On the go: Swansea’s local authority pension fund is to transition its £500m equity allocation to a low carbon index by the end of July, after the fund’s administering authority declared a climate emergency last month.
The Swansea City and Council Pension Fund, the largest in Wales with assets worth £2.1bn, became the latest local authority pension fund to divest from fossil fuels, with plans to reduce its exposure by up to 50 per cent by 2022.
Climate change threatens the viability of pension funds, the fund said, so alternative investments that deliver long-term returns must be sought now.
Clive Lloyd, deputy leader of Swansea Council and chair of the pension fund committee, said: “We recognise the risk that climate change poses to society in general, as well as to the viability of pension funds like our own. But we also have to make sure that the return on our investments is enough to provide suitable pensions for our pensioners in the years to come.”
Swansea Council commissioned MSCI to conduct a review of its pension fund’s fossil fuel holdings last year, which found it was already 9 per cent below MSCI's All Country World Index average.
Over the coming years, it is important that the world reduces its reliance on fossil fuels and carbon-based products, so it’s important that our investments reflect that too
Clive Lloyd, Swansea City and Council Pension Fund
“But, over the coming years, it is important that the world reduces its reliance on fossil fuels and carbon-based products, so it’s important that our investments reflect that too,” Mr Lloyd said.
The £500m – which represents almost 25 per cent of total scheme assets – will be transitioned to Blackrock’s ACS World Low Carbon Equity Tracker Fund.
Mr Lloyd said the fund also seeks to invest in green infrastructure projects – such as renewable energy, alternative fuels and clean technology – that both optimise returns and deliver positive environmental outcomes.
Passing on the problem?
But some climate experts have expressed concern about the strategy of divestment.
Cameron Hepburn, director of the University of Oxford’s Smith School of Enterprise and the Environment, said shareholder engagement is a much more effective policy for tackling climate change.
Mr Hepburn said: “The council's change in investment strategy may well deliver higher risk-adjusted returns, but it merely transfers their positions in fossil fuel companies to new owners who are less concerned about climate change.”
Divestment should be a last resort for companies that show no plans to become Paris Agreement-compliant, he said.
He continued: “Better is to engage directly with company management to deliver real change – following the Oxford Martin Principles on Climate-Conscious Investment – and if this doesn’t work, then divestment should follow.”
