Members of the public are entitled to submit written questions to East Sussex County Council (ESCC)’s bi-monthly Full Council meetings. Questioners who attend in person are then entitled to ask a verbal ‘supplementary question’ should they so wish. The following is a list of the divestment-related questions and answers at ESCC to date.
The texts of the written questions and answers are taken from the Council’s own official minutes. The texts of the supplementary questions and answers have been transcribed from the Council’s own webcasts of the sessions, where these are still available, or from contemporaneous notes otherwise.
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DIVESTMENT QUESTIONS @ 21 MARCH 2017 FULL COUNCIL MEETING
1. Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
Both Hastings Borough Council and Lewes Town Council have now passed cross-party motions calling on East Sussex County Council to divest the East Sussex Pension Fund of its holdings in fossil fuels. What steps are being taken by the Pension Committee to find out from its investment consultants and fund managers whether the Fund’s investments can be restructured so as to meet the Fund’s fiduciary duties without investing in fossil fuels?
Response by Councillor Stogdon, Chair of the Pension Committee:
In accordance with the Local Government Pension Scheme Regulations and associated legislation, the Pension Committee exercises functions and responsibilities for dealing with the East Sussex Pension Fund in conjunction with other bodies. The Committee (rather than the investment consultants and fund managers) make arrangements for the investment, and agree the Investment Strategy/Allocation having regard to the advice of the investment consultants.
Supplementary question: As a supplementary question it was then asked if the Pension Committee was aware that Waltham Forest Pension Committee had been told by their investment consultants (Mercers) that it was possible to divest from fossil fuels while meeting its fiduciary duties.
Cllr Stogdon replied that the Pension Committee were aware that this was the case. (He also suggested that this was something that had been addressed at the September 2016 meeting of the East Sussex Pension Committee, but this was incorrect. For one thing, Waltham Forest didn’t divest until 23 September 2016, more than two weeks after the September 2016 Pension Committee meeting. Not surprisingly, therefore, there is no reference to Waltham Forest in the East Sussex Pension Committee’s September 2016 minutes!
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2. Question from Karl Horton, Hastings, East Sussex:
As a pension fund holder with East Sussex Pension Fund, I welcome the recent addition to the Fund’s Investment Strategy Statement stating that “The Fund believes that climate change poses material risks to the Fund but that it also presents positive investment opportunities.” In the light of this addition, what tangible steps is the Pension Fund going to take to make sure that their Investment Strategy addresses these risks?
Response by Councillor Stogdon, Chair of the Pension Committee:
Following a detailed discussion regarding fossil fuel investments including wider Environmental, Social and Corporate Governance (ESG) responsibilities, and the approval of the Fund Investment Strategy Statement by the Pension Committee at its February 2017 meeting, the Committee and the Board have scheduled 13 June 2017 for a joint training session focusing on ESG responsibilities. This session will be facilitated in conjunction with the investment managers, advisers and industry experts, to explore fully the financial and/or non financial impacts including range of options open to the Fund in relation to ESG investments.
The Pension Committee is committed to an ongoing development of its ESG knowledge with particular emphasis on obtaining further information on the long term financial return in regard to fossil fuel investment, which will further be considered at the fund investment strategy day discussion/meeting in July 2017.
Supplementary question: Cllr Stogdon was asked if the Committee would be doing a carbon footprint of the whole portfolio and looking into the positive investment opportunities presented by adapting to climate change.
Cllr Stogdon replied: “In broad terms yes. In specific terms no”.
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3. Question from Arnold Simanowitz, Lewes, East Sussex:
At its 8 September 2016 meeting, the East Sussex Pension Committee resolved “to agree that the Fund should continue to seek to use its influence as a corporate investor to positively influence companies’ behaviour. What steps have Fund managers taken, over the past five years, to “positively influence” the behaviour of the fossil fuel companies, such as Exxon and Chevron, with whom it currently has millions of pounds of local people’s pension monies invested, and what have been the result of these steps.
Response by Councillor Stogdon, Chair of the Pension Committee:
As long term investors, having a fiduciary duty to 69,000 members and 120 employers within the East Sussex Pension Fund (ESPF), the Pension Committee takes its role of safeguarding the investment assets of the Fund very seriously.
As part of its responsibility, the Committee recognises that Environmental, Social and Corporate Governance (ESG) can have a material impact on the long term performance of the investments of the Pension Fund.
East Sussex Pension Fund is a member of the Local Authority Pension Fund Forum (LAPFF) which recognises the issue of stranded assets and continued fossil fuel extraction as a collective investment risk for all asset owners.
LAPFF engages by meeting with companies and participating in collaborative investor initiatives including filing and supporting relevant shareholder resolutions to companies.
For companies engaged in fossil fuel extraction, LAPFF’s approach is to undertake robust engagement on aligning their business models with limiting climate change to a 2°C increase in global temperatures and to push for an orderly low carbon transition.
For oil and gas companies, an important engagement focus is the restriction of capital expenditure on high cost resource extraction and promotion of the return of any additional cash generated to shareholders.
Monitoring of progress and outcomes includes LAPFF’s participation in the Transition Pathway Initiative, which aids understanding of where companies are placed in the transition to a low carbon economy and their competence to manage this transition.
Supplementary question: A supplementary question was then made, asking: (a) what had the companies in question been asked to do, and what had they actually done; and (b) whether the Pension Committee was aware of any successful share holder resolution that has been passed, that has changed the business practice of, for example, Chevron or Exxon, away from their key purpose which is extracting and selling fossil fuels?
Cllr Stogdon replied that they monitored what the LAPFF were doing on this front very carefully. although, tellingly, he did not provide a single example. He also said that if we wanted to know about Exxon or Chevron then we would have to ask this question (by which he presumably meant, submit it in written form)!
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Divestment questions @ the 23 May 2017 Full Council meeting
1. Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
The West Yorkshire Pension Fund has recently adopted an Investment Strategy Statement that not only ‘recognises the risks and opportunities [to the Fund] associated with climate change’ but also commits the Fund to ‘seek to measure carbon exposure within [its] equity portfolio and reduce that exposure over time.’ Given the well known risks associated with investments in fossil fuels – future regulation to limit carbon emissions, the increasing competitiveness of renewables, and the growth of new technologies – what steps is the East Sussex Pension Committee taking to measure the carbon exposure within the East Sussex Pension Fund’s equity portfolio?
Response by the Chair of the Pension Committee:
Following a detailed discussion regarding fossil fuel investments including wider Environmental, Social and Corporate Governance (ESG) responsibilities, and the approval of the Fund Investment Strategy Statement by the Pension Committee at its in February 2017, the Committee and the Pension Board have scheduled 13 June 2017 for a joint training session focusing on ESG responsibilities. This session will be facilitated in conjunction with the investment managers, advisers and industry experts, to explore ESG (including Carbon and Fossil fuel) and the financial and/or non-financial impacts including options open to the Fund in relation to ESG investments.
The Pension Committee is committed to an ongoing development of its ESG knowledge with particular emphasis on obtaining further information on the long term financial return in regard to fossil fuel investment, which will further be considered at the fund investment strategy day in July 2017.
Supplementary question: … according to a front page article in last week’s Financial Times, countries around the world have now adopted more than 1200 climate change laws up from 60 two decades ago and given the growing concensus around climate change science it’s rational for investors to expect much tighter carbon regulation in the future with profound economic effects. Does the Pension Committee accept that the recent history of financial markets suggests that fewer investors will be able to successfully anticipate any sudden new pricing and/or stranding of fossil fuel assets that result?
Cllr Stogdon: Thank you … the committee hasn’t actually considered that particular point but will be doing so later this year.
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2. Question from Andrea Needham, Hastings, East Sussex:
According to a recent assessment by the specialist asset manager Impax Asset Management, ‘an analysis of the historical data shows that the financial risks involved in fossil-fuel divestment are minimal, and can be largely offset by substituting oil, gas and coal stocks with portfolios of more environmentally attractive alternatives. That these more environmentally attractive alternatives can also mitigate the large and growing financial risks of fossil fuel energy is the compelling win-win most investors seek in discharging their fiduciary duties.’ Does the Pension Committee accept that it is possible for it divest the East Sussex Pension Fund from fossil fuels while still fulfilling its fiduciary duties?
Response by the Chair of the Pension Committee:
As long term investors, having a fiduciary duty to over 70,000 members and 131 employers within the East Sussex Pension Fund (ESPF), the Pension Committee takes its role of safeguarding the investment assets of the Fund very seriously. As part of its responsibility, the Committee recognises that Environmental, Social and Corporate Governance (ESG) issues can have a material impact on the long term performance of the investments of the Pension Fund.
The Pension Committee is committed to an ongoing development of its ESG knowledge with particular emphasis on obtaining further information on the long term financial risks/return in regard to fossil fuel investment, which will further be considered at the fund investment strategy day in July 2017.
Supplementary question: I welcome the recognition by the Pension committee that environmental, social and corporate government issues can have a material impact on the long-term performance of investments to the pension fund. Does the Pension Committee also recognise the conclusions of the law commission in its 2014 report Fiduciary Duties of Investment Intermediaries, that trustees are not required to maximise short-term returns but instead must way returns against risks, including long-term risks in order to secure the best realistic return over the long term. Given the need to control for risks and further that this is a question of broad judgement …rather than mathematical formula.
Cllr Stogdon: Chair, the committee does recommend the…er does recognise the recommendations contained in that report.
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Divestment questions at the 11th July 2017 Full Council meeting
1. Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
According to figures presented by Hymans Robertson at the East Sussex Pension Committee’s 13 June training day, the East Sussex Pension Fund currently has roughly £150m of local people’s pension monies invested in oil and gas companies. Of these, only about £6m are invested directly with the remainder invested indirectly through pooled funds such as Legal & General’s Equity Index Fund. Which oil and gas companies is the Fund currently exposed to through these indirect investments and at what levels?
Response by the Chair of the Pension Committee:
The East Sussex Pension Fund currently has indirect equity exposure with its passive investments with Legal and General and State Street Global Advisors.
These investments track market indices and hold all the stocks within the index and at a commensurate level to its representation in the index. The indication is that the Pension Fund currently holds around 9% of its current equity exposure in oil and gas companies.
Supplementary question: A recent analysis by Carbon Tracker using carbon supply cost curves estimates that roughly $2.3 trillion – that is, around one-third – of the anticipated capital expenditure by oil and gas companies through 2025 ‘should not be deployed in a [2 degrees Celsius] scenario compared to business as usual expectations’ because, in this scenario, these investments are unlikely to deliver adequate returns. What steps is the Pension Fund taking to assess its exposure to oil and gas companies that are wasting their money in this fashion – and the likely future impact of such investments on the East Sussex Pension Fund?
Cllr Stogden: Chair, as the questioner well knows, we are addressing the issue, which he has raised. I’m not sure that this specific question, the supplementary, deals with the question he actually asked in the first place. But let me assure him, and others here, that we are looking carefully at the issue and will be doing so at our strategy day next week or week after. Thank you.
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2. Question from Patricia Patterson-Vanegas, Ashurst Wood:
According to the latest data, the East Sussex Pension Fund currently has £2m of local people’s pension monies in Imperial Oil. Is the East Sussex Pension Committee aware of the recent report produced by Legal & General, Carbon Tracker, UN Principles for Responsible Investment (PRI) and other leading institutional investors (‘2 degrees of separation: Transition risk for oil and gas in a low carbon world’) which estimates that 50–60% of Imperial Oil’s capital expenditure for the period 2017 – 2035 ‘may fail to deliver an acceptable return in the scenario of a world limited to 2 degrees Celsius global warming’?
Response by the Chair of the Pension Committee:
The East Sussex Pension Committee members and the Pension Board representatives are aware of the previous report on why a 2°C business model is less risky than ‘business-as-usual’ for oil companies, and ‘Engaging for a Low Carbon Transition’, launched by LAPFF and Carbon Tracker. The June 2017 report from Carbon Tracker titled ‘2 degrees of separation: Transition risk for oil and gas in a low carbon world’ report is scheduled to be circulated to the Pension Committee and Board before their July 2017 and August 2017 meetings respectively.
Supplementary question: In my question I drew the Council’s attention to the fact that the East Sussex Pension Fund currently has £2m of local people’s pension monies invested in Imperial Oil, and that a recent analysis has estimated that 50 – 60% of Imperial Oil’s capital expenditure for the period 2017 – 2035 ‘may fail to deliver an acceptable return in the scenario of a world limited by a 2 degrees Celsius global warming’. Concerning the financial risks posed by climate change the Governor of the Bank of England, Mark Carney, has said that investors ‘need to weight firms’ strategies against plausible public policy developments, technological advances, and evolving physical risks’. Does the Pension Fund consider investing in a company that is betting that the world’s governments are not even going to try to limit global warming to 2 degrees Celsius to be a financially prudent course of action?
Cllr Stogdon: Chair, as indicated we are reviewing very carefully all the investments, as we do anyway, in the fund. I don’t actually recognise some of the figures that were mentioned here in the supplementary question but they are recorded, they are on the record and we will do our best to look at those and to address them, again at our strategy day next week.
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3. Question from Dirk Campbell, Lewes East Sussex:
According to figures provided by East Sussex County Council, as at 30 April 2017 the East Sussex Pension Fund had £3.2 billion of local people’s pension monies invested in pooled funds such as MPF Fundamental Index Global Equity. What is the Pension Fund’s exposure to coal companies through these indirect investments?
Response by the Chair of the Pension Committee:
As at 31 March 2017 the total value of the East Sussex Pension Fund was £3.3bn of which £1.5bn is invested in our passive pooled funds. These investments track market indices and hold all the stocks within the index and at a commensurate level to its representation in the index. The indication is that the Pension Fund currently holding less than 0.09% of its current equity exposure in coal companies.
Supplementary question:Yes I have, supplementary to my question about exposure to coal companies and the East Sussex Pension Fund. In October 2015 the Financial Times reported that ‘Nearly a billion dollars has been wiped off the value of coal investments by UK public pension funds over the past 18 months, intensifying pressure on the schemes to pull out of “stranded” fossil fuel companies.’ The Greater Manchester Pension Fund alone lost £148m. Given that global demand for coal has now fallen for its second consecutive year – and Goldman Sachs’ assessment that ‘investment in new coal-fired generation is becoming less common and the implied decline in long-term demand appears to be irreversible’, (that’s Goldman Sachs saying that) wouldn’t it be prudent for the Fund to immediately commit itself to not holding any direct investments in the coal industry? In other words, go the whole hog, since you’re already only investing 0.09 % in coal investments.
Cllr Stogdon: … thank you, I’m grateful for that question. As you’ll have seen, the holding that this fund has in coal is absolutely minimal. And we will be looking at strategies for reducing, as far as possible, any investment in coal where we see that’s in the best interest of our pensioners.
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4. Question from Christina Letanka, Heathfield, East Sussex:
In view of the economic uncertainty and potential environmental risks associated with fracking, is the Pension Committee prepared to withdraw its investments from companies involved in this industry?
Response by the Chair of the Pension Committee:
The East Sussex Pension Fund does have concerns on the investment implications of climate change and other environmental risks. At this point in time, the Fund believes active engagement with investee companies is the preferred option to bring about change whilst managing overall investment risk issues. The approach of direct and collaborative engagement contrasts with blanket divestment. Once an asset owner divests, their ability to influence both the short and long-term direction of individual companies within the national and international energy sector is severely curtailed.
Money from the fund is invested to secure the best realistic return over the long-term to meet pension commitments, within an acceptable level of risk,
by ensuring there is diversification across all asset classes and to keep employer contribution rates stable. Investments are regularly reviewed taking into account a number of factors.
Supplementary question: Regarding fracking, Cllr Stogdon was asked: “With the unsettled issues as regards the disposal of noxious liquids produced in the fracking process together with the possibility of ground and air contamination and the whole question of the effect of burning fossil fuels on … global warming is it not in the best interest of the Council’s pensioners and indeed all residents of East Sussex that any encouragement to the fracking industry should be avoided?” Cllr Stogdon replied: “I entirely agree.”
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Divestment questions at the 17 October 2017 Full Council meeting:
1. Question from Dirk Campbell, Lewes, East Sussex:
At the East Sussex Pension Committee’s training day on 13 June, the speakers from Hymans Robertson explained how much of a struggle it was – and how long it was taking – to use “engagement” to address relatively simple and straightforward issues such as board diversity. How realistic does the Pension Committee believe it is that “engagement” can be used to get the entire oil industry to put itself on a pathway of “managed decline” (the strategy suggested by one of the speakers from the Local Authority Pension Fund Forum on 13 June)?
Response by the Chair of the Pension Committee:
Hymans Robertson provided slides on 13 June 2017, in which they merely noted that ‘engagement’ is one of the options available to the East Sussex Fund. The Fund requires its investment managers and the Local Authority Pension Fund Forum (LAPFF) to be active in their constructive shareholder engagement with companies regarding socially responsible investment issues; the proactive engagement of fund managers with these companies has been shown to influence positive change. The Fund believes that collaborative engagement is more productive than acting alone and works together with other LGPS funds through its membership of LAPFF. Company engagement is an important element, encouraging development of low carbon – aligned business models, and it is in the best interest of the Fund to get the entire oil industry to put itself on a pathway of “managed decline”.
Membership of LAPFF (combined assets of 72 LGPS funds) gives greater power and influence when acting together on investor issues. The Forum recognises the issue of continued fossil fuel extraction as a collective investment risk for all asset owners and as an engagement and policy priority. For companies engaged in fossil fuel extraction, LAPFF’s approach is to undertake robust engagement on aligning their business models with a 2°C scenario and to push for an orderly low carbon transition.
Supplementary question:
Thank you very much cllr Stogden for your answer, it’s good to know that the local authority pension fund forum recognises the collective investment risk of continued investment in fossil fuels.
Does the Pension Committee accept that if its current strategy of “engaging” with fossil fuel companies fails then the Pension Fund will have retained its exposure to potentially stranded assets, whose value could be subject to unanticipated or premature write-downs, devaluations or conversion to liabilities as a result of factors such as new climate change legislation, the falling costs of renewables and emerging technologies like electric vehicles?
Cllr Stogdon: This is not a new question. We certainly do not anticipate any failure in the policies that we are adopting.
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2. Question from Arnold Simanowitz, Lewes, East Sussex:
At the East Sussex Pension Committee’s 13 June 2017 training day on ESG (Environmental, Social and Governance) issues and climate risk, Legal and General Investment Management explained that “engagement to address climate risk” required action to be taken on “poor performers”, and that such action could include divestment “from some funds”. What are the Pension Committee’s red lines with respect to climate risk that it believes should trigger divestment from a particular fund?
Response by the Chair of the Pension Committee:
These ‘red lines’ have not been defined at present but the Pension Committee has agreed to commission carbon foot printing reports on all of its equity portfolios.
These will help inform the Committee in their future discussions with fund managers and in further consideration of the issues surrounding climate change.
Simply disinvesting from a particular category or group of companies is likely to reduce the Fund’s ability to secure the best realistic return over the long-term whilst keeping employer contributions as low as possible. Furthermore, it denies the opportunity for the Fund to influence companies’ environmental, human rights and other policies by positive use of shareholder power, a role the Committee takes very seriously. The Committee has reserved the right to apply ethical or environmental criteria to investments where relevant and appropriate on a case by case basis.
Engagement remains ongoing with the oil & gas companies and an important engagement focus by the fund manager and LAPFF is the restriction of capital expenditure (capex) on high cost resource extraction and promotion of the return of any additional cash generated to shareholders.
Supplementary question: According to the latest figures provided by the Council, the East Sussex Pension Fund currently has £2m worth of local people’s pensions directly invested in Exxon Mobil. Last year Bloomberg reported that Exxon was spending at least $27m a year on advocacy designed to “obstruct” climate change policy. Even under the Council’s current policy of “engagement”, isn’t the continued existence of such expenditure a red line that should trigger disinvestment?
Cllr Stogdon: Mr Simanowitz has asked this question before and we have given assurances or I have given assurances on behalf of the committee that we would look at this particular issue and indeed in our most recent conversations with our new passive investment managers, this has been raised.
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3. Question from Patricia Patterson-Vanegas, Forest Row, East Sussex:
Last year, a peer-reviewed research article in the journal Atmospheric Chemistry and Physics predicted that if global warming is allowed to reach 2 degrees Celsius above pre-industrial temperatures, sea levels are likely to increase “several metres over a timescale of 50 to 150 years”. What contingency planning has East Sussex County Council made regarding the possible impact of a 2m sea level rise on communities and businesses in East Sussex?
Response by the Lead Member for Transport and Environment:
The United Nations Intergovernmental Panel on Climate Change makes it clear, in its most recent reports, that climate change is a highly complex and long term challenge characterised by great uncertainty.
Consequently, there is a difficult balance to achieve between over-adapting (ie. by preparing for events that do not happen) and under-adapting (eg. waiting for changes to occur and then reacting as they happen) to climate change.
The main legal mechanisms to address climate change are:
1) the UK Government’s Climate Change Act of 2008, which includes a requirement for the Government to develop a climate change adaptation plan, to be reviewed on a 5-yearly cycle. The first adaptation plan was published in 2013 and is currently being reviewed in light of the latest climate change risk assessment, which was updated in January 2017.
2) The United Nation’s Paris Agreement of 2015, which sets out the framework for multilateral cooperation to prevent more than a 1.5°C increase in global temperatures above pre-industrial levels, rather than the 2°C increase quoted in the journal of Atmospheric Chemistry and Physics.
There is no legal requirement for East Sussex County Council to develop and implement a climate change adaptation plan. However, the 2013 National Adaptation Plan identified that Local Authorities have a central role to play in adapting to climate change through the need to ensure that their local assets and services are resilient to the effects of climate change.
The County Council recognises this and seeks to adapt its assets and services through its statutory functions for Emergency Planning and Public Health, and as the Lead Local Flood Authority for East Sussex.
Examples of practical measures being taken by the County Council include:
1) the Emergency Planning team, as a member of the Sussex Resilience Forum, prepares for the effects of extremes of weather, including storms and flooding.
Measures include cascading early warnings from the Met Office and the Environment Agency about extreme weather events before they occur to enable front line staff to take appropriate action.
These include notifications of disruption to County Council services, such as the closure of schools and adult social care centres.
2) every County Council Department has a Business Continuity Plan, to ensure the rapid and co-ordinated re-establishment of priority services after events that cause service disruption.
3) the Corporate Sustainable Buildings Policy specifies a number of adaptation measures, including the installation of sustainable drainage systems in new County Council developments.
4) the County Council, together with its Highways service provider Costain CH2M, is working towards implementing the new national Code of Practice on taking a risk based approach to managing highway infrastructure assets (‘Well Managed Highway Infrastructure: A Code of Practice’). This includes using the local Flood Risk Management Plans, produced by the County Council as the Lead Local Flood Authority, to take a targeted, risk-based approach to maintenance of drainage assets to reduce the risk of flooding.
5) Through our role as the Lead Local Flood Authority for East Sussex, requesting that proposals for new development have appropriate means of disposing of surface water in extreme rainfall events, which includes allowances made for the impacts of climate change.
The County Council has committed to reviewing its approach to adaptation on a 5 yearly cycle, to take on board key recommendations that may come from the government’s own 5 yearly review of the national approach to climate change adaptation.
In addition to measures taken by the County Council, a number of partner organisations also have policies and plans in place that contribute to ensuring that East Sussex is likely to be reasonably resilient to the effects of climate change in the short term (e.g. the Environment Agency’s Shoreline Management Plans).
Examples of practical measures to manage risks include the flood alleviation scheme being constructed by the Environment Agency in Newhaven.
Supplementary question: According to the Local Authority Pension Fund Forum, ‘Virtually all the oil majors in Europe (and the US) continue to plan on rising demand for oil and gas and have planning scenarios that reflect this’ with ‘two-degree demand scenarios … largely ignored.’ If the Council is going to continue to invest in fossil fuel companies whose business models pre-suppose that global warming will be permitted to reach at least 2 degrees Celsius, should it not also be factoring in the long-term impacts of such warming – such as a 2m rise in sea levels – on communities and businesses in East Sussex when making its long-term plans?
Cllr Bennett: Thank you Chair, I would have been very happy to take further questions on the issue on the councils preparedness to deal with climate change but I refer any questions about pensions and pension funding to my colleague Cllr Stogden. I understand that he’s already answered most of these questions anyway but I am grateful for the first question, which I thought was very pertinent to and important in respect of local events.
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4. Question from Rosalyn St Pierre, Barcombe, East Sussex:
At the 2015 UN Climate Change Conference in Paris 196 nations – including the UK Government – agreed to hold global warming to “well below 2 degrees”, and to “pursue efforts to limit the temperature increase to 1.5 degrees” Celsius.
What analysis and advice has the Pension Committee received about the likely impact of a 1.5 degree scenario on the value of fossil fuel companies?
Response by the Chair of the Pension Committee:
The Pension Committee has taken advice from various sources, and has received ESG reports from Hymans Robertson, LAPFF, the Environment Agency at recent Pensions Training days, and has discussed ESG issues at various meetings in great detail over the past 12 months. The Pension Committee resolved at the Quarterly Meeting on 4 September 2017 to:
> Include within its revised Investment Beliefs published document, a list of specific ESG Investment Beliefs;
> Agreed that the East Sussex Pension Fund should sign up to the UK Stewardship Code;
> Request an analysis of the Fund’s exposure to carbon risk within its equity holdings.
The Committee has delegated individual stock selection to its active investment managers as they are best placed to carry out the detailed research on companies, as referred to in the question. It is not feasible for the Committee to form its own opinions of whether individual company share prices are currently too high or too low given all the possible future impacts on the businesses (technology changes, litigation etc.). Its role is to be satisfied that the managers have taken these factors into account.
Supplementary question: A ground-breaking report last year by Oil Change International concluded that, if burnt, ‘The reserves in currently operating oil and gas fields alone, even with no coal, would take the world beyond 1.5 [degrees Celsius]’. So, does the Pension Committee accept that if this assessment is correct – and if the governments of the world are serious about pursuing efforts to limit global warming to 1.5 degrees Celsius – then all new investments in fossil fuel extraction or transportation infrastructure risk turning out to be bad investments?
Cllr Stogdon: Well I’m pleased to note that by nearly retiring from this chamber, personalities don’t change. But on the point raised we certainly do recognise what’s being said. And indeed had Mrs St Pierre followed the discussions we have been having in depth at every pension committee since, er for the last 14 months, she would have noted that we have taken these points on board and are taking them very seriously.
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5. Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
Is the East Sussex Pension Committee aware of the warning, in the Bank of England’s June 2017 quarterly bulletin, that ‘the financial risk from an abrupt transition to a lower-carbon economy can increase if, over the coming years, portfolios are not aligned with climate targets’, that ‘If governments push ahead with climate policies, but investors do not adapt their investment strategies accordingly, misallocation will grow.’ and that ‘This could ultimately lead to a ‘climate Minsky moment’ — a rapid system-wide adjustment that threatens financial stability …’?
Response by the Chair of the Pension Committee:
In addition to responses above, the Pension Committee is aware of the risks to financial returns arising from climate change and this is stated in the East Sussex Pension Fund ISS (Investment Strategy Statement). This topic has therefore received a large amount of Pension Committee and officers time, and will continue to be given attention.
Monitoring of progress and outcomes includes LAPFF’s participation in the Transition Pathway Initiative, which aids understanding of where companies are placed in the transition to a low carbon economy and their competence to manage this transition. LAPFF supports member pension funds addressing concerns around climate and carbon intensive investments through a combination of individual engagements at corporate level, working with investor coalitions, contributing to the regulatory and policy debate and adding to institutional investor voices engaging with international forums
Supplementary question: I am glad to hear that the East Sussex Pension Committee is aware of the warning, in the Bank of England’s June 2017 quarterly bulletin, that ‘the financial risk from an abrupt transition to a lower-carbon economy can increase if, over the coming years, portfolios are not aligned with climate targets’, that ‘If governments push ahead with climate policies, but investors do not adapt their investment strategies accordingly, misallocation will grow.’ and that ‘This could ultimately lead to a ‘climate Minsky moment’ — a rapid system-wide adjustment that threatens financial stability …’?
At the 23 May 2017 Full Council meeting the following question was put to Councillor Stogdon in his capacity as the chair of the East Sussex Pension Committee: ‘Given the growing consensus around climate change science, it is rational for investors to expect much tighter carbon regulation – with profound economic effects. Does the Pension Committee accept that the recent history of financial markets suggests that few investors will be able to successfully anticipate any sudden re-pricing and / or stranding of fossil fuel assets that result?’ He replied: ‘The Committee hasn’t actually considered that particular point but will be doing so later this year.’ My follow up question is- Has the Committee now considered this point, and, if so, what conclusions has it come to?
Cllr Stogdon: The answer is yes and Mr Carlyle is already aware of the steps the committee has taken.
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6. Question from Arkady Johns, St Leonards on Sea, East Sussex:
In June, India announced that it would end sales of gas and diesel cars by 2030, and last month the Economist reported China’s announcement that its government is developing a long-term plan to phase out vehicles powered by fossil fuels. In assessing the likely future value of the East Sussex Pension Fund’s investments in fossil fuels, what assumptions are the East Sussex Pension Committee and its fund managers making regarding the speed with which fossil-fuel-powered-vehicles will be replaced by electric vehicles?
Response by the Chair of the Pension Committee:
Please see the responses to questions 2 and 4 above. The Environmental, Social and Governance issues, including fossil-fuel and climate change are consistently and regularly reviewed by the Pension Committee
Supplementary question: In its February 2017 report ‘Expect the Unexpected: The Disruptive Power of Low-Carbon Technology’, Imperial College London’s Grantham Insitute on Climate Change and the Envinronment, applied up-to-date cost projections regarding electric vehicles to assess the likely future uptake of Electric Vehicles.
Is the East Sussex Pension Committee aware [of] the Institute’s conclusion that by 2025 electric vehicles will have displaced approximately two million barrels of oil per day? The Institute notes that the recent 2014-15 oil price collapse was the result of a two million barrels per day shift in the supply-demand balance.
Cllr Stogdon: The answer is yes we are fully aware of that, thank you.
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7. Question from Esme Needham, Hastings, East Sussex:
A recent report by the UN Environment Programme and Columbia Law School found that some 894 climate change legal cases have now been filed in 24 countries. What assessment has the Pension Committee made of the possible risks that future litigation could pose to its investments in fossil fuel companies?
Response by the Chair of the Pension Committee:
Please see the response to question 4 above.
The Pension Committee is committed to actively exploring carbon light options and smart beta approaches to our investment in order to reduce inadvertent exposure to those fossil fuel companies with unsustainable business models and those companies involved in very high carbon intensive businesses. Additionally the East Sussex Fund is looking at adopting elements of the Environment Agency Pension Fund’s constructive engagement approach to dealing with Fund Managers in this area, taking into consideration the Committee fiduciary duties and potential financial and non-financial risk
Supplementary question: In April a Dutch court ordered prosecutors to open an investigation into whether a Shell-Exxon joint venture bears any criminal responsibility for earthquakes triggered by production at the country’s largest gas field. The joint venture in question (NAM) has already accepted civil responsibility for damage caused by the quakes and is paying damages of more than 1 billion euros. What assessment has the Pension Fund made concerning the likely impact of this case on the value of its multi-million pound investments in Exxon?
Cllr Stogdon: Chair, I think there needs to be some understanding of what a pensions committee and particular ours does. We operate on the basis of expert advice being given to us. It’s one of the reasons why the East Sussex pension Fund is one of the better performing, or traditionally it has been until now, one of the better performing funds in the local authority pensions landscape. We take extremely seriously the advice given, which we receive from experts. That applies not only to members of this council but also to members of other councils who participate in the work of our committee. I have only once heard before in this chamber a threat relating to pursuit for not performing as we should do by way of personal liability and the like. I don’t take kindly to it. My experience of working in this chamber and particularly working with members of the pension committee is that they take their responsibility very seriously indeed and they work extremely hard to grasp the information that they have with a view to what they are doing and that, precisely that, is why there has been significant success in what we do.
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Divestment questions at the 5 December 2017 Full Council meeting
1. Question from Richard Moore, Lewes, East Sussex:
Earlier this year the East Sussex Pension Committee amended its Investment Strategy Statement to recognise that “The Fund believes that climate change poses material risks to the Fund but that it also presents positive investment opportunities.” What positive investment opportunities have the Committee and its fund managers identified to date?
Response by the Chair of the Pension Committee: The Pension Committee believes that the UBS Climate Aware World Equity fund (currently being considered among other opportunities) will provide a positive
investment opportunity.
Supplementary question:
Are the Committee and its fund managers aware of the International Energy Agency (IEA)’s estimate that $26 trillion of additional investment will be needed in renewables and energy efficiency between 2015 and 2040 in order to achieve the 2 degrees Celsius climate change target, compared to the IEA’s current policies scenario?
Cllr Stodgen: Chair we are aware- thank you.
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2. Question from Esme Needham, Hastings, East Sussex:
On 31 October 2017, on the eve of this year’s UN Climate Summit in Bonn, the world’s leading global environmental authority, the UN Environment Programme, published its latest Emissions Gap report, in which it noted that there is still a large gap between the pledges made by governments to cut greenhouse gas emissions and the reductions scientists say are necessary to avoid dangerous levels of climate change. What note has the East Sussex Pension Committee and its Fund Managers taken of this report and its contents?
Response by the Chair of the Pension Committee:
The Pension Committee is aware of climate issues and their potential to affect the Fund and there will be ongoing discussions with its investment managers on how they are considering this in their investment decisions.
Supplementary question:
Following the publication of this year’s Emissions Gap report by the UN Environment Programme – which noted that there is still a large gap between the pledges made by governments to cut greenhouse gas emissions and the reductions scientists say are necessary to avoid dangerous levels of climate change – the Executive Director of the UN Environment Programme, Erik Solheim, stated that: “We still find
ourselves in a situation where we are not doing nearly enough to save hundreds of millions of people from a miserable future. This is unacceptable. … If we invest in the right technologies, ensuring that the private sector is involved, we can still meet the promise we made to our children to protect their future.
But we have to get on the case now.” As a young person myself I would like to ask whether, given this urgency, it is appropriate for public institutions such as the East Sussex Pension Fund to continue to
pursue a protracted policy of “engaging” with fossil fuel companies, which in any event
is highly unlikely to succeed?
Cllr Stogden: Chair, the committee is not of the view that engagement with Fossil Fuel companies, responsible fossil fuel companies … is unlikely to succeed. We have every belief and we have evidence we think that shows that modification is going on in response to the representations we are making and the dialogue we are having and if I may add to that – I don’t wish to prolong the proceedings here – but there seems to be considerable evidence that notice is being taken and by adopting a careful policy of engagement we think that we will get results, thank you.
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3. Question from Hugh Dunkerley, Brighton:
In a written answer to a question from a member of the public, submitted to the 17 October 2017 Full Council meeting, Councillor Stogdon asserted that: ‘Simply disinvesting from a particular category or group of companies is likely to reduce the Fund’s ability to secure the best realistic return over the long-term whilst keeping employer contributions as low as possible.’ Does Councillor Stogdon, in his role as the
chair of the East Sussex Pension Committee, believe that disinvesting the East Sussex Pension Fund from fossil fuel companies ‘is likely to reduce the Fund’s ability to secure the best realistic return over the long-term whilst keeping employer contributions as low as possible’, and, if so, what analytic work (by Hymans Robertson or others) has he drawn upon to reach this conclusion?
Response by the Chair of the Pension Committee:
The Pension Committee believes that disinvesting from a particular category or group of companies has the ability to increase the volatility of the Fund. An increase in volatility will impact on the contribution rates that employers in the Fund will be required to pay. The Pension Committee believes climate change presents a financial risk to the future investment returns from the Fund. The Committee recognises that climate change issues can impact the Fund’s returns and reputation. The impacts of climate change on the returns from the Fund in the future are unknown at this point. The Committee recognises that they need to allocate sufficient time and resource to monitor the possible risks and also identify any investment opportunities which may become available as a result.
Supplementary question:
Is the Pension Committee aware of the April 2017 report by Impax Asset Management in which they reported their finding, using three model portfolios based on modifications to the MSCI World Index that, over the previous 18 months, reinvesting fossil fuel exposure in Energy Efficiency stocks had actually outperformed a “do nothing” approach?
Cllr Stogden: Chair, the committee is aware but the factor which governs us is the question of balancing risk both in the short term, the medium term and the long term and that we have to do above all for the benefit of the pensions.
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4. Question from Anna Reggiani, Forest Row, East Sussex:
Is the Pension Committee familiar with the work of Professor Benjamin Sovacool, Director of the Sussex Energy Group at the University of Sussex, which concludes that, while past energy transitions have usually been protracted affairs, owing to the scarcity of resources, the threat of climate change and vastly improved technological learning and innovation, the worldwide reliance on burning fossil fuels to create energy could, in principle, be phased out in a decade?
Response by the Chair of the Pension Committee:
The Pension Committee welcomes research into this area. Work is continuing to increase the understanding of the Committee of the many complex interdependencies that a structured withdrawal from burning fossil fuels will have on the Fund.
Supplementary question:
The East Sussex Pensions Committee appears to be assuming that oil and gas will continue to play a major role in the world’s energy mix far into the future. Isn’t the reality that, in the recent words of Corinne Le Quéré, Professor of Climate Change Science and Policy at the University of East Anglia and Director of Tyndall Centre for Climate Change Research: ‘We’re at a turning point. What’s going to happen in the next few years is critical. I don’t think that it’s sunk in yet how rapidly the emissions need to decrease. They in fact need to decrease all the way down to zero. Unless the emissions are stopped completely the climate is going to continue to warm. So, really the policy and actions have to come into place now’ and we need to bring emissions from fossil fuels down ‘very, very quickly’ … the question is whether the Pensions Committee are aware that this time critical and that drastic action needs to take place now?
Cllr Stogden: Chair- we are aware of all these stats that have been now brought to us by the questioners over a number of months, indeed well over a year … and we, the difficulty we have is that we cannot deal with speculation and some of the assertions that we hear are undoubtably of a speculative nature and what we need is hard concrete evidence before we take decisions which will risk the fortunes of our pensioners.
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In answer to a written question submitted by Arnold Simanowitz at the 21 March 2017 Full Council meeting, Cllr Stogdon stated that the East Sussex Pension Fund engages with fossil fuel companies through the Local Authority Pension Fund Forum (LAPFF), which ‘meet[s] with companies and participat[es] in collaborative investor initiatives including filing and supporting relevant shareholder resolutions.’ During the last two years, which fossil fuel companies has the LAPFF met with, what shareholder resolutions have they filed and / or supported at fossil fuel companies AGMs, and what
has been the outcome, if any, of these activities?
Response by the Chair of the Pension Committee:
The LAPFF Annual Reports contain details of all the engagement activities that they undertake on behalf of members. These can be found along with more detailed reports on their activities on their website http://www.lapfforum.org. A recent historic shareholder victory that LAPFF have been involved with on climate risk disclosure is the 62% of shareholders that voted in favour of a climate change disclosure resolution at ExxonMobil. LAPFF has engaged with many ‘fossil fuel’ companies over the past two years.
In 2016, LAPFF member funds co-filed shareholder resolutions at Glencore, Anglo-American and Rio-Tinto on strategic resilience for 2015 and beyond. The resolutions were highlighted to members, as well as others such as to ExxonMobil for a report on the impacts of climate change policies and on two resolutions to Chevron; one for a climate change impact assessment and another to commit to increasing the total amount authorized for capital distributions to shareholders in light of the climate change related risks of stranded carbon assets. There are a whole range of company outcomes, and it should be borne in mind that engagement is often long-term and should therefore be viewed over a longer time-frame than two years. The following are not comprehensive, but provide an example of some outcomes.
LAPFF has been engaging with Royal Dutch Shell and other energy companies about how they can move towards a low carbon future for several years. This included the successful 2015 resolution on reporting strategic resilience where the company agreed to increase transparency and engagement on climate change. As reported in early 2017, Shell, in divesting most of its oil sands interests in Canada, appears to be taking action to mitigate its exposure to climate risk. Chief Executive Ben van Beurden has been reported as saying that it was his intention to make Shell into a company of the future and that his industry risked losing public support without a move towards cleaner energy.
Supplementary question:
While its surely welcome news that Shell is divesting from Canadian tar sands, this still seems like a very limited achievement – and far short of the root and branch transformation that’s required for the transition away from fossil fuels. Indeed, in two of its recent reports ShareAction notes that there is little or no evidence that Shell’s board ‘has grasped the growing pace of the low-carbon transition [or] its implications given directors’ duties to protect shareholders’ capital’, and that Shell is ‘not committed to a credible … strategy’ in line with a 2 degrees Celsius scenario. Given these realities, Shell’s continued membership of several trade bodies that have taken obstructive positions on climate and energy policies, and the recent assertion by Shell’s CEO that the international community’s commitment to limit global warming to well below 2 degrees Celsisus, with an ambition for 1.5 degrees Celsius, is in the “realm of the fantastic”, isn’t Shell actually a prime candidate for divestment?
Cllr Stogden: Chair the answer is no.
6. Question from Arkady Johns, St Leonards on Sea, East Sussex:
Is the East Sussex Pension Committee aware of the recent decision by MediBank, Australia’s largest private health insurer, to shed tens of millions of dollars in fossil-fuel investments because of the effects of climate change on human health?
Response by the Chair of the Pension Committee:
The Pension Committee’s fiduciary duty is to ensure it has sufficient funds available to pay pensions when they fall due. In light of that obligation, and in order to maximise investment return, the Fund has a diverse range of investments and does not restrict investment managers from choosing certain stocks taking into consideration that the Fund investment strategy is regularly monitored. It does not comment on the investment decisions of others.
Supplementary question:
At the 17 October 2017 Full Council meeting Councillor Stogdon stated that ‘The [East Sussex Pension] Fund believes that collaborative engagement is more productive than acting alone.’ Does he accept that, by divesting from fossil fuels, the East Sussex Pension Committee would not be ‘acting alone’, but would
instead be joining more than 800 institutions from over 70 countries around the world, collectively managing over $5.5 trillion worth of assets, who have made some form of divestment commitment, and whose number includes the Rockefeller Brothers Fund, the City of Oslo, the Norwegian Sovereign Wealth Fund, 40 UK Universities, the British Medical Association, and the World Council of Churches? … Does he accept that by divesting he would not be alone in doing so.
Cllr Stogden: Chair, the answer to this question is no fundamentally. There is no local authority pension fund in this country which has adopted the approach which the questioner suggests and for very good reason. In reducing the exposure to fossil fuel investments, to which by the way our committee is committed, what has to be done, has to be done on a gradual basis and not something instant. And I think that those who has been following what the committee has been working on they will have seen that we are taking the steps that the questioner is indicating but we are not doing it on any immediate or frantic basis because that would be the wrong thing to do for our fund.
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7. Question from Arnold Simanowitz, Lewes, East Sussex:
Response by the Chair of the Pension Committee:
The Pension Committee believes that an important first step is to understand to what extent the fossil fuel companies exposure to high cost resource extraction is. This is why LAPFF’s support of the climate change disclosure resolution at ExxonMobil where 62% of shareholders voted in favour is so important. As in the answer to question 5, Royal Dutch Shell withdrawing from Canadian oil sands, is one example of a company withdrawing from high cost resource assets. LAPFF is able to focus particularly on capex in its one-on-one engagement with companies, for example at a recent meeting with OMV, an Austrian oil and gas company. This is one aspect of LAPFF’s support for a ‘managed decline’ of oil companies. Rather than companies investing in high cost resource extraction, LAPFF considers that additional cash-flow could be returned to investors as higher dividends. LAPFF therefore uses mechanisms such as shareholder resolutions to support this strategy. An example is the resolution to the 2016 Chevron AGM asking the Company to commit to increasing the total amount authorized for capital distributions to shareholders. This was viewed as a prudent use of investor capital in light of the climate change related risks of stranded carbon assets, in the context of the company having cut total capital distributions to shareholders in the previous year by over one quarter.
Supplementary Question:
With reference to understanding to what extent the FF companies exposure is, according to a Freedom of Information Act request as of 30th April 2017 the ESPF had at least £832,000 of common stock in BP. according to a recent analysis by Share Action, BP has a 19.75 equity interest in the oil company Rosneft which Carbon Tracker list as having the 3rd highest unnecessary capital expenditure under the International Energy…
Chair of the County Council: – sorry to interrupt you again, I’m looking for the question and not a new speech? What is the question please?
Arnold: The question relates to the investment in Rosneft which I’ve just come to…
Chair of the County Council: … so the question is? Could you phrase it as a question please …
Arnold: Well the question will sound irrelevant if I don’t finish what I’m saying …
Chair of the County Council: Well a clarification of the question as you’ve already put not a new item, I’m sorry, I’m finding [that] we are introducing new topics in this rather than..
Arnold: I began my question with reference to understanding the extent, I’ll move on to the
question..
Chair of the County Council: Please will you go to the question…
Arnold: What action has the Pension committee and it’s fund managers taken to try and influence the restriction of BP’s expenditure on these financially & environmentally reckless projects?
Cllr Stogden: This is a variation which this questioner has already, of a question that has been asked before, at least 3 times in this chamber to which we’ve given answers and I’m not sure of the value is of trying to repeat. But all these funds, all these stocks which have been mentioned are being specifically looked at and we are committed as we have said to engagement with the relevant companies and if the companies are not giving us the response we will be eliminating in due time, investment in them.
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8. Question from Dirk Campbell, Lewes, East Sussex:
Is the Pension Committee aware of the recent decision by forty Catholic institutions – including Germany’s Bank for the Church and Caritas – to make commitments to divest either wholly or partially from fossil fuels? The Bank for the Church and Caritas, which has a balance sheet of €4.5 billion, has committed to divest from investments in coal, tar sands oil, and oil shale ‘because it is both morally imperative and fiscally responsible’.
Response by the Chair of the Pension Committee:
The Pension Committee’s fiduciary duty is to ensure it has sufficient funds available to pay pensions when they fall due. In light of that obligation, and in order to maximise investment return, the Fund has a diverse range of investments and does not restrict investment managers from choosing certain stocks taking into
consideration that the Fund investment strategy is regularly monitored. It does not comment on the investment decisions of others.
Supplementary question:
Because of time constraints I’ll try to keep it as short as possible, but it is a question about the moral issue concerning climate change and not only a financial consideration and with respect to Cllr St previous answer to my question I would like to refer him to the former Executive Secretary of the UN Framework Convention on Climate Change, Christiana Figueres, who said: “I hope we will see more leaders like these 40 Catholic institutions commit, because while this decision makes smart financial sense, acting collectively to deliver a better future for everybody is also our moral imperative.” So would it not show leadership – as well as make ‘smart financial sense’ – for the East Sussex Pension Committee to follow the example of Germany’s Bank for the Church and Caritas and commit to divest the East Sussex Pension Fund from companies focussed on coal, tar sands and fracking?
Cllr Stogden: Chair in my understanding the overriding moral responsibility of the East Sussex Pension Fund committee is to ensure that maximum benefit attributes to its pensioners and that has to be our guiding principle. We are clearly committed as we have said to looking carefully at a number of measures to evaluate the exposure we have to carbon-related holdings, we are committed to applying a negative tilt, we are committed not to rewarding those companies which are not responding to the dialogue which we are actually engaged in having, we are certainly wanting to reduce the holdings we have in coal related stocks and we will be looking to supporting those companies which are looking constructively towards fields of renewable energies. That’s quite a commitment but it takes time to achieve and it’s not something that’s going to happen overnight.
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9. Question from Fran Witt, Lewes, East Sussex:
Does the Pension Committee have an estimate as to how many of the East Sussex Pension Fund’s 69,000 members are members of UNISON?
Answer: No. UNISON membership information is not required to be able to join the fund.
Supplementary question:
… my question relates to UNISON and I just wanted to ask if the Pension Committee is aware that in June of this year, UNISON passed a motion at its national conference committing the union to “seek divestment of Local Government Pension Schemes from fossil fuels”, and that this was followed, in September this year, by the passage of a unanimous motion at this year’s Trades Union Congress calling on the TUC to ‘promote divestment’ of local pension funds from fossil fuels?
Cllr Stogden: Chair- again we are aware.
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10. Question from Greg Lewis-Brown, Forest Row, East Sussex:
At the 21 March 2017 Full Council meeting Councillor Stogdon explained that the East Sussex Pension Fund was “engaging” with fossil fuel companies through its membership of the Local Authority Pension Fund Forum, and that the latter’s approach is “to undertake robust engagement on aligning their business models with limiting climate change to a [two degrees Celsius] increase in global temperatures and to push for an orderly low carbon transition.” What historical examples, if any, can the Committee or its Fund Managers provide of an entire industry completely transforming itself in the face of major challenges while the bulk of the individual (pre-transformation) companies continue to provide a decent return to investors?
Response by the Chair of the Pension Committee:
The Pension Committee’s believes that encouraging development of [a] low carbon align[ed] business model across the entire oil industry is in the best interest of the Fund. The Fund does not comment on the investment performances and decisions of others. However, in the face of major challenges, the Fund delivered an absolute return of 20.3% over the twelve month period to 31 March 2017, outperforming its
customized benchmark by 1.4%. Results are considered by the Committee on a quarterly basis.
Supplementary question:
I am a member of the East Sussex Pension Fund. In light of the considerable lack of certainty that engagement with fossil fuel companies will succeed what other scenarios has the committee considered and what plans does it have to protect local people’s pensions – such as my own – in these other scenarios?
Cllr Stogden: I think we have already dealt with the pensions fund policy, this is a repeat of an earlier question.
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11. Question from Nick Swift, Forest Row, East Sussex:
Is the East Sussex Pension Committee aware of the recent open letter, signed by dozens of Church of England clergy, including five bishops, calling on the Church of England – and by implication, other institutions – to immediately divest from ExxonMobil?
Response by the Chair of the Pension Committee: The Pension Committee is aware of climate issues and their potential to affect the Fund and there will be ongoing discussions with its investment managers on how
they are considering this in their investment decisions. This provides an opportunity for the Fund to influence companies’ environmental, human rights and other policies by positive use of shareholder power, a role the Committee takes very seriously.
Supplementary question:
Thank you Cllr Stodden for your reply to my question [in] which I referred to an open letter from a number of bishops from the Church of England calling on their church & other institutions to divest from oil & gas company ExxonMobil. The Church of England bishops cite a recent Harvard academic study which found that Exxon knew about the risks of climate change in the 1970s, that’s 40 years ago and have deliberately misled the public for the decades since, they took out paid editorials in a number of US newspapers questioning whether global warming was real and caused by humans. And since the 1990’s at least, the board has voted against all resolutions on climate change. As you noted earlier on the East Sussex Pension Committee applies ethical and environment criteria to investments where relevant and appropriate on a case by case basis and that you’re engaging with the companies to ensure that this is the case and that you’ll take action if this clearly isn’t the case. According to a Freedom of Information Act request, on 30 April 2017 the East Sussex Pension Fund had £2 million of common stock in Exxon. Surely it is a case where you might want to exercise that discretion and divest the Fund from Exxon?
Cllr Stogden: Chair I’m absolutely delighted that the bishops and clergy of the C of E are taking an interest in these issues. The key to this whole discussion relates to balancing risk in the pension fund by precipitive action and what we are committed to doing, and I have tried to communicate this at each meeting, is that we will look on a case by case basis, as and when we can reasonably take the necessary steps. Now, two councils ago, I advised that our passive fund management will in future be managed by UBS and will
will be, through them, adopting the policies which I’ve already outlined in this Chamber and obviously candidates like EXXON will be within the framework of consideration. Now, it’s rarely a question of timing, we cannot do these things overnight they take time to digest information, there’s the whole business of transferring funds from one manager to another, that is not done overnight. So if you would allow us to be patient with us ..er if you would be patient with us we would be grateful.
DIVESTMENT QUESTIONS @ 6 FEBRUARY 2018 FULL COUNCIL MEETING
The World Bank has recently announced that it will stop investing in oil and gas projects from 1 April 2018. Likewise, Norway’s central bank – which manages the country’s $1 trillion Sovereign Wealth Fund – has recently announced that it will be ditching its holdings in oil and gas, and New York City’s five pension funds – with $189 billion of assets – will be divesting from fossil fuels over the next five years. Given these developments, will the East Sussex Pension Fund review its current policy of “engagement” with the likes of Shell, Exxon and BP, and follow the lead being set by New York City?
Supplementary question: New York City’s five Pension Funds have not only announced that they will completely divest from fossil fuels over the next five years but are now also suing the five fossil fuel companies in the US federal court concerning these companies contribution to climate change. New York’s mayor noted that the five companies – BP, Exxon Mobil, Chevron, ConocoPhillips and Shell – several of which the East Sussex Pension Fund has local people’s pensions invested in – “knew about [the] effects [of climate change] and intentionally misled the public to protect their profits” and stated that it is now necessary to “shift the costs of protecting the city … back on to the other companies that have done nearly all they could to create this existential threat. What do these $189 billion Funds know that the $4.5bn East Sussex Pension Fund doesn’t?
Cllr Stogdon: Chair, we have explained previously, we can’t be all knowing about everything. And I couldn’t possibly comment on what other funds may know or may not know that we don’t know.
———————————2. Question from Peter Newell, Lewes, East Sussex:
Is the Pension Committee aware of the recently-launched Lofoten Declaration – signed by over 220 organisations from 55 countries – which recognises ‘the need for immediate and ambitious action to stop exploration and expansion of fossil fuel projects and manage the decline of existing production in line with what is necessary to achieve the Paris climate goals’?
Response by the Chair of the Pension Committee:
The East Sussex Pension Committee welcomes the Lofoten Declaration to raise awareness of the need to manage the decline of existing production in line with what is necessary to achieve the Paris climate goals.
Supplementary question: Thank you, and thank you to the response welcoming the Lofoten Declaration about fossil fuel divestment. I’m wondering given that support and given also the recently announced move by Sussex University to divest from fossil fuels, whether the Pension group now feels emboldened to make a similar move for reasons of financial security, given that two thirds of fossil fuels are now un burnable and therefore there’s an absolute need to shift, and a financial risk in continuing to invest? For reasons of profitability given that there are now higher returns available from investments in renewable energy and for the obvious reasons of sustainability.
Cllr Stogdon: Chair the answer is simply no.
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3. Question from Dirk Campbell, Lewes, East Sussex:
On 5 December 2017 Councillor Stogdon stated that ‘there is no local authority pension fund in this country which has adopted the policy which the questioner suggests (i.e. divesting from fossil fuels) and for very good reason.’ In fact both Waltham Forest and Southwark pension funds have publicly committed to divesting from fossil fuels. What is the Pension Committee’s position in the light of this fact?
Response by the Chair of the Pension Committee:
The Pension Committee’s fiduciary duty will always be to ensure that it has sufficient funds available to pay pensions when they fall due. The East Sussex Fund is a member of LAPFF and receives regular reports and advice from them. The advice from LAPFF and also from the leading ESG policy maker within the LGPS, the Environment Agency Pension Fund, is not to divest from fossil fuel investments but to engage with companies. The Fund does not comment on the investment decision of others
Supplementary question: I’d like to pick up of the statement made by Cllr Stogden that the fund will not comment on the investment decisions of others which is repeated I think 3 or 4 times in his answers to questions from members of the public. In regard to that I’d like to refer to the headline in a recent article in the nation press which is by Councillor Fiona Colley chairman of the Southwark Pension Fund Committee, ‘Why the council pension fund I chair is divesting £1.2bn out of fossil fuels’, she said this was a decision ‘based primarily on our belief that significant investment in fossil fuels present a long term financial risk to our fund. We are clear that our actions to reduce the carbon exposure of our fund is wholly consistent with our judiciary duties as pension fund trustees.’ I’m not asking cllr Stodden to comment on the investment decision of others, I am simply asking if you are aware and if it makes any difference to the funds position, would Cllr Stogden like to see this article and circulate it the other members of the East Sussex Fund Pension Committee?
Cllr Stogdon: Chair, I’m not adverse to, and I’m sure the committee is not adverse, either, to seeing any article on any topic that may be connected to certain risks which the pension fund faces, may I respectfully remind the questioner & other questioners that climate change is not the only risk the fund faces and doing what we do we balance risks, across the board and we cannot be focused merely on one.
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4. Question from Julia Hilton, Hastings, East Sussex:
According to an addition to the minutes of the September 2017 Pension Committee, agreed at last November’s Pension Committee meeting, the Committee agreed to ‘request that Hymans Robertson provide a report on whether there is a viable low carbon equity fund that could achieve the same or better rate of return compared to other passively managed equity funds.’ When will this report be presented to the Pension Committee, and, when it is, will its contents be made public?
Response by the Chair of the Pension Committee:
The Hymans Robertson paper on “Proposed equity allocations” was presented at the 27 November 2017 committee meeting, this included a section on low carbon equity funds, and the East Sussex Pension Fund approved the investment of a allocation to UBS Climate Aware World Equity fund. The Committee has also commissioned a report to measure the Fund’s carbon footprint. The provider for this measurement service will be Trucost and they will present to the next meeting of the Committee on 26 February
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5. Question from Fran Witt, Lewes, East Sussex:
In answer to a supplementary question from the public on 5 December 2017, Councillor Stogdon refused to acknowledge that, were the East Sussex Pension Fund to divest from fossil fuels it ‘would not be alone in doing so’. Indeed, Cllr Stogdon replied that ‘the answer to this question is no fundamentally.’ How does Cllr Stogdon reconcile this response with the following list of institutions, all of which have made public commitments to fully divest from fossil fuels:
ALTIS, Alta Scuola Impresa e Società dell’Università Cattolica del Sacro Cuore, APRA/AMCOS, Abdij OLV van Nazareth, Abracadabra Retirement Fund, Abramowitz-Silverman Fund, Access Strategies Fund, Alingsås Government, All Souls Unitarian Universalist Church, Alleycat Super Fund, Alternative Bank Schweiz, American Ethical Union, American Public Health Association, Anderson Peters Super Fund, Anglican Church of Aotearoa, Anglican Diocese of Auckland, Anglican Diocese of Canberra and Goulburn, Anglican Diocese of Dunedin, Anglican Diocese of Melbourne, Anglican Diocese of Montreal, Anglican Diocese of Nova Scotia and PEI, Anglican Diocese of Perth, Anglican Diocese of Waiapu, Anglican Diocese of Waikato and Taranaki, Anglican Diocese of Wellington, Anglican Diocese of Ottawa, Archdiocese of Cape Town, Aria Foundation, The Arkay Foundation, Auckland Council, Australian Academy of Science, Australian Capital Territory, Australian Ethical, Australian Guild of Screen Composers, Australian Jesuit Province, Australian Religious Response to Climate Change (ARRCC), Ballina Shire Council, Banyule City Council, Barnegat Monthly Meeting, Barnett Super Wealthy Fund, Barry Family Super Fund, Bass Coast Shire, Bathurst Street United Church, Ben & Jerry’s Foundation, Bendigo and Adelaide Bank Limited, The Betsy and Jesse Fink Foundation, Bewegungsstiftung, Bioregional, The Blumenthal Foundation, Booth Super Fund, Bordeaux, Bordeaux Métropole, Boston Church of the Covenant, MA, Both ENDS Foundation, Bournemouth University, Brevard College, Brighthelm Church and Community Centre, Brinstones Super, Bristol Quaker Area Meeting, British Medical Association, Broederlijk Delen, The Bullitt Foundation, Byron Shire Council, California Academy of Sciences, California Institute of the Arts, Canadian Medical Association, Canadian Unitarian Council (national), ON, Cardiff Metropolitan University, Catherine Donnelly Foundation, Catholic Action for Animals, Catholic Welfare and Development, Cecily Dignan Superannuation Fund, Center for Action and Contemplation, The Center for Humans & Nature, Center for International Environmental Law, Central Philadelphia Monthly Meeting of the Religious Society of Friends, Chalmers University of Technology, Chicago Medical Society, Chico State University, Children’s Investment Fund Foundation, Chilterns Quaker Area Meeting, Chino Cienga Foundation, The Chorus Foundation, Christensen Foundation, Church of Sweden, Church of the Covenant, Presbytery of Boston, MA, Church of the Redeemer, Diocese of Newark, NJ, Citizens for Public Justice, City Council of Eindhoven, City of Albury, City of Amherst, MA, City of Ann Arbor, MI, City of Armadale, City of Ashland, OR, City of Ballarat, City of Bayfield, WI, City of Belfast, ME, City of Berkeley, CA, City of Berlin, City of Borås, City of Boulder, CO, City of Boxtel, City of Brisbane, CA, City of Cambridge, MA, City of Concord, MA, City of Copenhagen, City of Corvallis, OR, City of Dunedin, City of Eugene, OR, City of Framingham, MA, City of Fremantle, City of Frouzins, City of Great Barrington, MA, City of Göttingen, City of Hellemes, City of Ithaca, NY, City of Leichhardt, City of Lille, City of Lismore, City of Madison, WI, City of Malmö, City of Marrickville, City of Melbourne, City of Melville, City of Minneapolis, MN, City of Moreland, City of New London, CT, City of Newcastle, City of Northamption, MA, City of Oakland, CA, City of Odense, City of Oxford, City of Palo Alto, CA, City of Paris, City of Portland, OR, City of Provincetown, MA, City of Ravoire, City of Richmond, CA, City of San Francisco, CA, City of San Luis Obispo, CA, City of Santa Fe, NM, City of Santa Monica, CA, City of Seattle, WA, City of Stirling, City of Stockholm, City of Strömstad, City of Sudbury, MA, City of Swan, City of Sydney, City of Truro, MA, City of Uppsala, City of Venissieux, City of Vincent, City of Wodonga, City of la Rochelle, City of Örebro, City of Östersund, City of Savenay, Clean Water Action, Climate Action Network Australia, Climate Stewards, College of the Atlantic, College of the Marshall Islands, Colorado Ratnashri Sangha, Comart Foundation, Community Friends Quaker Meeting in Cincinnati, OH, Community Impact Foundation, Compton Foundation, Conservation Breeding Specialist Group, The Council of Canadians, Council of Progressive Rabbis of Australia, Asia, and New Zealand, Country of Ireland, County council of Loiret, Dane County, WI, Darwin Superannuation Fund, Davara Super Fund, David Suzuki Foundation, Decco Superannuation Fund, Departmental council of Essonne, Desmond & Leah Tutu Legacy Foundation, Diakonia, Diocese of Assisi, Diocese of Caserta, Diocese of Gubbio, District of Columbia Retirement Board, Ditton’s Super Fund, Dobra Super Fund, Doctors for the Environment Australia, Dover Friends Meeting, ESF College Foundation, Inc., Earth Super Fund, The Earth Welfare Foundation, Earthjustice, Earthsong, Eastminster United Church, Eastside Audobon Society, Ecotrust, Ecumenical Ministries of Oregon, The Educational Foundation of America, Edward W. Hazen Foundation, Edwards Mother Earth Foundation, English Family Foundation, Environment America, Environmental and Energy Study Institute, Episcopal City Mission, Boston, Massachusetts, Episcopal Conference of Belgium, Episcopal Diocese of California, Episcopal Diocese of Los Angeles, CA, Episcopal Diocese of Massachusetts, Episcopal Diocese of Nebraska, Episcopal Diocese of Olympia, Episcopal Diocese of Western Massachusetts, Evangelical Lutheran Church in America, Evangelical Lutheran Church of Oregon, Federal State of Bremen, First Congregational Church in Amherst, MA, First Parish Church UU, MA, First Parish Unitarian Universalist Church in Cambridge, MA, First Parish in Concord, UU, MA, First Parish in Hingham, Unitarian Universalist – Old Ship Church, MA, First Presbyterian Church, Tallahassee, FL, First Presbyterian Palo Alto, CA, First Religious Society of Newburyport, MA, First Unitarian Church of Des Moines, IA, First Unitarian Church of Pittsfield, ME, First Unitarian Church of Rochester, NY, First Unitarian Church of Victoria, First Unitarian Church, Ottawa, ON, First Unitarian Congregation of Ottawa, First Unitarian Society of Milwaukee, WI, First Unitarian Toronto, ON, First district of the city of Lyon, Flame Tree Super Fund, Flou Flou Super Fund, Follen Community Church UU, MA, Fondation Charles Leopold Mayer, Foothill-De Anza Community College, Forsythia Foundation, Franciscan Sisters of Mary, Frederick Mulder Foundation, Friends Fiduciary Corporation, Friends World Committee for Consultation, Friends of the Earth, Funeral Consumers Alliance of Maine, Future Super, GLS Treuhand, Garfield Foundation, Gasthuiszusters Augustinessen van Leuven, General Service Foundation, Gibson and McGregor Super Fund, Gironde department, Gloucester Shire Council, Goldman Environmental Foundation, Good Vibrations Super, Graeme Wood Foundation, Granary Foundation, Great Old Broads for Wilderness, Green Mountain College, Greenaccord onlus, Gross and Watts Super Fund, Guardian Media Group, H Green Superannuation Fund, HCF, Hampshire College, The Hanley Foundation, Haverford Friends Meeting, Haydon Family Super Fun Pension Fund, Health Care Without Harm, Hidden Leaf Foundation, High Street Baptist Church, Tring, Huddersfield Quakers, Hull Family Foundation, The Hunt Foundation, Hunter Hall Investment Management, Ian Somerhalder Foundation, Il Dialogo, Ipswich and Diss Chilterns Area Meeting, Island Institute, The JJ Charitable Trust, JMG Foundation, The Jacob & Valeria Langeloth Foundation, Jacobs Robinson Super Fund, Jalana Super Fund, Jamaica Plain Unitarian Universalist, NY, Janelia Foundation, Jenifer Altman Foundation, Jennie Di Blasi Super Fund, Jessie Smith Noyes Foundation, Jim and Patty Rouse Foundation, The Joffe Charitable Trust, John & Marcia Goldman Foundation, John Merck Fund, Joseph Rowntree Charitable Trust, Jubitz Family Foundation, KL Felicitas Foundation, KR Foundation, Kansas City, MO, Kendal and Sedbergh Quaker Area Meeting, Kerr Ratcliffe Super, Kestrelman Trust, Kommunal Landspensjonskasse (KLP), Kuhn’s Gold Super, La Trobe University, Laird Norton Family Foundation, Lake Country Unitarian Universalist Church, WI, Lancashire Central and North Quaker Area Meeting, Lansdowne Monthly Meeting, Laughing Gull Foundation, Laval University, Le Mans city, League of Conservation Voters, Leeds Quaker Area Meeting, Lega Consumatori, Legambiente Reggio Emilia, Lehigh Valley Monthly Meeting, Leicester Quaker Area Meeting, Lemelson Foundation, The Leonard and Sophie Davis Fund, The Libra Foundation, London Borough of Southwark Pension Fund, Lookout Foundation, Lutheran World Federation, Lydia B. Stokes Foundation, M & N West Pension Fund, MASCI, MASCI Umbria, MGR Foundation, Macedon Ranges Shire Council, Madden Sainsbury Foundation, Madirriny Foundation, Maine Council of Churches, ME, Malbird Super Fund, Manchester Metropolitan University, Maree Kordonsky Super, Marist Sisters Australia, The Mark Leonard Trust, Mary Babcock Foundation, Massachusetts United Church of Christ, McKenzie River Gathering Foundation, McKinnon Family Fund, McKinnon Super Fund, Medford Friends Meeting, Medibank, Melbourne Unitarian Church, Mennen Foundation, Mercedarian Missionaries of Berriz, Merck Family Fund,Metropolitan New York Synod, Evangelical Lutheran Church in America, Meyer Family Enterprises, Miami Monthly Friends (Quaker), Miami Quarterly Friends (Quaker), Mid Somerset Quaker Area Meeting, Mid Thames Quaker Area Meeting, Millamac Super Fund, Missionarissen van Scheut, Mize Family Foundation, Montreal Quakers, Montreuil, Moomintroll Super Fund, Morning Star Foundation, Mount Alexander Shire Council, Mount Holly, New Jersey, Mullum Trust, Multnomah County, OR, NUI Gallway, Naropa University, National Ethical Service, National Peace Corps Association, National Synod of Scotland, National Tertiary Education Union, National University of Ireland Galway, Natural Resources Defense Council, Neranie Super Fund, Netwerk Rechtvaardigheid en Vrede – Ecokerk, Nevada Super Fund, New England Biolabs Foundation, New Priorities Foundation, New York City Employees Retirement System, New York Conference of The United Methodist Church, New York Quarterly Meeting, Newcastle University, Newman University, Newtown Monthly Quaker Meeting, PA, Nia Community Fund, Norfolk and Waveney Quaker Area Meeting, Norman Foundation, North Star Fund, Northeast Wilderness Trust, Northern Yearly Meeting – Quakers in the Upper Midwest, Northland College, Norway Unitarian Universalist Church Maine, Nottingham Trent University, Noya Fields Family Charitable Funds, Ohio Valley Yearly Meeting, Society of Friends (Quakers), OH, Oikocredit Belgium, Old Haverford Monthly Meeting, Oregon Metro, Oregon State University, The Overbrook Foundation, Oxford Brookes University, Pace Foundation, Pacific Northwest Conference of The United Methodist Church, Pacific School of Religion, The Palette Fund, Panahpur, Park Foundation, NY, Pax Christi Vlaanderen, Pax Fund, Peralta Community College District, Perpetual Ocean Super Fund, Phipps Conservatory and Botanical Gardens, Pi Investments, Pig Shed Trust, Pilgrim Lutheran Church, St. Paul, Pitzer College, Polden Puckham Charitable Foundation, Portsmouth South Church Unitarian Universalist, NH, Practice Greenhealth, Prentice Foundation, Presbyterian Church of New Zealand, Presbyterian Peace Fellowship, NY, Presentation Sisters, North East Province, Presentation Sisters, Queensland, Presentation Sisters, South West Unit, Presentation Sisters, Wagga Wagga, Protestant Church Hessen-Nassau, Provincial of The Passionists – Holy Spirit Province Australia, NZ, PNG, Put Your Money Where Your Meaning Is Community (Pymwymic), Quakers Religious Society of Friends, Quakers in Britain, Queen Margaret University, Queen Mary University London, Queens University Belfast, Queensland University of Technology, Quixote Foundation, ROS Super Fund, RS Group, Randwick City Council, Reading Borough Council, Red Argentina de Laicos (RELAI), Regional Council Ile de France, Regional Council Rhône Alpes, Regional council Burgundy, Regional council of Champagne-Ardennes, Regional council of Poitou-Charente, Rennes, Rete Interdiocesana Nuovi Stili di Vita, Rhode Island School of Design, Richmond Valley Council, Riverside Church, Robert Treat Paine Association, Rockefeller Brothers Fund, Rose Foundation for Communities and the Environment, Roskilde Municipality, Ross Knowles Super Fund, Royal Australasian College of Physicians, Rubblestone Foundation, Rusbourne Private Superannuation Fund, Russell Family Foundation, SOAS, University of London, SUJAY Superannuation Fund, The SWF Immersion Foundation, Sacred Convent of Assisi, Sainsbury Ashden Trust, Saint Paul Area Synod – Evangelical Lutheran Church of America, Salvatorianen of Belgium, Samuel Rubin Foundation, Santa Clara Valley Water District, Santa Fe Art Institute, Scarboro Missions, ON, Schmidt Family Foundation, School Sisters of Notre Dame, Schott Fund, Scott Trust, Scottish United Reformed & Congregational College, ScouseMouse Super Fund, Seraphic Institute, Serve All Trust, Shalom Center, Shared Earth Foundation, Shire of Goomalling, Western Australia, Shugar Magic Foundation, Sierra Club, Sierra Club Foundation, Sierra Leone Young Christian Student movement, Siloe Monastic Community, Singing Field Foundation, Sisters of Loretto, Society for Community Work, First Unitarian Universalist Society of San Francisco, CA, Society of Friends, Canberra Regional Meeting, Society of the Sacred Heart, Sojourners, Solidago Foundation, Sollentuna Government, St Chad’s Sutton Coldfield (Church of England), St Joseph’s Province of the Congregation of the Passion, St Patrick’s Missionary Society, Staples Trust, State College, PA, Sterling College, Stiftung Abendrot, Stockholm University, Strasbourg, Student Christian Movement, Students’ Society of McGill University, SunCommon, Super Three Super Fund, Swedish University of Agricultural Sciences, Swift Foundation, Switzer Foundation, Sydney Buddhist Centre, Syracuse University, Taikura Super Fund, Teachers Retirement System of the City of New York, Tedworth Charitable Trust, Tellus Mater Foundation, The City of Capetown, The Diocese of Pescara, The Foundation of the University of Maine Presque Isle, The Grantham Foundation, The Italian Jesuits, The Mission Congregation of the Servants of the Holy Spirit, The New School, The New Zealand Tertiary, The Roddick Foundation, The Tin Dog Super, The Unitarian Church of Vancouver, The Welders, The Wheaton Franciscan Sisters, Daughters of the Sacred Hearts of Jesus and Mary, Thomas Jefferson Memorial Church, VA, Threshold Foundation, Town (City) of Fredericia, Town of Allonnes, Town of Ambérieu en Bugey, Town of Bassendean, Town of Cherbourg, Town of Colombes, Town of East Fremantle, Town of Pierrefitte sur Seine, Town of Saint Denis, Town of Saint Herblain, Town of Saint Maur des Fosse, Trenton Meeting, Trinitarian Congregational United Church of Christ, Warwick, Massachusetts, Trinity College Dublin, The University of Dublin, Trust Africa, Tubmanburg City Coorperation, Tweeps Super Fund, UNIFOR, UU Church of Boulder, CO, UU Congregation of Binghamton, NY, UUEstrie, Umeå University, Unfolding Futures Pty Ltd Superannuation Fund, Union Theological Seminary, New York City, Union of Concerned Scientists, Union of Sisters of the Presentation of the Blessed Virgin Mary Generalate, Unitarian Church of Calgary, Unitarian Church of Montreal, Unitarian Church of South Australia, Unitarian Fellowship of Northwest Toronto, Unitarian Fellowship of Peterborough, Unitarian Society of Northampton & Florence, MA, Unitarian Universalist Association, Unitarian Universalist Church of Palo Alto, CA, Unitarian Universalist Church, First Parish, Sherborn, Massachusetts, Unitarian Universalist Congregation of Castine, Maine, Unitarian Universalist Congregation of South County, RI, Unitarian Universalist Fellowship of Ames, Unitarian Universalist Fellowship of Corvallis, OR, Unitarian Universalist Society of Amherst, MA, Unitarian Universalist Society of Bangor, Maine, Unitarian congregation of Niagara, United Church of Canada, United Church of Christ, Minnesota Conference, United Reformed Church of Scotland, Uniting Church of Australia Assembly, Uniting Church, New South Wales & ACT, Australia, Unity College, Unity Temple Unitarian Universalist Congregation, IL, Univeristy of Oregon Foundation, University of Abertay Dundee, University of Arts Bournemouth, University of Bedfordshire, University of Copenhagen, University of Dayton, University of East Anglia, University of Glasgow, University of Hawaii, University of Kent, University of Lincoln, University of Maryland, University of Massachusetts Foundation, University of Otago Foundation Trust, University of Sheffield, University of Southampton, University of St. Andrews, University of Surrey, University of Wales Trinity Saint David, University of Warwick, University of Worcester, University of the Arts London, Urban community of Cherbourg, Urban community of Hénin-Carvin, V. Kann Rasmussen Foundation, Vicariaat Vlaams-Brabant en Mechelen, Victoria University of Wellington, Vincent Wildlife Trust, WWF-UK, Wahcumba Super Fund, Wallace Global Fund, Waltham Forest Pension Fund, Warren Wilson College, Water Dragon Foundation, Waterloo Foundation, Welzijnszorg, Wermuth Family Office, Western Australian Local Government Association, Westtown Monthly Meeting, Westwood Unitarian Congregation, The Wilderness Society, Wimbledon Congregational Church, The Winslow Foundation, Wombat Super, Woodward Charitable Trust, World Council of Churches, World Medical Association, Zusters van Maria, Zusters van de Bermhertigheid, Östergötland Region?
Response by the Chair of the Pension Committee:
The Pension Committee’s fiduciary duty will always be to ensure that it has sufficient funds available to pay pensions when they fall due. The East Sussex Fund is a member of LAPFF and receives regular reports and advice from them. The advice from LAPFF and also from the leading ESG policy maker within the LGPS, the Environment Agency Pension Fund, is not to divest from fossil fuel investments but to engage with companies. The Fund does not comment on the investment decision of others.
Supplementary question: Yes thank you very much for giving me the opportunity to ask a follow up question. I sent a very long list of organisations around the globe who’ve decided to divest from fossil fuels and I guess my plea to the East Sussex County Council is to consider joining those organisations which now includes Southwark council and Waltham Forest council and New York city pension fund. And I say this because I am genuinely concerned about the future of our planet’s fragile eco-system and I’m genuinely concerned about the future for my children. I’ve got 3 children growing up and I’m concerned about what’s going to happen to them in a future where there is run away climate change … Do you think East Sussex County Council would consider showing some leadership, through the pension fund by divesting from fossil fuels and joining those organisations that have already done so?
Cllr Stogdon: Chair I don’t think we can say that we are not giving every consideration to every question which the champions of fossil fuel divestment are suggesting here, but at the end of the day we have to consider very carefully all the information we have and we don’t have sufficient, nor do we have sufficiently conclusive, expert advise to justify what the questioner is suggesting.
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6. Question from Gabriel Carlyle, St. Leonards on Sea, East Sussex:
At 5 December 2017 Full Council meeting, the following facts were drawn to Councillor Stogdon’s attention:
1) that, according to two recent reports by Share Action, there is little or no evidence that Shell’s board ‘has grasped the growing pace of the low-carbon transition [or] its implications given directors’ duties to protect shareholders’ capital’, and that Shell is ‘not committed to a credible … strategy’ in line with a 2 degrees Celsius scenario;
2) that Shell’s CEO has described the international community’s commitment to limit global warming to well below 2 degrees Celsius, with an ambition for 1.5 degrees Celsius, as being in the “realm of the fantastic”; and
3) that Shell continues to be a member of several trade bodies that have taken obstructive positions on climate and energy policies (indeed, in 2016 it was estimated that Shell was spending at least $22m a year on delaying and obstructing climate legislation – see https://influencemap.org/report/Climate-Lobbying-by-the-Fossil-Fuel-Sector)
Asked whether these facts actually made Shell ‘a prime candidate for divestment’, Cllr Stogdon replied, in toto, ‘Chair the answer is no.’
Given the above realities, and the fact that, according to the best available analysis (http://2degreeseparation.com/reports/2D-of-separation_PRI-CTI_Summary-report.pdf), approximately 30–40% of Shell’s upstream capex expenditure will be unneeded – and therefore unprofitable – in a 2 degrees Celsius scenario, why does the Pension Committee not believe Shell to be a prime candidate for divestment?
Response by the Chair of the Pension Committee:
The East Sussex Pension Committee agrees with the need to manage the decline of existing production in line with what is necessary to achieve the Paris climate goals’. The Pension Committee’s fiduciary duty will always be to ensure that it has sufficient funds available to pay pensions when they fall due. The Committee believes that the best way to achieve this is to engage with companies and as a member of LAPFF the committee receives regular reports and advice from them. The advice from LAPFF and also from the leading ESG policy maker within the LGPS, the Environment Agency Pension Fund, is not to divest from fossil fuel investments but to engage with companies.
Supplementary question: I’m disappointed to see that you’ve chosen to ignore the written question that I submitted which asked you to justify your previous assertion in this camber that, even given its record to date, Shell was not a prime candidate for divestment. And I think, one is forced to speculate that perhaps you are unable to justify this claim. You’ve already accepted the possibility of divestment from particular fossil fuel companies on a case-by-case basis. So for example, at the last Council meeting you said that the East Sussex Pension Fund would “eliminate” investments in fossil fuel companies that do not respond appropriately to its current policy of “engagement” So this is the question: For such “engagement” to be meaningful – rather than just a pretext for business as usual – it clearly has to have concrete benchmarks and a timeline for their realisation. So for companies such as Exxon and BP, which you have investments in – you’ve got millions of pounds of local people’s monies invested in – what are your benchmarks and what is your timeline?
Cllr Stogdon: Chair I greatly regret the suggestion that I used the word ‘eliminate’ – I have never used that word as far as I can recall. And secondly I think it is unjust to suggest that we are not examining every company connected with the sector. How is it that this can be suggested when it is well known by the questioner that we have instructed a specific examination of the carbon footprint of the East Sussex Pension Fund. In so doing, we are going a great deal further than most others of, if you like, the other 89 funds and I’m very pleased to say that our independent advisor only at our last meeting congratulated the fund on the steps it had taken as a fund, in advance of many others in considering the whole position. Thank you.
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7. Question from Patricia Patterson-Vanegas, Forest Row, East Sussex:
I hear Councillor Stogdon asking for patience in his responses to the questions related to divestment from fossil fuels. I hear urgency in the questions asked to the County Council about divestment, given the fact that carbon contains financial risk and pensioners will pay the cost of any problems arising if the environmental lobby continues to gain momentum. I am always looking for ways forward. Would it be possible for the ESCC to make a commitment to divestment by allocating a percentage of the fund to divestment as Southwark has done*? It might even be possible to develop a view to increasing this percentage over a period of time in order to reduce the risk to pension holders.
* As a first step Southwark will move £150 million (10% of the total fund) into a Blackrock Low Carbon Target Equity Fund. Southwark might be making this move in partnership with Hackney to help reduce management fees. Southwark is also looking at positive investment in Sustainable Infrastructure funds, including the Global Renewable Power Fund II (also by Blackrock) and Sustainable Opportunities (by Mercer).
Response by the Chair of the Pension Committee:
The Hymans Robertson paper on “Proposed equity allocations” presented at the 27 November 2017 committee meeting, included a section on low carbon equity funds, and the East Sussex Pension Fund approved the investment of a 5% allocation to UBS Climate Aware World Equity fund. The Committee has also commissioned a report to measure the Fund’s carbon footprint. The provider for this measurement
service will be Trucost and they will present to the next meeting of the Committee on 26 February.
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8. Question from Richard Pike, Forest Row, East Sussex:
When a financial centre and city the size of New York, following the lead of Paris, Berlin, Sydney and Stockholm and, it is predicted, further US cities to follow, decides it cannot continue to invest its pension funds in the fossil fuel industry, can the ESCC pension committee really justify continuing with an investment policy from a bygone age?
Response by the Chair of the Pension Committee:
The Pension Committee’s fiduciary duty will always be to ensure that it has sufficient funds available to pay pensions when they fall due. The Fund does not comment on the investment decision of others
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9. Question from Nicholas Swift, Forest Row, East Sussex:
In light of the recent announcement by Lloyds of London, the world’s oldest insurance market, that it will start to exclude coal from its investment strategy from 1 April 2018, and the fact that the East Sussex Pension Fund currently holds less than 0.09% of its current equity exposure in coal companies, will the East Sussex Pension Fund follow suit and make a commitment to excluding coal from its investment strategy from 1 April 2018?
Response by the Chair of the Pension Committee:
The East Sussex Pension Committee agrees with the need to manage the decline of existing production in line with what is necessary to achieve the Paris climate goals’. The Pension Committee’s fiduciary duty will always be to ensure that it has sufficient funds available to pay pensions when they fall due. The Committee believes that the best way to achieve this is to engage with companies and as a member of LAPFF the committee receives regular reports and advice from them. The advice from LAPFF and also from the leading ESG policy maker within the LGPS, the Environment Agency Pension Fund, is not to divest from fossil fuel investments but to engage with companies.
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DIVESTMENT QUESTIONS @ 27 MARCH 2018 FULL COUNCIL MEETING
1. Question from Gabriel Carlyle, St. Leonards on Sea, East Sussex:
Last year the Local Authority Pension Fund Forum (LAPFF) provided LAPFF members with a Climate
Change Investment Policy Framework with the aim of helping to ‘guide their policy approach to current and future investment risks and opportunities that result from the impacts of climate change’ and provide ‘LAPFF’s current view of suggested best practice guidance’.
Does the East Sussex Pension Fund accept the LAPFF guidance that: (a) ‘As a Local Government Pension Fund [the East Sussex Pension Fund is a] long-term [investor] with liabilities reaching beyond the year 2100’; and (b) that ‘The Fund’s long-term goal is for 100% of assets to be compatible with the net zero
-emissions ambition by c.2050 in line with the Paris agreement. This decarbonisation goal will
be regularly evaluated in line with our objective of maintaining long-term financial performance.’?
Response by Councillor Fox, on behalf of the Chair of the Pension Committee:
The East Sussex Pension Fund understands that it is a long term investor with a fiduciary duty to over 70,000 members and 131 employers and manages its Investment Strategy Statement on that basis.
The Fund believes that it is important that the global economy manages the decline of existing production in line with what is necessary to achieve the Paris climate goals. The Fund has undertaken a project to understand its current exposure to climate risk by requesting a carbon footprint of the Fund is undertaken. The preliminary results show the County’s Pension Fund to be in a favourable position in regard to its overall carbon footprint in terms of the Paris Agreement. The Pension Committee has made the
decision to have a significant proportion of its passively managed assets to be invested in the UBS Climate
Aware fund.
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DIVESTMENT QUESTIONS @ 15 MAY 2018 FULL COUNCIL MEETING
1. Question from Patricia Patterson-Vanegas, Forest Row, East Sussex:
In answer to questions from members of the public, Cllr Stogdon (in his role as chair of the Pension Committee) has repeatedly pointed to shareholder resolutions at oil company AGMs as evidence of successful engagement with fossil fuel companies. What climate shareholder resolutions is the East Sussex Pension Fund supporting this year, either directly or through bodies such as the Local Authority Pension Fund Forum?
Response by the Chair of the Pension Committee:
The East Sussex Pension Fund (ESPF) uses the Local Authority Pension Fund Forum to engage directly with fossil fuel companies along with its Investment Managers. The ESPF wishes with fossil fuel companies to achieve a positive response, without the requirement for shareholder resolutions. Where this is not
forthcoming the ESPF with the advice of LAPFF will support shareholder resolutions
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2. Question from Fran Witt, Lewes, East Sussex:
Responding on behalf of the Pension Committee, Cllr Fox has stated that ‘The Fund believes that it is important that the global economy manages decline of existing production in line with what is necessary to achieve the Paris climate goals.’ Does the Pension Fund accept that a Paris-compliant strategy for a fossil fuel company would require that company to commit to: (a) no new fossil fuel capital expenditure by end 2019; (b) a managed decline in production; and (c) to reduce its overall GHG footprint (scopes 1,2 and 3) to zero by 2050, with compatible interim milestones for 2025, 2030 and 2040?
Response by the Chair of the Pension Committee:
The Pension Committee recognises the issue of stranded assets and continued fossil fuel extraction as a collective investment risk for all asset owners and as an engagement and policy priority. The Committee, in line with LAPFF considers there is an economic and financial justification for moving away from investment in coal, oil and gas, and promotes a managed decline. For oil and gas companies, the focus should be on value at risk, particularly from high cost projects and returning capital to investors where appropriate. For companies with coal operations, no new resources should be exploited. The Forum also considers that in positioning themselves for the required low carbon future, companies should disclose a transition plan.
In 2018, LAPFF attendance at resource company AGMs has focussed questions on ‘science-based targets’. These are targets adopted by companies to reduce carbon emissions in line with the level of decarbonisation required to keep global temperature increase below 2°C.
3. Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
for its passive mandates the manager will only buy the stocks within the benchmark they are tracking. The Committee is aware that to ensure it is investing in the way that meets the needs of the Fund it needs to
ensure it provides suitable benchmarks for each investment mandate. Therefore, the choice of benchmark index by the Committee is very important and will continue to explore the potential for using low carbon indices.
Supplementary question:
So my question refers to a report published last month by the UK Sustainable Investment and Finance Association, which details the responses of a survey of 30 funder managers operating in the UK – collectively representing organisations with over £13 trillion under management – 90% of the fund managers surveyed expected at least one of the following risks to significantly impact the valuation of International Oil Companies within the next 2 years: regulation risk, litigation risk, transition risk, reputation risk, peak demand for oil occurring or becoming widely forecast … When does the East Sussex Pension Committee believe that these risks will begin to significantly impact the valuation of International Oil Companies?
Cllr Stogdon: … The answer is that the only risk that I think, and this is an off the cuff answer, is the peak demand for gas occurring or becoming widely forecast, and that would be a serious risk, of which the questioner is no doubt fully conscious, as it may effect him.
4. Question from Roger Ross, Rodmell, East Sussex:
Last year the Local Authority Pension Fund Forum provided LAPFF members with a Climate Change Investment Policy Framework with the aim of helping to ‘guide their policy approach to current and future investment risks and opportunities that result from the impacts of climate change’ and provide ‘LAPFF’s current view of suggested best practice guidance’ (http://www.lapfforum.org/wp-content/uploads/2017/11/Climate_Change_Investment_Policy_Framework.pdf).
One paragraph from this Framework –which, LAPFF recommends that its member funds adopt – reads: ‘We will review a variety of research and analytical materials to encourage the use of scenario analysis which provides estimations of relative performances of asset classes and sectors under different scenarios. When we have found scenario analysis that we consider robust and meaningful, we will request such research be utilised where possible in our Asset Allocation decisions and encourage our investment advisers to do likewise.’ Does the ESPF accept this best practice guidance from LAPFF? And what scenarios have the East Sussex Pension Fund and its investment managers and consultants considered to date when assessing the climate risk of the Fund?
Response by the Chair of the Pension Committee:
The Pension Committee will consider any scenario analysis that they consider robust and meaningful. The Pension Committee recently requested a carbon footprint of the Fund and is considering how best to utilize this information.
Supplementary question:
Thank you, good morning. What is the Pension Fund’s assessment of the likely impact on the value of its fossil fuel investments of emissions scenarios consistent with capping global warming at 2 degrees Celsius? Analysis from HSBC suggests that the equity valuation [of] the oil & gas companies could be reduced by 40- 60% in a low emissions scenario.
Cllr Stogdon: … I think this is a question, this is effectively a new question, Chairman, and we’d need to set this out in writing.
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5. Question from Hugh Dunkerley, Brighton:
In March 2018, in answer to a written question from a member of the public, Cllr Fox stated that the Pension Committee ‘has made the decision to have a significant proportion of its passively managed assets to be invested in the UBS Climate Aware fund.’
Can the Pension Committee confirm: (a) what proportion of their passive equity investments they plan to have invested in the UBS Climate Aware fund and by when; and (b) give its best estimate as to the proportion of the Fund’s equity investments that will then be invested in the oil & gas industries once this shift has been completed?
Response by the Chair of the Pension Committee:
The Pension Committee has committed to putting 11% of the Funds held in their passive investment portfolio into the UBS Climate Aware Fund. It is anticipated that the investment in the Climate aware fund will reduce the CO2 emissions of Pension Fund with the portfolio companies contracting at an annual
rate of 2.4%, compared to a rate of decline of 0.3% in the benchmark index.
Supplementary question:
In March 2018, in answer to a written question from a member of the public, Cllr Fox stated that ‘The Fund has undertaken a project to understand its current exposure to climate risk by requesting that a carbon footprint of the Fund is undertaken’. Does the Committee understand and accept that the climate risk and the carbon footprint of an investment are two different things, and that the latter is a poor – and potentially counterproductive – guide to where investments should be made if the goal is to lower future carbon emissions and reduce risks associated with climate change?
Cllr Stogdon: The answer is yes, Chairman.
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6. Question from Ariane Hadjilias, Lewes, East Sussex:
the use of Shell products. The aim is to cut emissions by 20% by 2035 and by half by 2050. The CEO has stated implementation will be done ‘in step with society’s drive to align with the Paris goals’.LAPFF’s involvement in collaborative engagement in 2018 has a strong focus on companies supporting the Taskforce on Climate-related Financial Disclosure. One of the Task Force’s key recommended disclosures focuses on the resilience of an organisation’s strategy, taking into account consideration of different
climate-related scenarios, including a 2° Celsius or lower scenario.
Supplementary question:
In my question I asked if any of the oil and gas companies in which the East Sussex Pension Fund is invested currently use less-than-the 2 degree Celsius trajectory as their planning scenario.
In your answer, you refer to Shell and BP. But BP’s ‘base’ scenario for business planning is consistent with a 2 to 5 degrees of warming, and Shell’s “ambition” to cut its greenhouse gas emissions by half by 2050 is completely in variance with the Local Authority Pension Fund Forum’s best-practice guideline [that] the Fund’s long-term goals should be … “for 100% of assets to be compatible with net-zero emissions by 2050 in line with the Paris agreement”.
Can you give a single example of an oil or gas company in which the East Sussex Pension Fund is invested in that currently uses a less-than-2-degree Celsius trajectory as its central planning scenario?
Cllr Stogdon: Chair, the answer is that the Pension Fund has undertaken a detailed analysis which has yet to be reported to us, so that when it is and when we have fully seen the effect, there was an original analysis that has been subsequently revised, we will look at it and answer the question.
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The LAPFF Annual Reports contain details of all the engagement activities that they undertake on behalf of members. These can be found along with more detailed reports on their activities on their website
http://www.lapfforum.org.
Supplementary question:
My question asked what actions the Pension committee and its fund managers have taken to try and restrict BP’s expenditure on the financially reckless projects identified by Carbon Tracker.
In response, Cllr Stogdon pointed me in the direction of the Annual Reports of the Local Authority Pension Fund Forum.
Looking at the last two years’ reports though, there doesn’t appear to any reference to any form of engagement that has successfully restricted BP’s expenditure on such projects.
Can you point to one, and, if not, what does this say about the efficacy and prudence of “engagement” as a risk-management strategy for the Fund?
Cllr Stogdon: Chair, we do believe that engagement is a worthwhile pursuit. It is not something that we can expect any instantaneous results from but we are committed to doing it. And until it is shown conclusively that there is absolutely no future in it, I don’t see that there is any justification for us to do otherwise.
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DIVESTMENT QUESTIONS @ 10 JULY 2018 FULL COUNCIL MEETING
1. Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
According to figures presented by Hymans Robertson at the East Sussex Pension Fund (ESPF) training day on 13 June 2017, approximately 9% of ESPF’s equity holdings were in oil and gas (‘Breakdown of equity exposure’ in ‘Climate change, carbon risk and investments’, document circulated by investment consultants Hymans Robertson at the East Sussex Pension Fund training day on 13 June 2017).
What is the current value of the Fund’s investments in oil and gas, and what percentage of its total equity assets does this represent? How are these figures anticipated to change once ESPF has enacted its decision to ‘[put] 11% of the Funds held in [its] passive investment portfolio into the UBS Climate Aware Fund’ (Written answer to Hugh Dunkerley, 15 May 2018)?
Response by the Chair of the Pension Committee:
The Pension Committee commissioned Trucost to provide a Carbon Footprint of the East Sussex Pension Fund. The report shows that the Fund has an aggregated carbon intensity of 379.02 tCO2e per million GBP. This will provide the Committee with additional information to challenge Investment managers on their decisions. The expectation is that this will help to reduce the carbon intensity of the Fund over time.
It is anticipated that the investment in the Climate aware fund will reduce the CO2 emissions of Pension Fund with the portfolio companies contracting at an annual rate of 2.4%, compared to a rate of decline of 0.3% in the benchmark index.
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2. Question from Arnold Simanowitz, Lewes, East Sussex:
Does the East Sussex Pension Fund accept the ‘best practice guidance’ of the Local Authority Pension Fund Forum (see http://www.lapfforum.org/wp-content/uploads/2017/11/Climate_Change_Investment_Policy_Framework.pdf) that:
(a) the East Sussex Pension Fund is a long-term investor ‘with liabilities reaching beyond the year 2100’;
and
(b) that ‘The Fund’s long-term goal is for 100% of assets to be compatible with the net zero-emissions ambition by [approximately] 2050 in line with the Paris agreement’ and that ‘This decarbonisation goal will be regularly evaluated in line with its objective of maintaining long-term financial performance.’
Response by the Chair of the Pension Committee:
The East Sussex Pension Fund understands that it is a long term investor with a fiduciary duty to over 70,000 members and over 130 employers and manages its Investment Strategy Statement on that basis. The Fund’s long-term goal is to ensure it has sufficient funds available to pay
pensions when they fall due. The Fund believes that it is important that the global economy manages the decline of existing production in line with what is necessary to achieve the Paris climate goals.
Supplementary question:
With the greatest respect neither of the two very specific questions that I asked has been answered, so I’m sure the Chair will understand why I ask them again:
Does the Pension Fund accept the ‘best practice guidance’ of the Local Authority Pension Fund Forum that:
(a) the East Sussex Pension Fund is a long-term investor ‘with liabilities reaching beyond the year 2100’;
and
(b) that ‘The Fund’s long-term goal is for 100% of assets to be compatible with the net zero-emissions ambition by [approximately] 2050 in line with the Paris agreement’ and that ‘This decarbonisation goal will be regularly evaluated in line with the objective of maintaining long-term financial performance.’
I would suggest that the answer, whether it’s acceptable or not, is really a yes or no – not the lengthy terms I already had in the response…
Cllr Stogdon:
Chair I’m very surprised this question is being asked again because we have already indicated that the answer is certainly yes.
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3. Question from John Enefer, St Leonards-on-Sea, East Sussex:
In July 2016, the Local Authority Pension Fund Forum (LAPFF) wrote that shareholders needed to engage with oil and gas corporations to be able to gauge the risk profile of their investments. They concluded that “There is a financial argument that those that can’t reassure investors could be considered as divestment candidates” (Engaging for a low carbon transition: Why a 2 ̊C business model is less risky than ‘business-as-usual’ for oil companies, http://www.lapfforum.org/wp-content/Publications/latest-research/files/LAPFF_CTI_Engaging_for_a_Low_Carbon_Transition.pdf). We are now almost two years on and, increasingly, engagement as a risk-management-strategy looks highly suspect.
If the East Sussex Pension Fund believes that such companies pose growing financial risks, why is the Fund’s strategy not to reduce exposure to that stock, rather than continue holding it in the hope that engagement activities will cause these companies to change their strategies?
Response by the Chair of the Pension Committee:
The Fund believes that it is important that the global economy manages the decline of existing production in line with what is necessary to achieve the Paris climate goals.
The Committee believes that the best way to achieve this is to engage with companies and as a member of LAPFF the committee receives regular reports and advice from them. The advice from LAPFF and also from the leading ESG policymaker within the LGPS, the Environment Agency Pension Fund, is not to divest from fossil fuel investments but to engage with companies.
Supplementary question:
How does the Pension Committee justify continuing to risk hard-working pension-holders money trying to “engage” oil and gas companies which give no sign of taking meaningful action to address their impact on climate change, who are being sued for billions of dollars by local authorities in the USA, and whose investors are all watching one another as they to wait to sell?
Cllr Stogdon:
We have already indicated that we don’t accept the premise to that question. We are aiming to reduce the Sussex Pension Fund’s carbon exposure, as the questioner well knows. We’ve taken steps already, significant steps, in terms of investing 11% of our passively managed investment fund in the UBS climate change awareness fund and this marks the beginning of a process of moving to a lower carbon exposure in the fund’s portfolio. On the question of funding, at this stage, the fund is very nearly, if not completely 100% funded. We have no intention of putting that situation at risk. The questioner mentions that hard working pensioners should not be exposed. What we need to do is to ensure that we remain in pole position to deliver proper pensions for all our members. And that remains our over-riding concern and we will continue to stick to that.
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4. Question from Hugh Dunkerley, Brighton
As chair of the ESCC Pension Committee, I am sure you are aware of the growing debate about the financial stability of fossil fuel investments. I would like to draw your attention to a recent study. The study, entitled ‘Macroeconomic Impact of Stranded Fossil Fuel Assets’ (published in Nature Climate Change , July 4th) warns that fossil fuel companies could be left with trillions in stranded assets as a rapid decline in fossil fuel demand is likely because advances in technologies for energy efficiency and renewable power, and the accompanying drop in in their price, have made made low carbon energy much more attractive. However, as the lead author of the report, Dr Francois Mercure of Radboud and Cambridge universities told The Guardian, the transition is currently happening too slowly to stave off the worst effects of climate change.
If they are aware of this latest report, will the pension committee consider asking their portfolio managers the following question. ‘Can we get the same return on our pension investments without investing in any shares related to fossil fuels’? Such a move would be good for both the long term value of the pension scheme and the environment.
Response by the Chair of the Pension Committee:
The Pension Committee regularly monitor, review and challenge the strategies and decision making process of its investment managers particularly on responsible investment topics, investment returns, financial and non-financial risks, etc…
Supplementary question:
In my submission I asked a specific question about returns on pension investments from non fossil fuel investments. I don’t believe I had an answer to me question so I would like to ask it again.
Will the Pension Committee consider asking their portfolio managers the following question- Can we get the same return on our investments without investing in any shares related to fossil fuels?
Cllr Stogdon: Chairman- thank you. The answer to this question has already been made in previous answers to questions raised by this questioner and others. It is our clear intention to reduce the funds to carbon exposure over time and as I’ve outlined in the earlier answer, we have taken steps towards doing that. The questioner has made reference to a highly technical report by Dr Macure, interesting though this is, it is of no way providing any guidance to us on what we should actually be doing, in as much as it seems to criticise the content of the Paris Agreement. I don’t think I can add anything further to that.
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DIVESTMENT QUESTIONS @ 16 OCTOBER 2018 FULL COUNCIL MEETING
1. Question from Hugh Dunkerley, Brighton:
In a December 2017 response to a question from a member public, Councillor Stogdon pointed to the climate change disclosure resolution at last year’s ExxonMobil AGM – backed by 62% of shareholders –
as an ‘important’ result of its engagement policy. What is the Fund’s assessment of Exxon’s response to this disclosure resolution: its Energy and Carbon Summary, published this February?
Response by the Chair of the Pension Committee:
The resolution made it clear to the ExxonMobil Board of Directors that climate change risks are important to shareholders. Creating the report has forced the Board to consider these risks in their business model and making them accountable for them. This is a step in the right direction and shows through active shareholder engagement it can get those companies it is invested to improve their corporate behavior. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments. The Committee believes that these can be maximised by collaborating with other likeminded investors to increase the pressure for change and encourages improvements to be made.
Supplementary question:
Thank you for your response. You describe Exxon’s Energy and Carbon Summary as ‘a step in the right direction.’ But I was wondering how you square this assessment with the facts that, as detailed in recent analysis from Carbon Tracker, Exxon’s report (a) ‘does not provide a meaningful economic assessment of the potential value impact to their producing reserves and resource base in its 2°C scenario’; and (b) that it is ‘fundamentally lacking the kind of information investors need to understand how Exxon is positioned for a low carbon outcome and that shareholders requested in their 2017 resolution’?
Cllr Stogden: Chairman thank you, I apologise for that slight delay but it has reference to one of the other questions..um, I well understand the concerns that surround Exxon, I actually do believe that as pressure mounts from their shareholders of which we, indirectly, are one, that their performance will have to improve. More than that I can’t really say but if the question relates to whether we have the right answer in terms of willingness to engage on a shareholder basis then we have indicated, in every possible way, that we certainly are and will continue to do so. Thank you.
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2. Question from Patricia Patterson-Vanegas, Forest Row, East Sussex:
Earlier this year, the former deputy controller of New York State, Tom Sanzillo, wrote in the Financial Times that “any engagement with the fossil fuel industry, short of a demand for managed decline and a halt to new fossil fuel investment, has become financially unsound.” (Stop reasoning with the oil majors and sell their shares instead, Financial Times, 8 March 2018, https://www.ft.com/content/b5346cac-1e45-11e8-a748-5da7d696ccab). Will the Pension Committee set a deadline for the oil and gas companies that the East Sussex Pension Fund is invested in to agree to these demands, divesting if they fail to do so?
Response by the Chair of the Pension Committee:
The Committee has delegated individual stock selection to its active investment managers as they are best placed to carry out the detailed research on companies. Simply disinvesting from a particular category or group of companies is likely to reduce the Fund’s ability to secure the best realistic return over the long-term whilst keeping employer contributions as low as possible. Furthermore, it denies the opportunity for the Fund to influence companies’ environmental, human rights and other policies by positive use of shareholder power, a role the Committee takes very seriously. The Committee has reserved the right to apply ethical or environmental criteria to investments where relevant and appropriate on a case by case basis.
Supplementary question:
Thank you very much. Would you accept that if at some point in the future the Pension Committee were to come to an assessment that its investments in fossil fuels were a financial danger to the Fund then to retain them solely to maintain an ‘influence’ on the companies’ environmental, human rights and other policies would be a breach of the Fund’s fiduciary duty to its members?
Cllr Stogden: Chair it is the case that we may well come to that conclusion, we haven’t done so yet. I’m particularly grateful for the link to the article which Miss Patrica Patterson Venegras has pointed us in the direction of . I don’t believe the time has arrived where we could take the step that you’re suggesting.
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3. Question from Frances Witt, Lewes, East Sussex:
What is the current value of the Fund’s investments in oil and gas, and what percentage of its total equity assets does this represent? How are these figures anticipated to change once the East Sussex Pension Fund has enacted its decision to ‘[put] 11% of the Funds held in [its] passive investment portfoli
o into the UBS Climate Aware Fund’ (Written answer to Hugh Dunkerley, 15 May 2018)?
Response by the Chair of the Pension Committee:
The Pension Fund estimates its exposure to Oil and Gas producers are in the region of 4.0% of the fund total investments, which would represent 6.5% of its total equity investments. This is constituted by direct investments of £6.2m around 1.6% of the Fund’s direct equity investments and an estimate of its indirect investments of around 7.5% (circa £138.8m). The exact figure invested via our indirect investments is not available due to the nature of the investments. The exposure to Oil and Gas producers in the indirect passive investments are determined by the index that the committee has set the manager to track.
The investment into the climate aware fund took place in June 2018 and has been incorporated into the figures provided above.
Supplementary question:
Thank you for your response. Is the Pension Fund aware that, since it made its December 2016 commitment to divest from fossil fuels, the Southwark Pension Fund has reduced its holdings in fossil fuel companies from roughly 4.8% of the Fund to just under 1% – which is an 80% drop in their exposure to these damaging and risky fossil fuel companies?
Cllr Stogdon: I can’t say I that I am aware of that but thank you for making us aware. Thank you.
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4. Question from Richard Moore, Lewes, East Sussex:
Does the East Sussex Pension Committee accept that:
(a) ‘The global energy system is transitioning from a global system based mainly on fossil fuels to one based mainly on renewable energy sources’; and
(b) that, based on the evidence of past energy transitions, ‘the most important phase for financial markets is the peaking phase, the point at which demand for the old energy source peaks’ (‘2020 Vision: Why you should see peak fossil fuels coming’, Carbon Tracker, September 2018, https://www.carbontracker.org/reports/2020-vision-why-you-should-see-the-fossil-fuel-peak-coming)?
Response by the Chair of the Pension Committee:
To mitigate asset risk the Pension Fund’s strategic asset allocation benchmark invests in a diversified range of asset classes. The Pension Committee is committed to actively exploring carbon light options and
smart beta approaches to our investment in order to reduce inadvertent exposure to those fossil fuel companies with unsustainable business models and those companies involved in very high carbon intensive businesses, taking into consideration the Committee fiduciary duties and potential financial and non-financial risk.
Supplementary question:
Does the Pension Committee accept that, in energy transitions, ‘demand for incumbents peaks early, and investors in incumbents lose money early’? If so, when do it’s fund managers judge that demand for fossil fuels will peak?
Cllr Stogden: You have very kindly pointed us in the direction by the link, you provided in the question and you referred to carbon tracker. It may please you to know that we had extensive presentations in the Spring of 2017 on the work done by Carbon Tracker and we take it extremely seriously. I don’t believe that this peak that is referred to in the article has actually been reached but I can see that that time may come. It interests me to see that the writer of the article referred to um, it’s major focus appeared or at least partially end focus was related to wind power, personally I’ve always thought that solar was a more interesting option. Perhaps that’s because I’ve heard far too much wind blowing through this chamber for the last 13 and a half years. In any event, but that you for directing us to the article and I have read the article and I’m pleased to say that there’s nothing there that’s new to us. Thank you chair.
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DIVESTMENT QUESTIONS @ 4 DECEMBER 2018 FULL COUNCIL MEETING
1. Question from Richard Pike, Forest Row, East Sussex:
The latest report from the Intergovernmental Panel on Climate Change (IPCC) has highlighted the huge differences that limiting global warming to 1.5ºC, as opposed to 2ºC, would make (‘Global Warming of 1.5ºC’, October 2018, http://www.ipcc.ch/report/sr15/). Has the Pension Committee discussed the IPCC report, and if so what effect do they think its conclusions are likely to have on the Fund’s future investments?
Response by the Chair of the Pension Committee:
The Pension Committee has regular training on Responsible Investment and regularly reviews its Investment Strategy Statement to ensure it is addressing the risks facing the Fund. The Committee has recently approved the Fund Responsible Investment Policy, of which one of the core principles is to regularly evaluate and manage carbon exposure in order to mitigate risks to the Fund from climate change. The Committee is aware that the more we limit global warming below 2ºC that there will be benefits and will continue to engage with companies towards limiting climate change.
Supplementary question:
Thank you for your response [to] the original question. Given that the IPCC report has dramatically raised the political salience of 1.5ºC scenarios, what steps has the East Sussex Pension Committee taken since the report’s publication on 8th October to assure itself that its fund managers are taking such scenarios – and their likely impact on the value of the Pension Fund’s assets – into account as they continue to invest in fossil fuels on the Fund’s behalf?
Cllr Stogden: Thank you. At the recent, since the publication of that report, which was briefly discussed at the last meeting of the committee, the committee made the decision to sign up to the Stewardship Code- that will involve greater responsibility on the committee looking at the whole issue of ESCC (?) policies with regard to future investment & existing investment.
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2. Question from Frances Witt, Lewes, East Sussex:
In September 2018, the leading non-profit shareholder advocacy foundation As You Sow, published a major report entitled ‘2020: A Clear Vision for Paris Compliant Shareholder Engagement’ (https://www.asyousow.org/reports/2020-a-clear-vision-for-paris-compliant-shareholder-engagement).
As You Sow has spent over 25 years enagaged in shareholder advocacy on a host of different issues, during which time it has won a number of successes, including getting the three largest beverage companies in the US to commit to recycling a majority of its post-consumer containers and getting Dunkin Doughnuts to remove titanium dioxide from its powdered doughnuts.
In their September 2018 report As You Sow note that despite ‘receiv[ing] more engagement and resolution filings than any other sector’ (some 160-plus shareholder resolutions filed at 24 oil & gas companies from 2012-2018) ‘No U.S. oil & gas company has adopted plans or targets to limit its full lifecycle contribution of greenhouse gas emissions. Instead, the vast majority of U.S. companies continue to argue the need for business as usual investments to meet growing global demand—even if that production contributes directly to the world overshooting its Paris goals and locking in global and economic calamity’ (pages 8, 10 and 11).
Does the East Sussex Pension Committee accept this assessment of the record of engagement with US oil and gas companies? And, what is the East Sussex Pension Fund’s exposure to these companies?
Response by the Chair of the Pension Committee: The East Sussex Pension Fund has in the region of 4.0% of its investment in oil and gas companies. The Pension Committee believes by increasing pressure on oil and gas companies, through active shareholder engagement, we can get companies to improve their corporate behavior. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments. The Committee believes that these can be maximised by collaborating with other likeminded investors to increase the pressure for change and encourages improvements to be made.
Supplementary question:
Thank you for your considered response. Just in terms of the potential of increasing pressure on oil and gas companies, I would like to ask if the Pension Committee accepts that no US oil & gas company has yet adopted plans or targets to limit its full lifecycle contribution of greenhouse gas emissions’and that the vast majority of US oil & gas companies ‘continue to argue the need for business as usual investments to meet growing global demand—even if that production contributes directly to the world overshooting its Paris goals’?
Cllr Stogden: I’m not clear that we haven’t dealt with the supplementary and the text of the answer which has already been given? You will know that we have a commitment to the whole concept of engagement with the companies you’re referring to, as has been shown in the Shell case. Our belief is that actually these companies will be responding to the kind of engagement that we have espoused.
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3. Question from Lottie Rodger, Lewes, East Sussex:
The Intergovernmental Panel on Climate Change (IPCC)’s recent report ‘Global Warming of 1.5 °C’ concluded that “limiting global warming to 1.5°C, compared with 2°C, could reduce the number of people both exposed to climate-related risks and susceptible to poverty by up to several hundred million by 2050”. However, the window for doing this, and thereby avoiding the worst impacts of climate change, is rapidly closing. Indeed, according to Professor Nicholas Stern, who authored the Stern Review on the Economics of Climate Change for the UK government, “the next 10 years will be absolutely crucial in determining what kind of world will exist in the decades beyond. If we act decisively, and innovate and invest wisely, we could both avoid the worst impacts of climate change … If we do not, we face a world in which it will become increasingly difficult for us and future generations to thrive.” How does the Pension Fund’s timeline for its current policy of engagement with fossil fuel companies relate to the narrow window described in the IPCC report?
Response by the Chair of the Pension Committee:
The Pension Committee believes by increasing pressure on fossil fuel companies, through active shareholder engagement, we can get companies to improve their corporate behavior. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments. The Fund’s approach to engagement recognises the importance of working in partnership to magnify the voice and maximise the influence of investors as owners. The Fund appreciates that to gain the attention of companies in addressing governance concerns it needs to join with other investors sharing similar concerns. Along with its investment into the climate aware fund which provides an incentive to companies to move towards limiting climate change.
Supplementary question:
Firstly, I’d like to thank Councillor Stogdon for his response. The latest Intergovernmental Panel on Climate Change report paints a stark picture of a world with 2 degrees of global warming, and highlights the narrow window of opportunity that we now have to avoid this. What steps are you and the other members of the Pension Committee taking in the wake of this report to help ensure that your generation fulfils its duty not to bequeath such a world to my generation?
Response by the Chair of the Pension Committee: Chair, over a series of meetings we have tried to explain the steps that the fund is taking, and it wasn’t for nothing that we were put up for an award for the steps we have endeavoured to take in regard to the whole issue of climate change risk, as explained previously climate change is only one of the many risks facing the fund. It has to be balanced with those other risks and we are doing precisely that. We’ve taken a number of steps which I would respectfully point out to you read through the minutes of our meetings you will see that very considerable consideration has been given to these issues.
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4. Question from Hugh Dunkerley, Brighton:
In answers to past questions, Councillor Stogdon has referred to the importance for the East Sussex Pension Fund’s engagement policy of the Local Authority Pension Fund Forum (LAPFF)’s ‘participation in the Transition Pathway Initiative, which aids understanding of where companies are placed in the transition to a low carbon economy and their competence to manage this transition.’ (Response to question from Arnold Simanowitz, Lewes, East Sussex, March 2017, https://divesteastsussex.wordpress.com/questions-answers-at-esccs-full-council-meetings/).
Earlier this month, the TPI published a ground-breaking assessment of the corporate public disclosures of the ten largest publicly listed oil and gas companies ‘taking into account the full lifecycle emissions of their products’ (‘Carbon Performance Assessment in Oil and Gas: Discussion paper’, November 2018, http://www.lse.ac.uk/GranthamInstitute/tpi/wp-content/uploads/2018/11/Oil-and-gas-discussion-paper.pdf). It found that:
(1) Only two of the ten companies (Shell and Total) had set long-term ambitions that would result in a large reduction in their carbon emissions intensity and that even these were ‘not yet ambitious enough to align with a pathway to limit global warming to 2°C or below before 2050’;
(2) Five of the companies (including Exxon) do not have any quantitative emissions reduction targets at all; and
(3) Not one of the ten companies has ‘proposed to reduce its carbon intensity sufficiently to be aligned with a Below 2 Degrees benchmark or to achieve net zero emissions by 2050.’
What changes to its engagement policy will the East Sussex Pension Fund be making in the light of this new information?
Response by the Chair of the Pension Committee: The Pension Committee welcomes the Transition Pathway Initiative report as it provides the Pension Committee with the information to challenge the plans of publicly listed oil and gas companies directly. The Pension Committee will be better informed to challenge our Investment Managers to ensure that they are a taking these risks into consideration when making investments. The Committee has recently approved the Fund Responsible Investment Policy, of which one of the core principles is to regularly evaluate and manage carbon exposure in order to mitigate risks to the Fund from climate change. Greater disclosure is still required and the Pension Committee will continue pushing for this by collaborating with other likeminded investors to increase the pressure for change and encourage improvements to be made.
Supplementary question:
I’d like to thank Councillor Stogdon for his response. The Church of England has recently committed to divest, no later than 2023, from those fossil fuel companies that are not prepared to align with the goal of restricting global warming to well below 2°C. In light of the dismal record uncovered by the Transition Pathway Initiative report, what deadline will the East Sussex Pension Fund be setting for divesting from such companies?
Cllr Stogden: I’m grateful for the question. There will be no deadline at this stage.
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DIVESTMENT QUESTIONS @ 5 FEBRUARY 2019 FULL COUNCIL MEETING
1. Question from Patricia Patterson-Vanegas, Forest Row, East Sussex:
‘Renewable energy is already damaging the more exposed parts of the fossil fuel system. The European electricity sector has written off $150bn of stranded assets since 2008, Peabody filed for bankruptcy in 2016 when coal demand was 4% below its peak, and GE has lost half its capitalisation in the last year’ (‘Myths of the energy transition: Renewables are too small to matter.’, Carbon Tracker, October 2018, https://www.carbontracker.org/wp-content/uploads/2018/10/CTI_Myths_Series_1_Renewables-too-small.pdf).
Given that ‘it is normal for markets to react at the peak’, when do the East Sussex Pension Fund’s fund managers believe that peak demand for fossil fuels is likely to take place?
Response by the Chair of the Pension Committee: The Pension Committee believes that investors with long term time horizons are more exposed to certain risks and requires that its investment managers are aware of and consider these when making investments. It is acknowledged that investment managers carry out detailed research on the prospects for individual companies and industries and have access to company management. The Committee meets with investment managers at its regular quarterly meetings and has the opportunity to discuss relevant developments in detail. To challenge investments strategies and to ensure these are being followed and that all relevant risks have been considered. When peak demand for fossil fuel may occur is dependent on many varying factors around which many assumptions are made. Therefore there is a divergence of views from the Fund’s investment managers at what point peak demand for fossil fuels will occur, along with what impact this will have on individual companies. While some managers believe that demand for fossil fuels will peak in the early 2030s, there is no consensus on ‘when is peak?’, but estimates vary from the 2020s, with organisations such as Carbon Tracker predicting this will be in 2023, to the energy industry’s estimate of 2040. It is believed that pinpointing a precise year gives a misleading sense of accuracy.
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2. Question from Arnold Simanowitz, Lewes, East Sussex:
Last month saw the publication of an important scientific paper in the journal Nature Communications, entitled: ‘Current fossil fuel infrastructure does not yet commit us to 1.5 °C warming’ (https://www.nature.com/articles/s41467-018-07999-w).
This found that ‘if carbon-intensive infrastructure is phased out at the end of its design lifetime from the end of 2018, there is a 64% chance that peak global mean temperature rise remains below 1.5 °C’ but that ‘[d]elaying mitigation until 2030 considerably reduces the likelihood that 1.5 °C would be attainable even if the rate of fossil fuel retirement was accelerated.’
According to Christopher Smith, of the University of Leeds, who led the research: “It’s good news from a geophysical point of view. But on the other side of the coin, the [immediate fossil fuel phaseout] is really at the limit of what we could we possibly do. We are basically saying we can’t build anything now that emits fossil fuels.”
According to Nicholas Stern, of the London School of Economics, who was not part of the research team: “This study confirms that all new energy infrastructure must be sustainable from now on if we are to avoid locking in commitments to emissions that would lead to the world exceeding the goals of the Paris agreement.”
Given these conclusions, and the dire human and financial impacts of scenarios in which we exceed 1.5 °C of global warming, how does the East Sussex Pension Committee justify continuing to invest in fossil fuel companies that continue exploring for new sources of fossil fuels and building new infrastructure to extract them?
Response by the Chair of the Pension Committee: The Pension Committee believes by increasing pressure on oil and gas companies, through active shareholder engagement, we can get companies to improve their corporate behaviour. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments. The Fund’s approach to engagement recognises the importance of working in partnership to magnify the voice and maximise the influence of investors as owners. The Fund appreciates that to gain the attention of companies in addressing governance concerns it needs to join with other investors sharing similar concerns. The Committee continues to engage with investment managers, along with its investment into the climate aware fund which provides an incentive to companies to move towards limiting climate change.
Supplementary question:
I’d like to thank Cllr Stogdon for his response and I’d like to ask the following: Can he point to anything specific achieved, by the engagement that he referred to in his answer, that might help to limit global warming to 1.5 degrees?
Cllr Stogden: Chair I’m very grateful for the question. The recent response, I think, of BP shows some indication that there is positive progress. In any event, even if there weren’t, we still are very much of the view or the committee is of the view that engagement is a constructive policy and that we should continue with it and we don’t think that outright divestment which really I think is the thrust of what you’re saying or recommending to us, is the answer to the fund.
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DIVESTMENT QUESTIONS @ 26 MARCH 2019 FULL COUNCIL MEETING
- Question from Frances Witt, Lewes East Sussex:
A recent analysis by Jeremy Grantham, co-founder and chief investment strategist of Grantham, Mayo, Van Otterloo, one of the largest asset management firms in the world, used past data to test how an investment portfolio would be affected by divesting from a group of companies that are listed in the Standard & Poor’s 500. Their analysis found that investors could divestfrom any sector without any impact on risk/return. (‘The mythical peril ofdivesting from fossil fuels’ (http://www.lse.ac.uk/GranthamInstitute/news/the-mythical-peril-of-divesting-from-fossil-fuels/). Are the East Sussex Pension Fund’s fund managers and investment consultants aware of Grantham’s analysis? Do they accept it and, if not, why not?
Response by Councillor Fox on behalf of the Chair of the Pension Committee: The Fund’s investment managers do their own research on each company that they invest in. They will look at all aspects of the companies before investing. The Committee challenges its investment managers on their investment rationale including how they have considered Environmental, Social and Corporate Governance (ESG) risks.The Fund’s Investment Consultants have their own research team and are constantly considering the latest theoretical research. They inform the Committee of their view where this is considered, discussed and challenged – if necessary.
Supplementary question:
Thank you Cllr Fox, for your response to my question. I just wanted to come back to you because my question referred specifically to a recent analysis by Jeremy Grantham, who is the co-founder and chief investment strategist of Grantham, Mayo, Van Otterloo, one of the largest asset management firms in the world and they used past data to test how an investment portfolio would be affected by divesting from a group of companies that are listed in the Standard & Poor’s 500. So my question is, are the East Sussex Pension Fund’s fund managers and investment consultants aware of Grantham’s analysis? Do they accept it and, if not, why not?
Cllr Fox: Thank you very much for your question, Ms Witt. Yes we are aware, I’ve worked in the city for 30 yrs so I know very well who Jeremy Grantham is and I think first of all you need to understand, we are not running an index portfolio and that study pertains to the returns on an index portfolio. And I think it’s also fair to say that if you owned a portfolio 100 yrs ago or even 30 yrs ago the constituent parts of the S&P 500 would be very different from what they are today. So the one certainty in all this is that change is inevitable both in terms of which sectors dominate in an economy, which companies dominate which sectors. So I think you have to understand that investment is framed from that perspective. We own a number of funds, some of which invest in energy stocks and some which don’t. And so we take a more holistic approach to the portfolio. Longview, which we have a large holding in, do not have any energy or indeed commodity stocks in their portfolio. The UBS Climate Aware Fund, which is an index fund, sorts stocks by their carbon footprint so that we don’t inadvertently own dirty stocks in the portfolio. But turning to Jeremy’s analysis, which is interesting, I make a number of observations. First of all, it doesn’t really address the issue of pension funds who are very reliant on income, unfortunately, energy stocks are a significant contributor to the income that pension funds need in order to pay out to their beneficiaries. And also says very little about volatility and diversification, in terms of how that kind of portfolio would behave over time. And it fails to address the interconnectedness of sectors, so for instance today, if we were to say that, for whatever reason, let us divest from fossil fuels, what would that mean for aviation? Nothing at all, aviation is only, something like, 3% of greenhouse gas emissions. If aviation were a country it would be the 10th largest emitter in the world. What does it say about steel? It says nothing about iron & steel. Steel basically accounts for 5% of greenhouse gas emissions and up to 7-9% of fossil fuel based emissions. And so we like to take a more holistic approach to this. We think it’s a more complicated question than just turning around and saying, well we are going to sell every energy stock that we own. So that is my answer to your question.
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2. Question from Hugh Dunkerley, Brighton:
At the December 2018 Full Council meeting Councillor Stogdon stated that ‘The Pension Committee believes by increasing pressure on fossil fuel companies, through active shareholder engagement, we can get companies to improve their corporate behavior.’ What “improvements” in the behaviour of fossil fuel companies does the Committee believe that it will be able to secure by 2030, and on what evidence does it base this belief?
Response by Councillor Fox on behalf of the Chair of the Pension Committee: The Fund believes that its influence as a shareholder is better deployed by engaging with companies, in order to influence behaviour and enhance shareholder value. Going forward the Fund’s approach to engagement recognises the importance of working in partnership to magnify the voice and maximise the influence of investors as owners. The Fund appreciates that to gain the attention of companies in addressing governance concerns, it needs to join with other investors sharing similar concerns. It does this primarily through: membership of representative bodies including LAPFF; membership of the Pensions and Lifetime Savings Association (PLSA); giving support to shareholder resolutions where these reflect concerns which are shared and affect the Fund’s interests; joining wider lobbying activities when appropriate opportunities arise. Without Investor engagement the committee believes that ongoing changes in companies’ behaviour would not have happened. The Committee also believes that companies have started to make public commitments that will increase pressure on other companies within the sector to do the same.
Supplementary question:
Thank you for your written response. What “improvements” in the behaviour of fossil fuel companies does the Committee believe that it will be able to secure by 2030, and on what evidence does it base this belief?
Cllr Fox: There is a limit to what pension funds can do. Climate Action 100, which is a group of large pension funds around the world, have had some success in making collective representations on behalf of its members. It represents a very large chunk of investors. I very much take the view that what we are doing at the moment is we are responding to policy and we have a fiduciary responsibility to maximise the returns of our portfolio for our pensioners, for the beneficiaries of the fund and to keep the contributions as low as possible for the employers who contribute to them. And all that we can do is that we can be mindful of the risks in the portfolio, we can go to the managers who manage our money and we can challenge them to challenge the companies that they hold stocks in, as to whether they feel [unclear] in the price of the stock is actually an adequate assessment of the risk that exists for that stock. And we can make collective representations through these bodies but what we do is we maximise… our responsibility is a very narrow one, and it is essentially to look after the interest of the pensioners and government is the entity that makes policy and government will contribute to global greenhouse agreements which are already in place and which are evolving, we have increased ambition from Paris, on top of the Climate Change Act 2008. We will have a further increased ambition form the IPCC report from 2018. So policy is in motion, but to a great extent we can only respond to the evolution of policy and invest within the framework laid down by that policy.
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3. Question from John Enefer, Hastings East Sussex:
At the December 2018 Full Council meeting Councillor Stogdon welcomed the publication of the Transition Pathway Initiative’s discussion paper ‘Carbon Performance Assessment in Oil and Gas’ (http://www.lse.ac.uk/GranthamInstitute/tpi/wp-content/uploads/2018/11/Oil-and-gas-discussion-paper.pdf). The latter found that none of the ten largest publicly listed oil and gas companies had ‘proposed to reduce its carbon intensity sufficiently to be aligned with a Below 2 Degrees benchmark or to achieve net zero emissions by 2050.’ In his answer Councillor Stogdon wrote that the report meant that the Pension Committee would ‘be better informed to challenge our Investment Managers to ensure that they are a taking these risks into consideration when making investments.’ What steps has the Pension Committee taken since December to challenge its Investment Managers to ensure that they are a taking these risks into consideration when making investments? What were the results of these steps?
Response by Councillor Fox on behalf of the Chair of the Pension Committee: The Pension Committee continues to directly challenge its investment managers (when necessary) on how they have incorporated Environmental, Social and Corporate Governance (ESG) risks when managers attend the Committee meetings. The committee also receives updates at training sessions on ESG/Responsible Investment risks and how investment managers incorporate them. The Committee is working with the Fund Investment Consultants and Independent Advisor to incorporate ESG reporting into the Fund quarterly/annual performance reports.
Supplementary question:
Thank you for the written response to my question. I’ve got a supplementary. According to the Economist, Exxon ‘plans to pump 25% more oil and gas in 2025 than in 2017’ and is planning to spend scores of billions of dollars over the next seven years to make this happen. Given the Fund’s long-term goal for 100% of its assets to be compatible with a net zero-emissions ambition by approximately 2050, what questions has the Committee put to its Investment Managers regarding the wisdom or otherwise of the East Sussex Pension Fund continuing to invest in Exxon?
Cllr Fox- I can’t speak specifically for Exxon but what I would point out to you is that even under the IEA’s projections there will be a substantial role for gas right up to 2050. And there will be ultimately a declining role in oil but still something like 80,000,000 barrels a day of oil will be pumped for other purposes other than just burning in internal combustion engines. And so, it’s kind of very very difficult to take the view that somehow we’re going to have a kind of step-jump. What we have is an evolution going on – a transformation of the energy system is taking place and will continue to take place. We don’t know definitively whether carbon capture and storage will ever be something which is brought to perfection and we work on the assumption that it probably won’t be although it is feasible. Our approach as always is to weigh risks. We are not over invested in energy stocks, we are under invested from an index perspective and so we take these risks very very seriously. It’s not our intention to, um, what we can do is to say to our managers ‘do you believe that the stock that you own, be it Exxon, be it BP, be it Shell, be it Total Oil, we can say to them, ‘do you believe that the risks to this company are fully priced into the stock’ and if they can’t answer that question then they’ll go away and they’ll sell it. And so we are very very alive to these concerns. It’s not that we don’t think about them. They are things which occupy our minds on a regular basis.
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Question from Lottie Rodger, Lewes, East Sussex:
At the December 2018 Full Council meeting I asked Councillor Stogdon what steps the members of the Pension Committee were taking in the wake of the Intergovernmental Panel on Climate Change (IPCC)’s recent report ‘Global Warming of 1.5 °C’, to help ensure that global warming does not exceed 1.5 °C. In my question I quoted the assertion of Professor Nicholas Stern, who authored the Stern Review on the Economics of Climate Change for the UK government, that passing this threshold would bequeath my generation ‘a world in which it will become increasingly difficult for us and future generations to thrive’. In his response Councillor Stogdon directed me towards ‘the minutes of [the Pension Committee’s] meetings’ where, he said, I would ‘see that very considerable consideration has been given to these issues’. These minutes do indeed show that some ‘consideration’ has been given to these issues, but this ‘consideration’ does not appear to have been matched by meaningful action. Given the meagre results of the Fund’s policy of “engaging” with fossil fuel companies – a policy that appears to have no meaningful benchmarks or timeline – and the need for urgent action to avert the looming climate crisis, I would respectfully ask again: what meaningful steps are you and the other members of the Pension Committee taking to help ensure that your generation fulfils its duty not to bequeath a 2°C (or worse) warmed world to my generation?
Response by Councillor Fox on behalf of the Chair of the Pension Committee: The Pension Committee believes by increasing pressure on fossil fuel companies, through active shareholder engagement, we can get companies to improve their corporate behaviour. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments. The Fund’s approach to engagement recognises the importance of working in partnership to magnify the voice and maximise the influence of investors as owners.The Fund appreciates that to gain the attention of companies in addressing governance concerns it needs to join with other investors sharing similar concerns. Along with its investment into the Climate Aware Fund, this provides an incentive to companies to move towards limiting climate change.
Supplementary question:
Thank you for your response. However, I feel that my question remains unanswered. What meaningful steps are you and the other members of the Pension Committee taking to help ensure that your generation fulfils its duty not to bequeath a 2°C (or worse) warmed world to my generation, with all of the devastating consequences that that will entail for us?
Cllr Fox: I can do that as a politician by arguing that government spend more money on carbon capture and storage research. I can do that as a politician ensuring that the energy system subsidises the production of clean energy, I can do that as a politician in terms of encouraging varying ways and varying pieces of legislation which lead to the de-carbonisation of the energy system but as a Pension Fund Committee member I cannot do those things. All I can do is invest our assets as I see fit in the interest of the beneficiaries with due consideration for the risks associated with those investments. But as a politician yes I totally agree with you, those are things which need to be addressed and we are addressing them. The UK has actually reduced carbon emissions the most by (June 20?). Now that may well be not be enough and the Climate Change committee doesn’t believe it’s enough – we’re not on target to met the 4th & 5th Carbon Budgets but we will have to do this and this will come from politicians but not from pension funds.
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4. Question from Arnold Simanowitz, Lewes, East Sussex:
At the last Full Council meeting I asked Cllr Stogdon whether he could ‘point to anything specific achieved by [the Council’s engagement with fossil fuel companies] that might help to limit global warming to 1.5 degrees?’ In his response, Cllr Stogdon named one action (“the recent response … of BP”) which, he said “shows some indication that engagement is a constructive policy”. How does he square this judgement with Share Action’s assessment that BP’s 2019 Energy Outlook ‘follows the well-trodden path of its predecessors, seeking to reinforce the status quo of fossil fuel domination in the energy matrix … fail[ing] to provide for a world in which oil and gas are phased out more rapidly to reduce emissions in line with the Paris Agreement … a move which would pose a more substantial risk to its business model and threaten its future profitability’ (https://shareaction.org/bp-energy-outlook-2019-a-dual-challenge-but-not-a-dual-commitment/)?
Response by Councillor Fox on behalf of the Chair of the Pension Committee: An extract from the BP’s 2019 Energy Outlook states that ………………..The Outlook considers a number of different scenarios. These scenarios are not predictions of what is likely to happen or what BP would like to happen. Rather, they explore the possible implications of different judgements and assumptions by considering a series of “what if” experiments. The scenarios consider only a tiny sub-set of the uncertainty surrounding energy markets out to 2040; they do not provide a comprehensive description of all possible future outcomes.
Supplementary question:
I’d like to thank Councillor Fox for his response. Last month The Economist reported (9 Feb) that ‘BP spent $13m to help block a proposal for a carbon tax in Washington State last November’ and, along with Total, Chevron and Exxon, plans to increase its production of oil and gas in the future. If this is the big success story for engaging with fossil fuel companies, what would a failure look like?
Cllr Fox: Well first of all, I’m not responsible for how Exxon or BP behave. All I can do is express an opinion as an investor. Secondly BP goes through its reserves once every 13 years and so, to some extent, it will need to acquire new assets. The legitimate investment question is to say to an oil company which has a lot of reserves, which arguably they may not be able to fully monetise over a long period of time, why are you investing in capital rather than giving the money back to me as a shareholder? And that’s a question I would ask at a pension committee meeting. So again, I’m not thinking about these things. The fact that companies will lobby against carbon taxes is an inevitability. It is inevitable that companies will push back against carbon taxes, either because of their design or because they believe that something should be done in a different way. The way we transform the energy system in this country and in this world is through a mixture of carrot and stick – through carbon taxes and the regulation and transformation of the systems, through investment of innovative energy systems. That’s not going to change and it is inevitable that players in the system will continue to push back at times and say well, you know, we don’t agree with that. But the reality is that if you invest in an energy company you’re investing in it because you know that they will actually be selling their product because it is still perceived that there is a need for it over the next 20-30 yrs. Now if you said to me, are you investing in coal, would you aggressively invest in coal I’d say no because coal is clearly an energy which (absolute?) carbon capture storage will just disappear in a very very relatively short period of time. But there is still a role for those companies to produce gas and to some extent oil for other purposes. So yes, I’m not troubled by the fact that people necessarily push back on these taxes. It’s up to politicians to design these taxes so that they achieve their ultimate objective.
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DIVESTMENT QUESTIONS @ 14 MAY 2019 FULL COUNCIL MEETING
1.Question from Lottie Rodger, Lewes, East Sussex:
In his response to my question at 26 March 2019 Full Council meeting, Councillor Fox appeared to be claiming that there was little that he could do, as a member of the Pension Committee, about the threat posed by global warming. Action on climate change, he claimed, would have to ‘come from politicians … not from pension funds.’ Last yearGoldman Sachs judged that the ‘growing number of investors and financial institutions [that] have announced bans or restrictions on coal investments, particularly from 2013 … [had] been a driver of the sector de-rating over the past five years’. In a similar vein, in its 2018 Annual Report Shell noted that ‘some groups are pressuring certain investors to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access equity capital markets.’ How does the Pension Committee square these assessments –by Goldman Sachs and by Shell –with Councillor Fox’s assertion that the Pension Committee is powerless to take effective action on climate change?
Response by the Chair of the Pension Committee: The Pension Committee does not believe it is the role of the Fund to govern global climate change and believe this role should be undertaken by National Governments. The Fund does have a role in ensuring that its investments are protected by any impacts of climate change. By increasing pressure on fossil fuel companies, through active shareholder engagement, we can get companies to improve their corporate behaviour. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments. This ensures that the companies are considering the impacts of climate change (including those driven by legislation) in their business models.The Fund’s approach to engagement recognises the importance of working in partnership to magnify the voice and maximise the influence of investors as owners. The Fund appreciates that to gain the attention of companies in addressing governance concerns it needs to join with other investors sharing similar concerns. Along with its investment into the Climate Aware Fund, this provides an incentive to companies to move towards limiting climate change.
Supplementary question:
Thank you for your response. You say that the Pension Committee “does not believe it is the role of the Fund to govern global climate change”, while continuing to invest in the fossil fuel companies that are driving us all over the edge of the cliff. Isn’t it true, as David Attenborough notes in his recent documentary ‘Climate Change: The Facts’ that: ‘We now stand at a unique point in our planet’s history, one where we must all share responsibility both for our present wellbeing and for the future of life on Earth … Our wonderful natural world and the lives of our children and grandchildren, and all those who follow them, depend upon us doing so?’
Response by the Chair of the Pension Committee:
Lottie thank you very much for your question. First of all I just want you to understand. We all exist and live on the same planet here. We all have the same concerns. How we choose to actually articulate those may differ. Secondly, I may have personal views about how I think legislation, as I said last time, how legislation should unfold and how climate commitments should unfold. But as a pension fund, we are not a campaigning body. We cannot campaign via our holdings in the stock market. I think there is a sort of slight misunderstanding about what we do. We essentially have a portfolio of assets and we manage those assets and our greatest challenge is asset allocation not stock selection. We devolve the decisions on stock selection to the managers that we appoint and what they do is either make money or don’t make money and if they don’t make money we fire them. Now all of the issues that you are concerned about are not issues which are lost on these managers. It is a fact that our portfolio is underweight in fossil fuel stocks. It is also a fact that there is a substantial role for gas or oil, to some extent, right to 2050 and so it is to set one’s face about the reality of the situation to turn round and say first we should put these companies out of business which is not our role and secondly that would not have very substantial consequences for the global economy. Now if I took your view that this should stop now and that all of these companies should be put out of business then we would have to accept that global growth will stop. And if global growth stops then I should be selling all of our equities not just fossil fuels.
2. Question from Hugh Dunkerley, Brighton:
At the 17 October 2017 Full Council meeting, Cllr Stogdon asserted that: ‘The Fund believes that collaborative engagement is more productive than acting alone and works together with other LGPS funds through its membership of LAPFF. Company engagement is an important element, encouraging development of low carbon–aligned business models, and it is in the best interest of the Fund to get the entire oil industry to put itself on a pathway of “managed decline”.’ In its 2016 report ‘Engaging for a Low Carbon Transition’, the Local Authority Pension Fund Forum (LAPFF) noted that: “Most oil companies follow an ‘invest-to-grow’ business model aiming to grow production steadily. In most cases, this model has failed to deliver top-line growth. Even more concerning for shareholders, it has generated deteriorating returns. The current model has clearly not delivered. A managed decline business model –investing to match a 450 demand scenario –would likely lower business risks, boost returns and avoid destroying shareholder value. This would involve investing less and returning more capital to shareholders.” What success has LAPFF had in the last 2½ years in persuading oil and gas companies to drop ‘growth models’ and instead return cash to shareholders? For example, how many AGM resolutions have they put forward calling for this?
Response by the Chair of the Pension Committee:
As indicated in the LAPFF report, a ‘managed decline business model’ is orientated around investing to match a 450 demand scenario. This describes an energy pathway consistent with the goal of limiting the average global temperature increase to 2°C as set out by the Paris agreement. LAPFF has engaged with a number of oil and gas companies over this period. Long-term engagement with BP, now continued under the umbrella of the Climate Action 100+ investor initiative, has led to the co-filing of a second shareholder resolution to the company. The resolution to the 2019 BP AGM, co-filed by ten LAPFF member funds, includes a request to the company to set out ‘how the Company evaluates the consistency of each new material capex investment, including in the exploration, acquisition or development of oil and gas resources and reserves and other energy sources and technologies, with … the Paris Goals’. As with the previous resolution in 2015, continued engagement has led to the board recommending support of the resolution. In 2017, Shell set the ambition of reducing the Net Carbon Footprint of its energy products by around half by 2050, and by around 20% by 2035, in step with society’s drive to meet the goals of the Paris Agreement. Continued collaborative engagement has focused on linking associated shorter-term targets to its executive remuneration policy, which have been brought forward by one year for approval at the 2019 AGM. The company is focusing on value over volume and dividends and repurchases are now delivering a more than 10 percent cash return yield to shareholders. Similar examples can be found in engagement with US companies. A voting alert issued to members for the Anadarko 2019 AGM (postponed owing to a bidding process) pressed the company to issue a report describing its plans to reduce its total contribution to climate change and align its operations and investments with the Paris Agreement’s goal of maintaining global temperatures well below 2 degrees. Continued engagement with Exxon led to at least one LAPFF member fund co-filing a resolution to the 2019 AGM, asking the company to disclose short, medium and long-term targets for GHG emissions. The resolution was rejected by the SEC after lobbying by the company. However, member funds will shortly receive voting advice aimed at pressing the company for increased disclosure on capital expenditure to enable shareholders to better consider whether the company is operating within the spirit of the Paris Accord.
Supplementary question:
Thank you for your response. At the 2015 Paris Climate Summit the world’s governments committed themselves to ‘Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.’ Over the next ten years Exxon, BP, Total and Chevron are forecast to spend $562 billion on new oil and gas fields where development has not yet started and investments have not been sanctioned. In light of this,how is investment in these companies justifiable when it is known that none of this expenditure is compatible with limiting global warming to 1.5°C?
Response by the Chair of the Pension Committee:
If you will forgive me, please don’t take this personally but there is a lot of recycling of these questions going on, the same questions come back in different form every meeting and I welcome your interest in this subject and I do take it very seriously as an issue. All I can say to you is, we are not in the business of putting companies out of business we are in the business of investing our assets via our managers in the way that we think is fit and which has reference to a given risk profile. It is not something we feel we should be interfering with. Now I do accept and I do agree with you that there is excessive capital investment going on in the round across the fossil fuel sector. It would be important to actually acknowledge that about half, substantially half, of all global reserves are owned by state entities so our discussions here only relate to the public sector. So my answer to you, is really, this is not what we do. We do not campaign to remove these companies from the map. We invest our funds, we employ managers, if those managers get it wrong we fire them but I think it’s important to understand that the assets they own, they acquire, not necessarily in perpetuity, but they acquire them. ….if I can put it like this, our liabilities are long term and perpetual because we have a very large number of pensioners and a very large number of pension members but our assets are transitory, we don’t own the same asset forever and our assets are continually changing and so it’s not really about the fact that we are backing up the traffic(truck?) and saying look we want to own BP for the next 20 years. That’s just not the way that we operate. And we can’t really turn round and say to a manager who we have employed to manage our assets, ‘Why do you own that stock?’ I mean we do ask the question but I mean the deliberation that they’ve gone through, given that this issue is very well known, is that the price of that stock at this particular time justifies the risks that are implicit, so again this is not what we do. We are here to manage the assets from an asset allocations perspective. We appoint managers – those managers make stock decisions. We will at times say to them, could you explain to us why you have exposure in this area. We will at times trilaterally(?) campaign to encourage fossil fuel companies to return more of their cashflow to investors but it is not our role to actually determine whether these companies are in business or not.
3. Question from Viki Hall, Forest Row, East Sussex:
The East Sussex Pension Fund’s Responsible Investment Policy states that ‘The Fund will incorporate climate risk assessment as part of the annual investment strategy review (considering the Fund’s investment strategy under a range of climate change scenarios, including a 2 ?C scenario).’ Which climate change scenarios will this year’s annual investment strategy review consider, and when will the latter be made available to the public? Will any 1.5 ?C scenarios be included?
Response by the Chair of the Pension Committee:
The Pension Committee has an annual strategy review which looks at all the investment risks that the East Sussex Pension Fund is facing. The agenda for the Strategy day has not been finalised, but it will include but not limited to Environmental, Social and Corporate Governance (ESG) and Responsible investment strategies. The strategy day is neither a public meeting nor a formal decision making meeting of the Committee, but an opportunity to review the Fund’s current investment strategy and to set the future investment priorities for the fund.
Supplementary question:
When will the specific climate change scenarios to be reviewed at this year’s annual investment strategy be made available to the public, and will this include any 1.5 degree Celsius scenarios?
Response by the Chair of the Pension Committee:
We don’t make these things available to the public because the meeting that you are talking about is a closed meeting where we basically make no decisions. We don’t make decisions about what our strategy will be at that meeting. What we’re doing is we’re taking evidence, we are discussing the issues and we are absorbing information, so it’s not that we will be making any strategic decisions at that meeting.
4. Question from Ann Link, Lewes,East Sussex:
In a recent (15 April 2019) speech Sarah Breeden, the Bank of England’s Executive Director of International Banks Supervision noted that: ‘Climate change poses significant risks to the economy and to the financial system, and while these risks may seem abstract and far away, they are in fact very real, fast approaching, and in need of action today.’ She went on to note that: ‘Studies have focused on the impact from the transition on the financial system through ‘stranded assets’ that turn out to be worth less than expected, probably zero in the case of unburnable carbon. The estimated losses are large –$1tn-$4tn when considering fossil fuels alone, or up to $20tn when looking at a broader range of sectors. Even at the bottom ends of these ranges, losses represent a material share of global financial assets. A climate Minsky moment, where asset prices adjust quickly with negative feedback loops to growth, seems possible. That underlines why the financial system needs an early and orderly transition. And why we need to change course now.’ We are currently seeing an ever-increasing gap between the current emissions pathway and a technically achievable pathway to 1.5°C. Does the Pension Committee accept that the growth of this gap is increasing the risk of a sudden and disorderly transition of the kind that Sarah Breeden is warning about, as closing this gap will inevitably require increasingly heavy-handed intervention?
Response by the Chair of the Pension Committee:
The Pension Committee is keen to avoid a disorderly transition and believes that this outcome can be mitigated by increasing pressure on fossil fuel companies, through active shareholder engagement. Getting companies to improve their corporate behaviour lessens the chances of a disorderly transition and leads to an increase in the long term value of the Fund’s investments. This ensures that the companies are considering the impacts of climate change in their business models. The Fund’s approach to engagement recognises the importance of working in partnership to magnify the voice and maximise the influence of investors as owners. The Fund appreciates that to gain the attention of companies in addressing governance concerns it needs to join with other investors sharing similar concerns. Along with its investment into the Climate Aware Fund, this provides an incentive to companies to move towards limiting climate change.
Question from Arnold Simanowitz, Lewes, East Sussex:
A recent analysis comparing data from the IPCC’s climate models with forecasts from industry analysts Rystad Energy (‘Overexposed: The IPCC’s report on 1.5°C and the risks of overinvestment in oil and gas’, 23 April 2019, https://www.globalwitness.org/en/campaigns/oil-gas-and-mining/overexposed/), found that over the next decade:
- any production from new oil and gas fields, beyond those already in production or development, is incompatible with limiting warming to 1.5°C;
- all of the$4.9 trillion forecast capex in new oil and gas fields is incompatible with limiting warming to 1.5°C; and,
- 9% of oil and 6% of gas production forecast from existing fields is incompatible with limiting warming to 1.5°C.
Do the East Sussex Pension Fund’s fund managers and investment consultants accept these findings and if so, what actions will they be taking in the light of these findings?
Response by the Chair of the Pension Committee:
The Fund’s investment managers and consultants are constantly revising their views based on the best available data. This information will inform their investments on behalf of and advice provided to the Fund. The Pension Committee believes by increasing pressure on fossil fuel companies, through active shareholder engagement, we can get companies to improve their corporate behaviour. Improvements made by these engagements lead to an increase in the long term value of the Fund’s investments.The Fund’s approach to engagement recognises the importanceof working in partnership to magnify the voice and maximise the influence of investors as owners. The Fund appreciates that to gain the attention of companies in addressing governance concerns it needs to join with other investors sharing similar concerns. Along with its investment into the Climate Aware Fund, this provides an incentive to companies to move towards limiting climate change.
Supplementary question: Thank you for your response to my question. Whilst all that is very interesting, I’m sure that you will accept that the response doesn’t actually answer my question but more like a recycling of answers. So I will simplify it: Do the East Sussex Pension Fund’s fund managers and investment consultants accept the findings of the report that I cited in my question? Namely, that any production from new oil and gas fields, beyond those already in production or development, is incompatible with limiting warming to 1.5°C; and that all of the $4.9 trillion forecast capex in new oil and gas fields over the next decade is incompatible with limiting warming to 1.5°C.
Response by the Chair of the Pension Committee:
Arnold, thank you for your question. Can I just say that if you recycle the questions I would hope that I give the same answer each time rather than a different answer. So to your question- in the round- there are more reserves in the world than we will be able to exploit. And in the round- collectively- oil companies are probably acquiring too much in the way of assets which they won’t ever be able to fully realise. There we agree but individual companies may have a different view about what their position is. So BP, I think I mentioned it at the last meeting, takes the view that it gets through its reserves once every 13 (30?) years or so. So individual companies may behave in one particular way, and in the round – collectively – they’re probably acquiring too much in the way of assets which is why ? and other mechanism we basically can say to these companies we would like you to think about returning more of the cash that you throw off from your businesses to the shareholders. It would be wrong to say that if you own a field then you shouldn’t really be acquiring new fields because the pressure in that field will eventually drop and you will need to replace some of your assets but I agree with you, they are acquiring too many assets – in the round – and those assets will probably not be exploited. But when one is making an investment and I do underline we are underweight in fossil stocks, when one is making an investment that is up to the manager to take into account and say, Is this price good for the stock, is this capital expenditure excessive and is that making the stock vulnerable? And that’s what fund managers do, they manage money every day, day in day out, they take risk and they form an assessment. But from our perspective, what have we done? We have carbon-footprinted our portfolio, underweight compared to the Index. We have a climate aware fund which sorts stocks by their carbon footprint, we have a large fund that doesn’t invest in quantity (?) stocks at all, we have campaigned for certain key objectives with companies so for instance, Climate Action 100 who latterly persuaded Glen Court to stop acquiring coal assets earlier this year, something which they had been doing over the last decade so they’d been persuaded to recognise their climate commitments and to cap their coal holdings. Now we would hope that those coal holdings would cease to be an issue for them ultimately because they will be focussing on other assets. So, you know, it would be important for you to understand, first of all it’s not something we have a fixed opinion on and it is something we will continually review and secondly it is something that is continually considered by the managers and we are continually having conversations with managers and with our lobbying group. Our main lobbying group who lobby on behalf of investors. So I think that is probably the answer to your question.
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DIVESTMENT QUESTIONS @ 9 JULY 2019 FULL COUNCIL MEETING
Question from Gabriel Carlyle, St Leonards on Sea, East Sussex:
Fossil fuel companies are forecast to invest $4.9 trillion in developing new oil and gas fields (ie. oil and gas fields that are not already in production or development) over the next decade. Exxon alone –in which the East Sussex Pension Fund currently has millions of pounds of local people’s pension monies invested – is forecast to invest $167 billion on developing such fields. According to one recent analysis that compared these forecasts to data from the IPCC’s climate models, none of this capex is compatible with limiting global warming to 1.5°C (‘Overexposed: The IPCC’s report on 1.5°C and the risks of overinvestment in oil and gas’, 23 April 2019, https://www.globalwitness.org/en/campaigns/oil-gas-and-mining/overexposed). Given these facts –and the likely negative impact on the value of the Fund’s fossil fuel investments under a 1.5C scenario – will the East Sussex Pension Fund be incorporating a climate risk assessment of the Fund under a 1.5 C scenario at its annual investment strategy review on 10 July? If not, why not?
Response by the Chair of the Pension Committee:
The Pension Committee’s strategy day schedule for the 10 July 2019 will provide the Committee with the opportunity to review the Fund’s current investment strategy. It will also look at the potential risks the Fund will be facing in the future. The Committee will be looking at various macro-economic factors, including environmental, social and corporate governance (ESG) issues as part of the day. The risk that these may pose to the Fund’s Investment Strategy and any potential impacts will be discussed. This will shape how the Fund develops its Investment strategy for the future.
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