these bold claims, the list reveals that the EA, which was heavily criticised last year for its response to flooding, holds £50m direct investments in oil and gas companies such as Shell, BP and BG Group, as well as millions more in indirect oil and gas funds.

[…]

The fund is investing in two companies financially intertwined with fracking giant Cuadrilla, the company that has been the subject of fierce protests in Lancashire and West Sussex. The first is Centrica, which is investing £60m in Cuadrilla’s Lancashire operations and the second is Riverstone Energy, which owns 44 per cent of Cuadrilla.

The Cuadrilla relationship is further complicated as Lord Browne of Madingley, who sits on Cuadrilla and Riverstone’s board, has been accused of having privileged access to Lord Chris Smith, the head of the EA. Browne, a former BP boss, met Smith on numerous occasions when Cuadrilla was trying to get a permit to frack. The minutes of one telephone meeting between Browne, Smith and other government ministers reveal that the EA offered to “shorten the consultation process prior to determining permits”, although this was rejected by Cuadrilla, which was worried about legal action.

The Agency hired consultants this year to look into the impact of divesting from fossil fuels. But the consultants advised against divesting from fossil fuel assets.

Read the entire investigation here.

 

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Britain Secretary of Energy: Investing in Fossil Fuels Big Risk for Pension Funds

fossil fuels burning

Last week the advisory board of one of the largest asset owners in the world, the $857.1 billion Norway Pension Fund Global, concluded that divesting from fossil fuels would be an unwise financial decision that would reduce returns.

But Edward Davey, Britain’s Secretary of State for Energy and Climate Change, said Monday he thinks fossil fuel companies could become the sub-prime assets of the future.

He called on Britain’s pension funds to examine the risk associated with oil, gas and coal investments.

From the Telegraph:

Investing in fossil fuels is becoming increasingly risky because global action to tackle climate change will curb demand, forcing companies to leave unprofitable reserves in the ground, Ed Davey, the energy secretary, has warned.

Financial authorities must examine the risks posed by coal, oil and gas companies to prevent pension funds investing in what could become “the sub-prime assets of the future”, Mr Davey said.

The comments are Mr Davey’s first intervention into the debate over the “carbon bubble”, the theory that the world’s existing fossil fuel reserves are overvalued because the majority must be left unburned in the ground if extremes of global warming are to be avoided.

Mr Davey told the Telegraph: “One has got to worry about the investments for pensioners.

“If pension funds are investing in companies or banks that have on their balance sheets huge amounts of assets in fossil fuels, and those assets don’t give the return that people expect – because of changes in technology where low-carbon becomes cheaper or because of the world having to take action against carbon emissions – one has got to protect those pensioners and those investments.”

More from Mr. Davey:

Mr Davey singled out coal – the dirtiest of the fossil fuels – as “the short-term biggest worry by a long way” as countries including China commit to cap their coal use. “Investing in new coal mines is going to get very risky,” he said.

He acknowledged that oil and gas would still be needed for some time in the absence of green alternatives, and defended the UK’s investment in the North Sea and shale. But he said oil and gas investments too would become a worry “over the next decades”. He suggested fossil fuel use could be “almost non-existent” within three or four decades and described BP and Shell as strong assets only “over the medium term”.

[…]

“I don’t want our financial system to end up underperforming for pensioners. I don’t want them to have to invest in stranded assets. I don’t want to get to a point where in 10 to 20 years’ time these assets turn out to be the new sub-prime assets of the future.”

To read more coverage of the debate over fossil fuel divestment, click here.

 

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Pension Advisory Board: Divesting From Fossil Fuels Will Harm Future Returns

windmill farm

There have been calls from many corners in recent months and years for pension funds and other institutional investors to begin divesting from fossil fuel-based investments.

But not many institutional investors have heeded that call, choosing instead to use their sway as major shareholders to work with companies.

One of the largest asset holders in the world is taking a similar approach. The board of the $857.1 billion Norway Pension Fund Global has told the fund that divesting from fossil fuels would be an unwise financial decision that would reduce returns.

More from Chief Investment Officer:

The Norway Pension Fund Global should reject calls to dump fossil fuel investments and concentrate instead on working with the worst offenders, according to its advisory board.

The country’s finance ministry asked the board to evaluate whether divesting from coal and petroleum companies was a “more effective strategy for addressing climate issues and promoting future change than the exercise of ownership and exertion of influence.”

The panel of international investment experts concluded that the fund—despite being one of the world’s largest investors—has minimal power over climate change. Becoming a force for environmental causes would mean changing its mandate and fiduciary duty to Norwegian citizens, the board stated in an extensive report published today.

“We do not think that it would be better for the climate—or the fund—if these shares were to be sold to other investors who, in all probability, will have a less ambitious climate-related ownership strategy than the fund,” the advisors said.

[…]

The portfolio is an “inappropriate and ineffective climate change tool,” the report said. “Neither exclusion nor the exercise of ownership can be expected to address or affect climate change in a significant way.”

Furthermore, the board warned that attempting to halt or slow climate change via the $800 billion fund could threaten future returns.

Instead, the board proposed changing its investment guidelines to permit excluding companies that “operate in a way that is severely harmful to the climate.”

Norway’s largest pension fund announced last month plans to divest from coal assets. But it said divesting from other fossil fuels posed a major risk to future returns.

 

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Norway’s Largest Pension Divests From Coal, But Sees Risks in Exiting Other Fossil Fuels

coal

KLP, Norway’s largest pension asset manager, said it plans to divest from coal companies and increase investments in renewable energy.

The divestment from coal comes even as KLP remains heavily involved in oil and gas investments. That’s because an internal study suggested that divesting from all fossil fuel companies would pose big risks for KLP and harm future returns.

From IPE Real Estate:

It said it was doing this to contribute to the “urgently needed” switch from fossil fuel to renewable energy.

KLP defines coal companies as coal mining companies and coal-fired power companies that derive a large proportion of their revenues from coal.

At the very least, KLP will exclude those with 50% of revenues from coal-based business activities.

The names of the companies to be excluded will be published in an updated KLP list on 1 December.

KLP’s divestment from coal companies also applies to the KLP funds.

The public service pensions provider said preliminary estimates showed the divestment would lead to the sale of shares and bonds worth just under NOK500m.

[…]

The KLP Group, with total assets of NOK470bn, is already a major investor in renewable energy, with NOK19bn invested in Norway alone.

Last year, it also established a partnership with Norfund for direct investment in renewable energy and finance.

The additional NOK500m will be used for direct investments in increased renewable energy capacity in emerging economies, where KLP considers the need to be greatest.

The pension manager will not be divesting from oil and gas companies after a study suggested that doing so would diminish future returns. Details on the study from IPE Real Estate:

At present, the divestment does not apply to oil and gas companies.

KLP said this was because coal companies were considered to have the largest negative impact, both in terms of carbon emissions per unit of energy produced and local pollution in the vicinity of the coal-based facilities, even though there are significant variations between the different types of oil, gas and coal.

But KLP also said a withdrawal of investments in oil and gas companies would probably have a material impact on future returns, unlike the retreat from coal company stocks.

At the request of the Norwegian municipality of Eide, one of its customers, KLP carried out an assessment on the feasibility of pulling its investments out of oil, gas and coal companies without affecting future returns, in order to contribute to a better environment.

The report found no support for the “stranded assets” hypothesis, which posits that investments in companies with major fossil fuel reserves represent a greater financial risk than is normal for this type of undertaking.

It said: “On the contrary, a divestment from all fossil fuel companies would significantly increase KLP’s risk, particularly with respect to Norwegian shares.

“However, depending on the definition applied, divestment from coal companies alone would not represent any significant financial risk for KLP.”

KLP manages about $45 billion in pension assets.

UN Secretary General to Pension Funds: Divest From Fossil Fuels

field of wind mills

The United Nations’ Intergovernmental Panel on Climate Change presented its latest report on climate change over the weekend.

UN Secretary General Ban Ki-moon attended, and he used the opportunity to urge the world’s pension funds to begin divesting from fossil fuel investments.

From a 350.org press release:

At a press conference in Copenhagen yesterday, UN Secretary General Ban Ki-moon urged big investors such as pension funds and insurance companies to reduce their investments in fossil fuels and invest in renewable energy instead.

“I have been urging companies like pension funds or insurance companies to reduce their investments in a fossil-fuel based economy [and shift] to renewable sources of energy,” said Ban Ki-Moon. He joins a growing list of distinguished high-level figures calling for fossil fuel divestment such as UN climate chief Christiana Figueres, Archbishop Emeritus Desmond Tutu, World Bank President Jim Yong Kim and US President Barack Obama.

Ki-moon made his comments during the presentation of the latest summary of climate science in the form of the Intergovernmental Panel on Climate Change’s (IPCC) fifth assessment report. The report strengthens the case for fossil fuel divestment by stating that “substantial reductions in emissions would require large changes in investment patterns”.

May Boeve, Executive Director of the global climate campaign 350.org commented, “The report strengthens the case for fossil fuel divestment. It clearly states that the vast majority of coal, oil and gas must remain underground and that investments in the sector must fall by tens of billions of dollars a year. The fossil fuel industry’s business plan and a liveable planet are simply incompatible.”

Ban Ki-moon’s endorsement is the latest sign of growing momentum for the fossil fuel divestment movement. Fossil fuel divestment campaigns at more than 500 institutions around the world ask local authorities, universities, pension funds, religious and medical institutions to drop their investments in coal, oil and gas companies.

Sweden’s largest pension fund announced in October plans to divest from $116 million of fossil fuel investments.

Many pension funds are being pressured to take similar action, but funds have instead expressed interest in using their power as shareholders to bring change from within companies.

 

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