County Councillors given award for ‘climate inaction’ after voting to continue investing in fossil fuels

What’s the main argument in favour of divestment?

The Fund’s long-standing policy of ‘engaging’ with fossil fuel companies has manifestly failed. Indeed, despite many years of engagement not a single major oil and gas company is currently on a 1.5ºC compliant pathway (though some have made non-credible non-binding claims that they will do things so as to intersect with such a pathway in the distant future eg. around 2050).

By contrast, divestment campaigns – which seek to undermine the ‘social licence to operate’ of the targeted companies by getting institutions like pension funds to make highly visible commitments to ditch certain investments – have a proven track record of bringing about ‘restrictive legislation’ against targeted companies. This is exactly what is needed in the case of fossil fuel companies.

What are some of the counter-arguments?

In relation to the East Sussex Pension Fund the following counter-arguments (among others) have been made:

• that ‘avoid[ing] the most deleterious effects of climate change’ is a non-financial ‘quality of life’ issue, which the Fund is therefore free to ignore;
• that it would be too costly. (One estimate is that there would be a one-off cost of £1.5m to ditch the existing investments and then a recurrent annual cost of £2m because of higher fees.);
• that it could lead to ‘intervention by the Secretary of State’, as divesting would (allegedly) force the Fund to invest outside the ‘pooling’ arrangement it shares with 10 other local government pension schemes (and which is supposed to help the member funds reduce costs).

In reality:

• ‘[A]void[ing] the most deleterious effects of climate change’ is an essential financial factor for the Fund. Indeed, according to the Climate Action 100+ investor initiative (of which the Fund is a member): ‘action to cut [global] emissions and avoid the worst impacts of climate change is the only real path to protect long-term investment value and returns.’
• It’s very far from clear that the Fund would need to invest outside its pool or ditch any of its existing investment managers were it to make a noisy and highly public commitment now to fully divest the Fund from fossil fuel extractors ‘within five years’ (as Proposal 1 above proposes) . Indeed, it’s conceivable – perhaps even likely – that the mere threat of ditching them in five years, should they continue to invest in fossil fuel extractors, could change these managers’ behaviour and commitments before there is any need to ditch them (especially if the threat was widely publicised).
• Even if the Fund did have to make a one-off payment of £1.5m to ditch some of its existing managers and its fees subsequently increased by £2m / year, this would hardly be the end of the world for a £4.9bn Fund that receives £157m / year in contributions from its members.
• Is the Secretary of State really going to intervene to tell the Fund that, in order to save a small amount in management fees, it must continue to invest in fossil fuel extractors? This sounds extremely unlikely. But were it to happen (in five years time, with the goal of 1.5°C long dead and fossil fuel companies still expanding the fossil fuel system) then the Fund should welcome this as an opportunity to publicly – and very visibly – challenge the government over the need to rapidly phase out fossil fuels and its failure to take action on this front. Indeed, such action by the government under such circumstances would greatly magnify the impact and significance of the original commitment to divest.