Divestment is a “complete waste of time” as a response to climate change risk, said Robert Waugh, CIO at Royal Bank of Scotland group pension fund, with other pension fund executives largely sharing his sceptical stance.
Engagement, decarbonisation and targeting more attractive low-carbon investments were said to be better ways of addressing climate change.
RBS’s Waugh was the first to dismiss divestment during a panel discussion at the Pensions and Lifetime Savings Association (PLSA) investment conference in Edinburgh.
Waugh said it was better to engage with companies or “provide capital to areas that are helping”.
The RBS fund is part of the ‘Aiming for A’ investor coalition that encourages companies to provide better information on their exposure to carbon risk.
The coalition has lodged shareholder resolutions at Glencore, Anglo American and Rio Tinto.
As to the second aspect, Waugh said there were “loads” of investment opportunities allowing pension funds to fulfil their fiduciary duties of “enhancing return per unit of risk” while at the same time funnelling capital to new areas of the economy.
Windfarms, for example, are a “great investment for pension funds”, he said.
The RBS fund is also looking at solar and has a large sustainable timber portfolio, noted Waugh, with waste-to-energy also an interesting area.
Mark Fawcett, CIO at NEST, was also sceptical about the effectiveness of divestment, saying “as a wholesale strategy, it doesn’t work”, although “selectively it can be useful”.
The Environment Agency Pension Fund (EAPF), said Faith Ward, its chief risk officer, has favoured decarbonisation and engagement as part of a pragmatic and evidence- and risk-based approach to addressing the risks posed by climate change.
It has, however, done some selective divestments due to a shift to “smarter” indices used in the fund’s passive portfolio.
Selective divestment can have an appropriate role to play from a “risk-based, investment-driven perspective”, said Ward.
This is especially the case in terms of divestment within a company’s balance sheet, according to Ward – pulling away from projects that do not make sense from a capital expenditure point of view, for example.
Overall, EAPF prefers to think about the matter in terms of decarbonisation, which means working with fossil fuel-exposed companies to transition to a low-carbon economy rather than divesting.