In general, pension fund administrators work to keep their industry un-newsworthy. Bad news makes good copy and bad news in the pension industry is clearly bad news for the millions of people relying on those pensions for their retirement.
But the Guardian’s divestment campaign has put a spotlight on the investment strategies of academic and public institutions.
In the capital, the London Assembly has called upon the London Pensions Fund Authority (LPFA), which looks after the pensions of over 80,000 people working in London government, to “avoid investment in any bonds, stocks or shares connected with fossil fuel extraction.”
It is worth noting the LPFA has under 1% direct exposure to fossil fuels and has a long standing commitment to responsible investment – investing in our own London Green Fund, which has deployed over £100m to deliver low carbon infrastructure for the capital. I know the LPFA has carefully considered the assembly’s call but it cannot reasonably accept it.
We are aware of the “carbon bubble”, where there is listed in the valuation of companies far more fossil fuel than can be burnt while keeping within the 2C global temperature rise, and it is important that government and the regulators are aware of this risk to our financial system and mitigate it appropriately.
However, one must be realistic that there has to be a transition away from fossil fuels over the medium term and not a sudden cliff edge. Because of policy failures by the previous Labour government in not beginning a new nuclear programme over a decade ago, we are going to need fossil fuels, specifically gas, for the medium term to keep the lights on.
Natural gas, if burnt in combined heat and power plants we are encouraging in London, can be 95% efficient becoming a low carbon fuel – so the question then is where do we source this natural gas? From Russia or the Gulf or from beneath our feet? That question clearly answers itself and we are therefore going to need to invest in exploiting our own domestic energy reserves, exploring the potential for fracking in the UK – all of which requires investment.
This debate over divestment should not distract from the progress London has recently made in working to meet our targets to reduce CO2 emission by 60% from a 1990 baseline by 2025. We have programmes aimed at reducing our emissions across all sectors and despite a robust economy and prodigious demographic growth of over 100,000 new Londoners a year we have seen CO₂ emissions reduce by 14% since 2008 or by 19% per capita.
London has successfully disconnected economic and population growth from an increase in carbon emissions. For example, our planning policies ensure that new buildings are the most sustainable they can be, and we are driving forward a huge retrofit programme to install energy efficient measures in our buildings.
London is not alone as an urban centre showing real leadership in reducing carbon emissions. Cities are driving forward practical and pragmatic solutions to address climate change and through networks such as the C40 Climate Leadership Group we aim to have our voices heard in this year’s Paris climate conference.
The world is urbanising – by 2050 70% of the world’s population will live in cities – and it is city solutions which are driving the transition to a low carbon future. It won’t be an eye-catching but impractical sudden divestment, which could cause disruption to the world economy, let alone the retirement plans for millions of people.
