The UK’s biggest pension fund, the National Employment Savings Trust (Nest) is to begin their divestment from fossil fuels.
The government-backed scheme has nine million members, and the move has been hailed as a landmark move by climate campaigners.
What is Nest?
Nest is a workplace pension scheme set up by the government. Its free for employers and was set up by the government to ensure that every employer has access to a high-quality workplace pension.
If you have a workplace pension, then you may well have your pension with Nest. Nest currently have 9 million members, which is more than a quarter of the entire workforce.
What are Nest doing?
Last week Nest announced that they would be shifting its equity investments into “climate-change aware” investments. They are also pledging to make their entire portfolio carbon-neutral by 2050.
Its equity investments account for £5.5bn of the £12bn national pension fund. The shift will represent more than £1.2bn removed from the biggest carbon emitters. It is also the equivalent to taking 200,000 cars off the road or heating 50,000 households for a year through renewable energy.
The fund will ban investments in any companies that are involved in the likes of arctic drilling, coal mining or oil from tar sands. This means that the world’s biggest mining companies such as BHP, can never be a part of their share holdings.
Nest are also reducing its carbon-intensive holdings, such as oil giants, while investing money in renewable energy infrastructure.
Why are Nest divesting in fossil fuels?
Nest’s chief investment officer, Mark Fawcett, said that by doing this, Nest were sending a strong and clear message about the seriousness of climate change.
“Just like coronavirus, climate change poses serious risks to both our savers and our investments…it has the potential to cause catastrophic damage and completely disrupt our way of live. No one wants to save throughout their life to retire in a world devastated by climate change”
However, Nest are not calling this a full divestment plan. This is because there is still an interest in oil companies that are transitioning into green energy.
Why is this important?
Most pension funds are reluctant to divest from fossil fuel companies, particularly the oil and gas companies. The Universities Superannuation Scheme said they were going to divest from coal investments, but they would continue to invest in oil and gas.
However, current government guidance to pension fund trustees acknowledges that divestment is an appropriate strategy for those wishing to take action to tackle climate change.
A poll by Nest found that 65% of pension savers felt pensions should be invested in a way to reduce the impact of climate change.
Climate change campaigners have praised Nest. They have said that it was likely to prompt better behaviour at other pension funds.
“Nest is setting clear expectations for those most responsible for the climate emergency and demonstrating the power of pensions move them along a more sustainable path”
Which other pension funds are divesting in fossil fuels?
Other pension funds are being slightly slower to divest than Nest. In January 2020 Reuters reported that Britain’s top pension funds say they would have lost hundreds of millions if they divested in fossil fuels. They questioned 47 of Britain’s largest pension funds, and 33 said they were not diverting from fossil fuels.
However, that was in January, and a lot has happened since then. Pension funds may find themselves under more pressure to divest. This comes as the government ramp up investment in renewable energy as part of the Covid-19 recovery. Though some smaller government schemes are divesting, such as Clwyd in Wales and Southwark in south London.
What has the Pensions Minister said?
Interestingly, the Pensions Minister, Guy Opperman, has come under fire for his attitude towards this divestment.
In a piece in The Telegraph earlier on in the month, Opperman argued that investors with environmental concerns should hold onto their stocks in oil and gas companies. This is so they could “nudge, cajole or vote firms towards lower-carbon business practices”. He also argued that “forcing pension schemes to divest and sell their assets to others would be self-defeating and counterproductive”.
Since this piece, more than 60 civil society leaders including MPs, climate experts, faith leaders and local councillors have signed an open letter condemning the comments. 360 serving and former cross part MPs including Labour Leader Sir Kier Starmer, have backed phasing out fossil fuel investments from the Parliamentary Pension Fund.
Whether more pension funds will follow suit remains to be seen, but we could well see more of this in the future.