Guardsman Tony Downes House letter

Greater Manchester Pension Fund under attack

Editorial note:  The letter below was sent on

the 18th, July 1919 by a group of people 

concerned about the investments of the Greater

Manchester Fund which they consider are heavily

held in dirty fossil fuel companies.  Since the group

 took part in a joint meeting with the fund there has 

been a protest demonstration in Droyslden on Friday, 

July 19th.  Since then Cllr. Brenda Warrington and other Labour

councillors on Tameside Council, Greater Manchester have tried

to use the family of Tony Downes to distract attention from 
the claim of the protesters that the pension fund's 
investments are the 'dirtiest in in the country'.

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18 July 2019

Councillor Brenda Warrington

Chair: Greater Manchester Pension Fund

Guardsman Tony Downes House,

5 Manchester Road

Droylsden,

M43 6SF

Dear Councillor Warrington,

Meeting between GMPF and Fossil Free Greater Manchester

Thank you for arranging the meeting with us on 10 July. We are writing to summarise the key points of the discussion from our perspective and to clarify our understanding of the issues and our ongoing position.

Although the meeting had been mooted for over a year, we received short notice about the meeting. We note that a briefing note was produced and this has since been shared with one of our members, but this was not tabled either before or during the meeting. We appreciated the presence of your senior managers, your deputy chair and your advisors from PIRC at the meeting.

1. Decarbonisation plans and time line

The Fund confirmed that it plans to become carbon neutral by 2050. No rationale was given for selecting a date 31 years from now. We note that Greater Manchester Combined Authority and the City of Manchester have set science-based, Paris compliant carbon budgets with projected net zero date of 2038 and both have said they will review the possibility of bringing that target date forward. The IPCC has noted that the world has no more than 11 years to make radical reductions to greenhouse gas emissions, the majority of which come from burning fossil fuels. The Fund did say that they anticipated decarbonising their investments before 2050 but claimed that the strategy needs time. The Fund also put emphasis on becoming carbon neutral rather than carbon free which could mean you would still be investing in fossil fuels if the emisisons could in some way be neutralized. However there is no technology available for doing this at the requred scale.

The Fund is using Investing in the Just Transition Initiative and Truecost in an advisory capacity to make changes. We pointed out that Truecost is not Paris compliant.

The Fund confirmed that it is moving £2.3Bn from passive tracker funds to a low carbon actively managed fund. This coincides with a change in Fund manager. While you emphasised that this has taken a lot of work to achieve given the need for robust risk assessment, no detail was given as to what that risk assessment entials, nor what its results have been.

It was pointed out that the policy environment set by central government makes it very difficult to plan for decarbonisation. We acknowledge the unhelpful policy context (discouragement of renewable energy, continuing subsidies for fossil fuels, promotion of unconventional hydrocarbons in the face of scientific evidence). However, we do not believe that this significantly impedes the switching of investments out of the fossil fuel industry. After all, other investors are doing just that.

2. Rationale for continued investment in Fossil Fuels and perceived risk of divestment.

It was pointed out to us that financial performance is paramount since this enables pensions to be paid without a cost to the employers. We do not disagree with this reality.

We argued that the evidence was that fossil stocks did no better over time than other stocks, citing the Grantham, Trinks et al studies¹ and the two major Ex-Fossil Fuel indexes¹. The Fund countered that they had calculated that the funds in fossil fuel gained them an additional £400 thousand (we don't recall a time period being identified), which they would not have achieved had they divested. We note that this differential does not represent a large difference in dividend returns, given the huge value of your fossil fuel holdings. You argued that this was based on real data rather than modelling. However, we said that a) this likely reflected the higher volatility of fossil fuel stocks (so it could easily go the other way and b) these stocks are vulnerable to passing the peak in demand leading to stranding and a sudden drop in values and returns. This point was acknowledged by Sandra Stewart. GMPF seem to believe that active fund management will allow you to assess when fossil fuels have peaked. Yet we know that these peaks can cause sudden and precipitous declines in stock values and returns, so in our view that confidence seems misplaced. We would add that there are other investments that yield comparably higher returns and a balanced portfolio would inevitably have higher and lower performing holdings with corresponding spreads of risk. On reflection we conclude that the £400k argument is no more than a post-hoc rationalisation for an unethical investment portfolio.

3. Impact of divestment

GMPF challenged the idea that divestment would lead to good outcomes do since other, less ethical investors (e.g. Blackrock) would buy your shares and it would be business as usual and maybe those companies would not be challenging the boards of oil and gas companies. We pointed out that divestment is meant to a) remove the social license for continued fossil fuel extraction, b) it will eventually harm stock valuation and profits which in turn makes capital investment in exploration and new extraction harder for the fossil majors. As we noted, this seems to be the view of Shell's CEO and also the Head of OPEC, both of whom have recently cited the divestment movement as a major threat¹. There is also evidence that divestment decisions are harming stock values. While this has been largely a transient effect, it now seems likely that the impacts are becoming more sustained as the divestment movement builds up².

It was argued that tobacco divestment had been shown to be ineffective since tobacco firms simply switched markets to the global South. However the two cases are not comparable. Fossil fuel majors do not have significant new markets to exploit in the same way that tobacco firms could. A better comparison is that of apartheid South Africa, where sanctions and divestment meant firms there being starved of funds that went to other economies: that is what we are already beginning to see with fossil fuels.

It was claimed that many supposed divestment commitments were unreal – divestment has not followed. This is true in some cases but it does not alter the picture: a growing movement is taking money out of the fossil fuel industry and, together with other trends and pressures, beginning to harm that industry, reducing its capacity for the capital expenditure that directly causes ecosystem destruction.

4. Engagement

We pointed out that engagement, while relevant in many sectors has demonstrably not impacted on the carbon emissions from fossil fuel companies, only impacting on non-core areas suchas disclosure and R and D, and that unevenly. Against all the evidence, your advisors still feel that it is relevant, inexplicably citing resolutions made at Exxon and Chevron, both along with your biggest holdings, Shell and BP, still spending tens of millions each year lobbying against climate action², as examples of successful engagement. We pointed to the National Trust as a body that has chosen to divest because engagement has not worked.

PIRC did take on board the need for objective setting, timelines and sanctions, so there can be transparency about engagement with companies. They said they were working on a framework for this. This is long overdue and would provide objective criteria to assess the effectiveness of engagement and help make the decision to exit from a company when it failed to respond. But we reiterate, engagement will not change a company whose core business is fossil fuel extraction and marketing into something entirely different. It's a bit like talking to a leopard in the hoe that it will change its spots.

5. Alternative Investments

It was stated that the Fund is constantly looking to source other investments but that it is difficult to find enough with decent yields and there is also strong and increasing competition (including Chinese investment that is “willing to pay anything”) so that your investment managers get outbid. You cited Clyde Wind Farm and Albion Community Renewables as successful investments in renewables. When we argued that the alternatives to fossil fuels do not have to be renewables you again cited the £400K gain made in oil/gas over the rest of the portfolio (but see our critique, above)

You stated that you are actively developing the renewables market / industry through their partnership with other Pension Funds in GLIL Infrastructure LLP: however, this is not exclusively investing in renewables².

6. Comparison with other funds and transparency

It was claimed that other pension funds are not doing as much to divest as is suggested in their publicity and communication³. GMPF was said to be actually taking a lead in ‘doing something‘ but it was claimed that you do not have the time to relay this information to interested parties. We pointed out that despite being a leader among LGPF's, you are seen as being on the back foot on the climate issue and it would help to provide more information, especially to members and beneficiaries. In this light we are concerned to find that members are now to be excluded from the Fund's AGM (now retitled the employer update meeting) which we see as a rather clumsy and counterproductive attempt to avoid public scrutiny.

We requested more frequent updates on their holdings. This was refused this on the basis of commercial sensitivity. The claim is that because GMPF is so successful as a pension fund (though benchmark comparisons seem to suggest poorer recent comparative performance) you cannot divulge their strategy and companies regularly as other funds and private investors would copy them. This frankly seems implausible. Being tracked is hardly likely to impair the yield from your investments: we will seek a second opinion on the validity of this argument.

7. Comments about the fossil free campaign

PIRC took isue with our leaflet and website claims about your profile as the “largest and dirtiest in the country”.  Unfortunately the claim is accurate. We explained that this was on the basis of the study by a group of NGOS coordinated by Platform London in 2017⁴. Interestingly PIRC seemed unaware of this work, though Tom Harrington was aware of it.

PIRC's Alan MacDougall also queried what our priorities for GMPF would be: we reiterated that it is the reduction of complicity with continued exploration and extraction of “unburnable” carbon.

8. Further contact

We thanked you for your time (over an hour) and a constructive discussion, although we will continue to differ on a number of issues as outlined above. We do appreciate the compexities of decarbonising your investment portfoolio and moving to a position where pensions are not dependent on an industry that has taken humanity to the edge of a precipice. We accept that you are moving in the right direction but we continue to assert, with evidence, that the speed of your decarbonisation is inadequate to the scale and urgency of the climate crisis, which as you all know is very much here and getting worse by the month.

You suggested inviting us to your next meeting for stakeholders with (we think) the Investing in a Just Transition Initiative. We confirm that we would like to receive an invitation, although we would appreciate more room for discussion and the presentation of critically constructive perspectives.

Yours sincerely,

Dr. Mark Burton

for the Fossil Free Greater Manchester organising group

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Collapse of Carillion keenly felt in Tameside

by Brian Bamford
NORTHERN VOICES has covered story of the Carillion collapse extensively, and based on reports in the Financial Times and Construction News, had been warning of the dangers for the best part of a year before the collapse happened.  

The trade union body, Tameside Trade Union Council, had been asking for explanations of Tameside Metropolitan Council's close involvement and partnership with the backlisting  company Carillion since August 2011.  Reply came there none!

For years before the crisis the Labour leader of Tameside MBC, Kieran Quinn, continually ignored all the concerns expressed from Tameside Trade's Council and Northern Voices.  Indeed shortly before his sudden death he called for more collaboration.

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THE disastrous collapse of construction giant Carillion in January hit the headlines and sent shock waves throughout the country.

Building work ground to a halt across the country.

Sites were mothballed and the future of £1bn-worth of projects was placed in jeopardy.
Nowhere in Greater Manchester has the impact of the firm's demise been more keenly felt than in Tameside .

From CCTV upgrades and making public spaces safe from terror, to improved playgrounds and a proposed children’s home, a string of vital local services could all end up becoming collateral damage in the wake of Carillion’s downfall.

All face being sacrificed to foot the scandal’s unexpected bill.

The extra millions it has already cost to get projects back on track are set to have wide-reaching ramifications for the 220,000 people who live and work in the borough.

 https://www.manchestereveningnews.co.uk/news/greater-manchester-news/collapse-carillion-devastated-tameside-scandal-15263055

Should Tameside Council have gone to 'Specsavers' to prevent Carillion debacle?

The 'Rashomon effect' describes a situation when the same event is given contradictory interpretations by different individuals involved. It hinges on the idea of competing realities, the point of view that everything depends on your point view. In an age of post-truth and alternative facts, it seems particularly endemic amongst the political-class, where truth has fallen out of favour. But as the American sociologist and politician, Daniel Patrick Moynihan, once remarked: "Everyone is entitled to his own opinion, but not his own facts."

In Tameside, Greater Manchester, the Labour controlled council  seem quite adept at presenting alternative facts and competing realities. For example, public services don't get closed, they get 'redesigned' or 'reconfigured'. 

In 2011 the council transferred jobs and services in two departments - 'estates' and 'facilities management', to the construction giant Carillion. The council told the public that the transfer of council employees to Carillion would "safeguard jobs and services and cut costs."  Councillor David Sweeton, the executive member for business and community development at the time of the transfer, said:

"This is a landmark decision for the council and will help to ensure that in future we can meet our savings targets, protects jobs and continue to deliver high quality value for money services....It's also important to stress that any staff transferring to the partnership (Tameside Investment Partnership) will have their pay, conditions, Trade Union and pension rights fully protected."

Apart from estate and management facilities, Carillion also provided school meals in Tameside and were responsible for building the new Shared Services Centre part of the 'Vision Tameside' development at cost of over £38m. They also sponsored two primary schools in Tameside and built other schools.

The council expected that the new service centre, the council HQ,  would be open for business in September 2018. But building work stopped in January of this year when Carillion went into liquidation. When Carillion went bump on Monday 15th January 2018, Tameside Council issued a statement stating that it was "business as usual" despite Carillion's troubles and the cessation of work on the new services centre building in Ashton-under-Lyne. Two weeks later, a Labour councillor, told me:

"It's a right mess. The council are negotiating with PWC the liquidator. They have to pay a fee for negotiating with their 16 sub-contractors and every phone call they make to them." As Carillion went into voluntary liquidation, the legal position, was that all former council employees who were transferred to Carillion, lost their TUPE protection. Many of the sub-contractors were also faced with losing money or going bust.

Although Tameside Council seemed to have been taken by surprise by the demise of Carillion, all the warning signs seem to have been there long ago. Certainly, the smart money appeared to know  that there was something wrong. In April 2016, Gazelle Pension Advisory Service, advisers to the trustees of the Carillion pension scheme, highlighted that city speculators were betting that Carillion was in trouble by short-selling Carillion shares - Blackstone, the private equity firm, made £40m. In May 2017, a final report warned that Carillion's debts had reached a level that meant it could not "counter material financial shocks or disappointments" and pointed out that its pensions deficit was now equivalent to the company's entire stock market value. Carillion issued a profit warning in July 2017, which sent shares tumbling 39% and led to the resignation of CEO Richard Howson. In 2016, Howson was paid £1.5m in pay and bonuses, when the company had debts of £900m and a stock-market  value of £61m. The pension fund with 28,000 members had a £990m deficit primarily because the firm had been diverting money to dividends and debt interest rather than into its retirement schemes.

When Carillion went bust in January, a Labour councillor told me that many councillor's were unaware of the details in the contracts between Carillion and Tameside Council because it was all done by a small group of people "behind closed doors." In August 2017, Tameside Tory leader John Bell, told Tameside Reporter journalist Nigel Pivaro that there had been a complete lack of scrutiny involving Tameside Council's relationship with Carillion. He told the newspaper:

"The problem with this deal is it cannot be monitored because there is no scrutiny committee holding it to account. Therefore there is no way to ensure we are getting value for money and Carillion are delivering efficiently. Where is the accountability? We are including back bench Labour councillors here, they do not know anything (more than the opposition). Due to a lack of transparency we get to know nothing."

While Cllr Bell asserts that most councillors were kept in the dark over the deal with Carillion, it isn't strictly true that there was no scrutiny. Minutes of a meeting of the 'Strategic Planning Capital Monitoring Panel' held on 13 March 2017 state:

"On a project of this size strong and focused project management is required, facilitated in this case through the Vision Tameside steering group chaired by councillor Jim Fitzpatrick, and internal working groups...The working group chaired by the First Deputy (finance and performance) continues to meet monthly to oversee the development and delivery of the project."

As regards 'Financial Risk' - 'Affordability', 'Value for Money', 'Control Procedures', 'Costs', 'Income from subletting space', all five categories mentioned in the report were given a risk status of RED!

In his article 'Survival of Carillion crucial for Tameside' (August 2017), Nigel Pivaro looked at whether the Carillion deal was giving value for money and cutting costs. He pointed out that some of the work done on schools by Carillion was found to be 'unsatisfactory or problematic'. Russell Scott school in Denton, built by Carillion, had been beset with problems including sewage back flow and a once serviceable playing field, had been deemed unfit for purpose. Carillion were said by the governors of the school to owe the school £100,000 for energy costs incurred during the building of the new school. The provision of school meals as provided by Carillion, had come in at 26 pence per unit more than central government gave to council's to provide them, and 90 schools across Tameside, were having to meet the shortfall. Pivaro highlighted how Carillion's share price had plummeted and referred to its debts and huge pension deficit and asked:

"What then would it mean for the borough of Tameside being so entwined with the company should the worst happen and Carillion go into liquidation...The dilemma for Tameside now is should it begin to divest itself from its exclusive relationships with Carillion and ask itself is it wise going forward to have all the council's eggs in one basket with one firm on whom it depends too much."

When the council was asked if they had a contingency plan in place if Carillion went bump, they declined to respond.

So incestuous was the relationship between TMBC and Carillion that Steven Pleasant, the CEO of Tameside Council, was also a Director of 'InspiredSpaces Tameside Ltd', a company set up by Carillion and its joint venture partners to deliver educational transformation through the 'Building Schools for the Future' programme. The council also had a 10% stake in InspiredSpaces Tameside Ltd.

Following the death of the former Labour council leader and postman, Kieran Quinn in December 2017, who had close links with Carillion and spoke very highly of the company's reputation (despite being aware that Carillion had been expelled from the Labour Party conference in Brighton in 2013, for blacklisting union construction workers), he was succeeded by former tobacco worker (the fag-end of the Labour Party) Brenda Warrington. Although Quinn was hailed as a 'visionary' at the time of his death - a month before the collapse of Carillion - by his fellow Labour cronies, the council have had to cough up another £9m from its useable reserves to get the 'Vision Tameside' development completed by another contractor, Robertson Construction Group.

While the Carillion deal overseen by Quinn and his cabinet colleague Brenda Warrington, doesn't seem to have cut costs, safeguarded jobs or delivered "high quality value for money services" as promised, we are now being told by Ms Warrington that 'swift action' by the council, has prevented a 'potentially disastrous situation' and the Vision Tameside development becoming a 'white elephant', in spite of being told in January, it was "business as usual." According to the Labour leader, the whole project will now cost £62.7m as compared with the £48,673,794 overall costs of the Vision Tameside programme in February 2015. 

Although the close relationship between Tameside  Council and Carillion turned into a fiasco that put the council at risk, it appears the council had no contingency plan in place in the event of Carillion its 'preferred developer' going bust. As the journalist Nigel Pivaro pointed out in 2017, "Without any plans there are fears that the borough could be beset with chaos and increased expense at filling the gaps left by Carillion." And yet, while some could see the impending demise of Carillion and that it was  likely to go bust, as it did in January 2018, the former 'visionary' Labour council leader Kieran Quinn, was arguing as late as September 2017 in 'Construction News', for a more direct and involved relationship with contractors because "it de-risks it for them." What seems obvious to many people, is the lack of vision on Tameside Council and the necessary foresight required to see and avoid impending disasters.