Frack free. Pension Funds investing in Fracking concerns. B&H Green Party statement

The Brighton & Hove Green Party have made a statement about the ESCC Pension Fund in the Spring 2014 issue of their magazine, Greenleaf (see page 2, statement below). The Greens have been pushing for change on this issue for a long time. In 2002 Caroline Lucas asked for an inquiry into this issue. Several articles in the Argus have been written about the Greens’ attempts of changing the investment practices of the ESCC Pension Fund (see a list of them half way down this page). In 2004 the Greens put forward a request for scrutiny of policies concerning pension fund investment from Councillors (p.7). Caroline Lucas signed in 2013 Early Day Motion 339 calling for local authorities to divest from tobacco. And much more in between 2002 and now. And yet, as the recent Freedom of Information requests shows, the ESCC Pension Fund is still investing in tobacco, arms and a long-list of other dubious investments. If only the councillors from the other political parties, which are on the investment panel of the ESCC Pension Fund, would listen. For now, the Green Party’s recent statement:

Frack free. Pension Funds investing in Fracking concerns.

The Green administration on Brighton & Hove City Council has called on East Sussex Pension Fund to divest itself of fracking and other unethical investments such as tobacco.

“We are calling on East Sussex Pension Fund to change its investment approach to put ethical and local concerns first. While the fund’s first duty must be to ensure there is enough to pay for its members’ retirement incomes, we believe this can be done effectively without supporting industries which devastate the environment and people’s health,” said Green council leader Cllr Jason Kitcat. “All those who rely on the scheme should be able to feel confident in its ethics as well as its financial probity.”

The pension fund is run for council workers, teachers, fire-man and other public sector workers in Brighton & Hove and East Sussex. It is overseen by a panel of councillors, of which there is only one Green member.

Cllr Leo Littman, Finance lead on Brighton & Hove City Council and Green member on the pension fund panel, commented “I’ve been pressing for some time now for the pension fund to review their approach in light of ethical and environmental concerns. Sadly that hasn’t gained much support from other panel members. Ultimately this major fund could be used for good, such as investing in key infrastructure and housing developments in our region rather than tobacco plantations half-way around the world, or fracking on our doorstep.

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Major funds pull out of fossil fuels

The ESCC Pension Fund could take some lessons from this new development. They have large investments in fossil fuel companies.

Major funds pull out of fossil fuels – 3rd feb 2014

http://www.trillionfund.com/major-funds-pull-out-of-fossil-fuels/

Nearly $2 billion dollars has been pulled out of fossil fuel shares as last week, 17 of the world’s largest funds said that they would reinvest their money in clean energy.

It is a turning point for the divestment movement which aims to divert finances away from fossil fuels to avoid the catastrophic economic consequences of the Carbon Bubble.

The funds’ decision to collectively take a big step away from fossil fuels has been interpreted as a sign that the divestment movement is no longer limited to pension and health investors. On the contrary, it is beginning to move into the mainstream and will bring awareness to the public, putting pressure on larger funds and corporations with large stakes in the fossil fuel industry.

Among the seventeen philanthropic funds to commit to the divestment are the Park Foundation and the Joseph Rowntree Charitable Trust, two of the world’s largest foundations with individual assets of more than $300 million. Joining them in their stand against climate change are a merger of powerful funds such as the Russell Family Foundation, the Educational Foundation of America and the John Merck Fund.

The announcement comes after a recent study conducted by Oxford University demonstrated that the divestment campaign had been the catalyst for increasingly negative views of fossil fuel companies. The report concluded that: “divestment announcements are thus more likely to impact coal stock prices.”

The divestment also comes at a critical time as increased pressure is being put of UK financial institutions over the inevitable outcomes of vested financial interests with fossil fuel corporations. Continued campaigning from 350.org’s ‘Fossil Free’ campaign saw five human carbon bubbles visit the Bank of England in November to warn of the impending financial crisis.

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Investors ‘held back’ by renewable energy policy, claims E&Y study

Very relevant study for the ESCC Pension Fund. It is encouraging to see more and more pension funds investing in renewable infrastructure – the ESCC Pension Fund could take heed of this.

Investors ‘held back’ by renewable energy policy, claims E&Y study

Monday, 25 November 2013

A lack of certainty in renewable energy policy and expertise of renewable energy projects are holding institutional investors back, according to a new Ernst & Young survey.

Of the 75 North American and European major pension and insurance funds surveyed, 61% have no current investment in renewable energy infrastructure.

“Although renewable energy infrastructure projects will soon be economically viable in their own right, they are currently reliant on some form of subsidy to deliver returns,” says Ben Warren, EY’s Global Cleantech Transaction Services Leader. “In the absence of stable policy and regulation, underlined by strong political support, long term investors will find it difficult to buy-in to this sector.

“In addition, as our survey shows, pension and insurance funds need greater levels of expertise in the asset class. In particular in understanding the risk and return profiles of renewable energy infrastructure projects to properly evaluate their potential.”

Despite these difficulties, 38% of respondents who had made investments said that they had met their expectations, with one in three anticipating their renewable energy allocations will increase in the next three years. Half of these anticipated an increase of over 10%.

When asked how investing in renewable energy aligns with their fund’s objectives, 48% of respondents mentioned diversification benefits, 37% a good match with their fund’s liquidity requirements, while a third stated “ethical objectives.”

Insurance funds selected project debt as their preferred form of investment, whereas this is the least favored form for pension funds, who invest mainly in the form of tradable corporate equity. This highlights that there is no “one size fits all” when it comes to creating financial vehicles that will drive greater institutional investment in renewable energy infrastructure.

On-shore wind turbines power perceived as most attractive technology

When looking at investment by type of renewable energy technology, on-shore wind power projects are the most popular with investors, with 43% stating that they have invested or are considering investing in these assets. Hydro-electric power projects ranked second at 38%, closely followed by solar photovoltaic (PV) projects, at 32%. The risks and returns of these mature technologies are better understood than other less mature technologies such as off-shore wind. Despite this, nearly 40% of insurance fund respondents state that they have invested in or are considering investment in this off-shore wind infrastructure.

Warren comments: “It is not particularly surprising that the more mature technologies are attracting the attention of institutional investors. However, access to sufficient deal volumes and limited deal size in these sub-sectors is beginning to divert the attention towards off-shore wind, which presents the opportunity for some very substantial cheques to be written.”

Renewable energy investor attracted to US
When it comes to allocating funds, 26% of investors have already made or are considering renewable energy infrastructure investment in the US market, closely followed by UK and Ireland (19%) and Continental Europe (17%).

Warren explains: “As more European investors begin to allocate capital towards infrastructure, we would expect renewable energy assets to hit the investment sweet spot. The US market has probably taken the lead as it does have the advantage of scale, with single wind farms or solar PV assets often hitting the multiple hundred million dollar mark.”

How do renewable energy developers attract investment?

In order to become more attractive to these funds, crafting financial vehicles to suit the investment requirements of institutional funds is critical. One structure that has recently emerged is that of the listed renewable energy infrastructure fund, such as Greencoat UK Wind. This provides investors with a steady income stream from a number of off-shore wind projects over the long term, and conveniently packages the investment in the form of listed equities, to which institutional funds allocate a significant proportion of their capital.

Warren comments: “Developers with a strong track record and robust pipeline of projects can approach pension and insurance funds directly with project development plans that are executed through tailored partnerships or joint ventures. Dong Energy has pursued this approach with PensionDanmark, for example, as well as with other corporate and financial players.”

Gil Forer, EY’s Global Cleantech Leader, says: “Pension funds and insurance funds must be active participants in the capital value chain of renewable energy for the industry is to make a substantial expansion globally. The investment and business community, as well as policy makers, must focus on capital innovation action agenda to remove the investment barriers.

“The most important action the renewable sector must take is offer projects that are financially compelling on an unsubsidized basis and able to compete with other asset classes for institutional capital. Continuing to lower the price of renewable energy equipment as well as reducing installation costs and improving efficiencies are important aspects of increasing renewables appeal to pension and insurance funds.”

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Response to Mo Hemsley, the Acting Chief Finance Officer for East Sussex County Council

30th Set 2013

Dear Mo Hemsley, (cc: Cllrs Stogdon, Carstairs, Tutt, Wealls, Rufus, Redman)

Many thanks for your email (which I am attaching to this email), however I was disappointed you did not actively engage with many of the points raised on the website I sent to the ESCC Pension Fund Panel members. I hope that you will respond to them this time. In particular, I would like you to look at and comment on the pages I have written analysing ESCC Pension Fund investments as well as proposals for how they can change:

https://esccpensionfund.wordpress.com/analysis/

and

https://esccpensionfund.wordpress.com/proposals-for-change/

I will go over some of the arguments made on the website again in this email. In your letter you stated that the panel has adopted an “‘active shareholder approach’ to encourage companies to adopt best ethical and environmental principles without jeopardizing the investment performance of the Fund.” You also state that: “Investments are monitored on a regular basis by the Investment Panel.”

However, I have to ask, how can “monitoring investments” or an “active shareholder approach” change the activities of a corporation like British American Tobacco, whose purpose is to manufacture, sell and promote cigarettes? As of August 2012, the ESCC Pension Fund had shares of British American Tobacco worth £3,774,010.68.

The health impacts of tobacco are absolutely devastating, and it is hypocritical and unethical for the ESCC Pension Fund to invest in tobacco companies while councils and the NHS advocate for people to reduce or stop smoking.

Both Conservatives and Liberal Democrats alike realize that this is an issue, as this recent exchange in Parliament demonstrates (1):

“Simon Hughes (Bermondsey and Old Southwark, Liberal Democrat)

“In my borough of Southwark we have higher than average smoking rates, and the Cabinet member responsible for health has said that hundreds of people are dying early because they smoke. Can Ministers help me to persuade our Labour council that it is inconsistent to say “Don’t smoke” on the one hand and invest £2.6 million of pension funds in British American Tobacco on the other?

“Anna Soubry (Broxtowe, Conservative)

“That is a good point, but I have to say that I am not convinced that it is just a Labour-run council that might have chosen to invest their staff pensions in this way; I strongly suspect that all political parties are guilty of this. While this is, of course, a matter for local authorities, it is also the sort of great campaigning work that MPs can do with their local councillors. It is even more important that they do that, given that they now have this great responsibility for public health.”

Given that there is much cross-party support on this issue, could you not seriously look at drawing up some divestment criteria for the ESCC Pension Fund? Many Pension Funds around the world already do this, so it would be relatively easy to draw on work already done in this area.

You may be concerned that such an action would compromise performance targets, however many Socially Responsible Investment (SRI) funds with positive and negative screening criteria, contrary to popular belief, have as good returns – or sometimes better – than non SRI funds.

As reported in Forbes in 2011: (2)

“In fact, the majority of SRI funds in each class outperformed their respective benchmarks, with the exception of the U.S. mid cap and international equity-EAFE class. Of course, not all SRI funds are going to outperform their indexes every year, but the myth of socially responsible funds being lackluster performers is simply that – a myth. Investors are realizing they can get solid returns while also investing in line with their values.”

There are many academic reports which compare the returns from SRI-funds and non-SRI funds. As the 2012 Responsible Investment for Pension Funds report by EIRIS points out (3):

“There have been many studies on what the financial implications of responsible investing are. It is important to note that most of the studies have been carried out on restricted universes (e.g. an index “ex an issue” – especially for “sins” or social issues – such as FTSE 100 excluding alcohol) or for specific approaches so more general or uniform assumptions should not be made from their findings.”

“A couple of interesting meta-studies have been carried out in recent years, which pull together results from many of the individual studies. These meta-studies provide robust arguments that sound integration of ESG factors does not compromise investment performance, and in many cases even enhances returns. Shedding Light on Responsible Investment: Approaches, Returns and Impacts (4) was published by Mercer in November 2009 and analyses 16 academic studies; ten of which showed a positive relationship between ESG factors and companies’ financial performance, four showed neutral association and two showed negative-neutral relationship. It follows on from Demystifying Responsible Investment Performance, (5) published by UNEP FI and Mercer in October 2007, which reviews the results of 20 other academic studies on the relationship between ESG factors and portfolio performance. This report found evidence of a positive relationship in half of the studies, with 7 showing neutral effects and 3 showing negative association, concluding that there does not appear to be a performance penalty from taking ESG factors into account in the investment management process.”

I would appreciate it if you actively engaged with the literature on this subject when considering drawing up investment criteria for the ESCC Pension Fund.

Also, in your letter, you state:

“The Panel ensures a balance between different kinds of investments. This reflects the Panel’s views on the appropriate balance between maximising the long-term return on investments and minimising short-term volatility and investment risk.”

I do not just want to focus on divestment in this email, but also the possibilities for positive investment of the Pension Funds’ assets. The Pension Fund could draw up positive investment criteria for its investments.

There are definite risks associated with damaging and unsustainable investment. If current investment practices continue, they will further contribute to climate change, species extinction, deforestation and finite resource depletion. Pension Funds will find themselves in a much more riskier investment climate with many more liabilities. There is a very strong case for investing responsibly to ensure a safer and more risk-free future.

It can also be in the Pension Fund’s interest to have a diversified investment portfolio. By not just focusing on short-term returns, but diversifying into SRI funds which are also concerned about long-term environmental and social returns, the Pension Fund could reduce some of its long-term risk.

There are some alternatives to just investing in corporations and SRI funds. Co-operatives, small businesses and community projects, because they are not legally obliged to profit maximise on behalf of their shareholders at almost any cost, often have more ethical policies and practices, and can give good returns on investment.

One good example of this is Lancashire county council’s pension fund investing £12m in the UK’s first community-owned solar development in South Oxfordshire. County Councillor David Westley, Chair of the Lancashire County Council Pension Fund, said of the investment:

“There’s been a lot of discussion about local authority pension funds investing in community infrastructure. I’m pleased that Lancashire has been able to put this into practice with this £12m investment. Our first responsibility is to secure the best returns for the people in our pension fund, but I think many will be interested to know that their pension investments are helping fund worthwhile and sustainable schemes such as this one.” (6) (7)

Clearly there is room for the ESCC Pension Fund to invest in similar projects.

Investing in very different asset classes, such as co-operatives and building housing – even if headline returns are lower – can also be justified if the returns are uncorrelated with major indices, which they probably are. These investments would provide portfolio diversification to minimise risk – especially in bad economic times – and potentially provide more steady, long-term returns.

Instead of writing more about this here, I want to direct you again to the page I have compiled on proposals for change to the ESCC Pension Fund Investments, where I have much more detail about all of this:

https://esccpensionfund.wordpress.com/proposals-for-change/

Again, I am happy to discuss this matter further with any of the Councillors on the ESCC Pension Fund Panel.

Best,

Ed Jones

Footnotes

(1) Exchange in Parliament http://www.theyworkforyou.com/debates/?id=2013-06-11b.155.1&s=simon+hughes+pension+fund#g156.0

(2) Green Investing: Putting Your Money Where Your Values Are Pays Off http://www.forbes.com/sites/financialfinesse/2011/06/23/green-investing-putting-your-money-where-your-values-are-pays-off/

(3) Responsible Investment for Pension Funds https://esccpensionfund.files.wordpress.com/2012/03/responsible-investment-for-pension-funds-2012.pdf

(4) Shedding Light on Responsible Investment: Approaches, Returns and Impacts http://www.law.harvard.edu/programs/lwp/pensions/conferences/cm_europe12_09/Shedding_light_on_responsible_investment_free_version.pdf

(5) Demystifying Responsible Investment Performance http://www.unepfi.org/fileadmin/documents/Demystifying_Responsible_Investment_Performance_01.pdf

(6) News : Lancashire County Pension fund invests £12m in the world’s largest community-owned solar power station. http://www3.lancashire.gov.uk/corporate/news/press_releases/y/m/release.asp?id=201302&r=PR13/0065

(7) Westmill solar co-op gets £12m backing from Lancashire council pension fund http://blueandgreentomorrow.com/2013/02/08/westmill-solar-lancashire-pension-fund/

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Kent public health specialist ‘freedom of speech’ curb condemned by Unite

Shocking news from  Kent county council on their pension fund

http://www.unitetheunion.org/news/kent-public-health-specialist-freedom-of-speech-curb-condemned-by-unite/

Kent public health specialist ‘freedom of speech’ curb condemned by Unite

25 September 2013

A public health specialist working for Tory-controlled Kent county council, who mentioned that pension funds invest in tobacco companies, has been threatened with disciplinary action by the council.

Unite, the country’s largest union, said that the Unite member has been threatened with disciplinary action after giving an interview to BBC Radio Kent earlier this month to highlight the dangers of smoking.

Unite said that the issue at stake was the freedom of a public health specialist, who is governed by the ethical code of the Faculty of Public Health (FPH) and endorsed by NHS England, to speak out on matters of public concern, whether it was smoking, drug abuse or excessive drinking.

The Unite member was cleared by the county’s council’s press office to speak to the radio station on obesity and was then asked to do a pre-recorded interview on smoking. It was during this interview that she mentioned the connection between council pension funds and tobacco companies.

She was then hauled in front of her manager and an HR advisor and told she could either accept a warning being placed on her record for 12 months or face a full-scale disciplinary hearing.

Unite regional officer Ian Methven said: “What is at stake here is the freedom of speech for a public health specialist to speak out on issues well within her remit, and professional competence and expertise.

“We call on the council to withdraw this threat of disciplinary action immediately and to acknowledge its error in using the new ‘protected conversation’ legislation as a tool to discipline employees.

“Health professionals should be allowed to conduct their work without these threats to their careers and livelihoods.

“This is not about the health risks of smoking, but a question of free speech and the public interest which Unite will strongly fight to uphold.

“Unite believes that the action taken by the authority is a direct threat to the Faculty of Public Health’s standards of practice for public health specialists.

“The FPH is the leading professional body for public health specialists in the UK which promotes and protects the health of the population. It advocates on key public health issues and provides practical information and guidance for public health professionals.

“The county council is embarking on a substantial plan over the next four years to transform the authority and it needs the support and engagement of its employees.

“This action by the county council will do nothing to secure the confidence of its employees in its plans.

“I urge the leader of the county council Paul Carter to act now and limit the negative effect this situation is causing.”

ENDS

For further information please contact Ian Methven on 07876 501150 and/or Unite senior communications officer Shaun Noble on 07768 693940

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Response from ESCC Pension Fund to previous email

After sending an email to the Councillors on ESCC Pension Fund Panel on the 31st July 2013, Mo Hemsley, the Acting Chief Finance Officer for East Sussex County Council, has replied almost two months later.

Please see Mo’s email here in .pdf format.

Mo unfortunately does not really engage with many of the issues raised on the page on:

Analysis of the ESCC pension Fund

and the page on:

Proposals for Change

This will be addressed in a future letter to Mo, which will then be published here.

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Swedish pension funds urged to dump fossil fuel holdings – article in FT

Relevant article to changing ESCC pension Fund Investment practices:

http://www.ft.com/cms/s/0/bdfbf812-16e0-11e3-9ec2-00144feabdc0.html?siteedition=uk&siteedition=uk&siteedition=uk#axzz2f9ALZ8Fq

Swedish pension funds urged to dump fossil fuel holdings
By Caroline Liinanki, 8th Sept 2013, The FT

Sweden’s cluster of state pension funds face political pressure to divest from all of their fossil fuel holdings.

The Swedish Centre party has called for all of the country’s national pension funds to sell off their holdings in fossil fuel corporations in order to “climate proof” and protect the value of their investments.

Martin Ådahl, chief economist at the Centre party, which is part of Sweden’s four-party government coalition, told FTfm that the AP funds had been “impotent” and that investments in fossil fuels represented a financial risk to the long-term value of the country’s pension reserves.

The four main AP funds, with SKr971bn ($146bn) of assets under management, have some of their largest foreign equity holdings in oil and gas companies.

The Centre party’s call for divestment follows a report by Lord Nicholas Stern, a professor at the London School of Economics, and Carbon Tracker, a think-tank. It warned of a “carbon bubble” and cautioned that at least two-thirds of listed companies’ oil, coal and gas reserves were “unburnable” if global warming were to be kept below two degrees.

Mr Ådahl admitted that the aim was not to legislate, which he recognised would be both difficult and politically sensitive. “We want to bring the issue to public debate. We are encouraging the AP funds to take action,” he said.

Last year, AP4 invested SKr1.3bn in a low-carbon equity strategy. However, Chevron, Royal Dutch Shell and ExxonMobil also make up three of the SKr241bn fund’s five largest foreign equity holdings.

Arne Lööw, AP4’s head of corporate governance, acknowledged the contradiction. “Excluding all fossil fuel companies would be too great a risk,” he said.

Nordic life and pension company Storebrand, which has NKr450bn of assets under management, excluded 19 fossil fuel companies from its investment line-up in July. The exclusion was based on concerns around the long-term financial risks of remaining invested in carbon dioxide-intensive companies.

“The reason for divesting is to secure long-term returns. The greatest risk for investors is to do nothing,” said Christine Tørklep Meisingset, head of sustainable investments at Storebrand.

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