A bad month for fossil funds

What happened when the courts and shareholders lost patience with Big Oil

May has been a terrible month for fossil fuel companies and their investor pension funds. In what might be the final nail in the coffin of West Midlands Pension Fund's engagement policy (that is, having shareholder meetings instead of divesting), Wednesday alone saw several major setbacks for the fossil fuel industry. Shell was ordered by a court in The Hague to cut emissions 45% by 2030. ExxonMobil lost two board seats to activist investors. Chevron investors voted against the board's strenuous objections for a resolution committing it to reduce emissions. And last week, the notoriously fossil-friendly IEA dropped a bombshell report that said there was “no need for investment in new fossil fuel supply” in order for the world to limit global heating to 1.5C.

The courts, the IEA and even mega-investors like BlackRock are losing patience with the fossil fuel industry. Now the gauntlet is down for WMPF to act.

Imagine for a moment you are an investor at a local government pension fund (if you are, hello there!) For decades you have been enjoying double digit profits from fossil fuel companies. The consensus held by the general public is that climate change might be a problem in the distant future, but no link is made in their mind to fossil fuels. Fast forward to 2012 Bill McKibben, author of the first popular book on climate in 1989, launches the fossil fuel divestment movement with the stated goal to “revoke the social license of the fossil fuel industry.” 

Suddenly a climate movement is born and over the decade the public realise that to solve climate change we need to leave the coal, oil and gas in the ground. Remember, you’re an investor. How do you respond? If your pension fund is for local government employees, and your trustees are elected councillors, you have to show responsibility. So you set up a policy of “engagement” with the fossil fuel industry. The problem is, the men in suits ignore you, their shareholder. You club together with likeminded institutions and form a host of initiatives like Climate Action 100+ to apply greater pressure. And the fossil fuel industry does finally respond. But of course, they can’t bring themselves to do the one simple, essential but unthinkable action: keep it in the ground. Instead polluters scramble to concoct solutions that enable them to continue extracting while clinging onto their social license. 

Shell releases a climate plan which to the credit of the engagement crowd, they put to the vote at their AGM. But the plan, described by leading climate scientist Johan Rockström is based on a “seductive but completely incorrect analysis” guilty of “kicking the can down the road”. It is an anti-climate climate plan. The Local Authority Pension Fund Forum agrees, and advises members (including WMPF) to vote against the plan. 

I’m afraid, Mr or Ms investor, the credibility of your engagement policy is in tatters. Your best efforts to apply pressure through engagement meetings with Shell have manifestly failed to deliver. There is no prospect of achieving any more action from this polluter. Years of engagement have yielded a big can of greenwash and the IEA are saying no new fossil fuels for 1.5C.

Where does this leave engagement? In Febuary, WMPF responded to the stinging report by UK Divest which exposed a minimum of £320 million invested in fossil fuel companies saying “We continue to believe engagement is a more effective tool than divestment”. But as we have seen in the case of Shell, engagement has no further prospects of success. The living planet and human civilization have no more time for greenwashing climate plans. There is only one option left for WMPF’s relationship with Shell. It must divest.

IEA say “no need for new fossil fuel supply”

The International Energy Agency has always been downbeat about the renewable industry. An agency captured by the fossil fuel industry, it has been described as an engine of the status quo, so the report released this May came from a credible source. 

Requested by the UK government in preparation for the COP26 UN climate conference in November, the IEA has produced a scenario it calculates as consistent with limiting global heating to 1.5C in line with the Paris Agreement. There are many of these scenarios produced by the IPCC and oil companies, but this is the first time the IEA has looked at what would be required to take the Paris Agreement seriously. And it’s bad news for the fossil fuel industry. Essentially it calls for an end to any new investment in fossil fuel infrastructure. No new pipelines. No new oil rigs. No “gas led recovery” in Australia. No arctic drilling. No Australian coal mine.

Strathclyde Pension Fund to vote on divestment

Tomorrow, Wednesday 2nd June, councillors on the committee of Strathclyde Pension Fund will vote on whether or not to divest £508 million in fossil fuel companies. As another of the largest Local Government Pension Scheme funds, this is hugely significant also for West Midlands Pension Fund. Glasgow City Council voted for a divestment motion in April, but the final decision rests on the eight councillors who sit on the committee. If they do decide to divest, it will send the strongest possible signal that councillors have lost patience with the engagement strategy. It will set a model for other local government pension funds. And it will free up much needed capital for Glasgow to reinvest locally. 

Cartoon Credit: Stephen Earl Rogers