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.
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,
for
the Fossil Free Greater Manchester organising group
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