Council pension funds invest £14bn in "risky" fossil fuels

The UK's 101 local government pension funds have invested at least £14bn in "risky" fossil fuels, according to a new report.

The study, the first to look at the £231bn invested by all 418 local authorities, warns that the level of investment in this area suggests pension funds, managers and advisers are failing to address the risks associated with fossil fuels while also contradicting council policies on supporting the UK's low carbon transition.

In 2014-15, it notes, California's public pension funds lost $5bn through declining fossil fuel share values, which accelerated moves to divest.

It warns that with global oil prices in "free fall" at around $40 a barrel - and analysts at Goldman Sachs forecasting a drop to $20 a barrel - returns on fossil fuels are unlikely to improve in the short term, putting pension fund members at risk of a "carbon bubble".

The data, which has been released by 350.org, Platform, Community Reinvest and Friends of the Earth, shows that Greater Manchester has the largest total investment in fossil fuels at £1.3bn, followed by Strathclyde at £750m and West Yorkshire at £670m.

On average, UK councils have invested £3,000 per fund member and £218 per resident in this area, it added. Three-quarters of direct fossil fuel shareholdings are with just 10 companies, headed by BP and Shell.

In total, more than six per cent of local government pensions are now invested in fossil fuels, with the London Borough of Merton (11 per cent), Worcestershire (10.7 per cent) and the London Borough of Camden (9.5 per cent) facing "particularly high exposure".

The report says that reinvesting the £14bn in fossil fuel shares into local low carbon infrastructure could deliver 175,000 new social housing properties a year or fund the installation of solar panels on two million homes, 10,000 schools and 20,000 public buildings. This would add 8.9GW of electricity capacity - enough to provide power to a population the size of Scotland.

It highlighted the Lancashire County Pension Fund, which in 2013 became the first fund to investment in community energy in the UK when it put £12m into the world's largest community-owned solar power station, the Westmill Solar Co-op in Oxfordshire. The solar farm has 21,000 panels generating 4.5m kilowatt hours per year, enough to power 1,400 homes.

But the report says more must be done, adding that the Local Government Pension Scheme is already underfunded by £85bn and it will ultimately be taxpayers who will have to pick up the cost of bailouts when things go wrong in the "overvalued" fossil fuel industry.

Mark Campanale, founding director of the Carbon Tacker initiative, said: "Investors in the fossil fuel industry have experienced negative returns in recent years, as they have faced strong winds from rising costs of production, collapsing prices for their commodities and significant falls in the costs of their main competitor, the renewables energy industry.

"Right now, anyone trying to find value in fossil fuels have shied away. Technological change, such as we've seen in the renewables sector recently, is inevitable and costs are only falling. Smart investors are beginning to see that competition from solar in particular and also battery energy storage, is likely to be the death knell of the fossil fuel industry."

Jo Ram, co-founder of Community Reinvest, said: "Pension funds should be about securing workers' financial futures and supporting an economy and an environment in which retirees and future generations can thrive.

"Investing public pensions in fossil fuels makes no sense, when our local economies are in long-term decline through lack of investment and we know 80 per cent of known fossil fuel reserves must be kept in the ground to avoid the catastrophic effects of climate change on society.

"Lancashire County Council through its ground breaking investment in Westmill Solar Co-operative energy scheme has shown what is possible. We think it's high time more councils do the same, that is explore options for pooling investments into community energy projects new infrastructure and affordable social housing."

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