London government calls on LPFA to divest fossil fuels
The London Assembly has recommended the London Pensions Fund Authority (LPFA) divest from coal as part of a wider push to protect the city’s economy from climate change.
The Assembly, which forms part of the Greater London Authority (GLA) and scrutinises decisions made by the mayor, said the city’s leader should shift fossil fuel investments to more responsible positions.
It called on the £3.8bn (€5.4bn) LPFA, the pensions body spun out of the GLA, to explain how it would support London’s plans to diversify from coal and invest in the “green economy”.
In a report looking at the impact of climate change on London’s economy, the Assembly said governing bodies were doing too little to prepare for the impact of climate change.
The report said: “[The LPFA should look] at the options for managed divestment and responsible reinvestment of its funds from, at least, those companies for which a significant proportion of their business consists of fossil fuels.”
The 25-seat Assembly, which has 12 Labour members to the Conservative’s nine, said it hoped the LPFA would find reinvestments that delivered appropriate returns.
However, the report did acknowledge analysis showing that, while a trend is building behind fossil fuel divestment, the value of assets held in stocks cannot all be accommodated in renewable energy or green projects.
The conservative mayor of London, Boris Johnson, has also pushed back against the Assembly earlier this year, suggesting he had no control over the LPFA’s investments, and that it was not possible for the fund to offer a “fossil-fuel-free scheme”.
The LPFA is accountable to the mayor, but the scheme’s governing board makes investment decisions.
A spokesman for the LPFA said it took all recommendations into consideration when devising a strategy but that it still had a fiduciary duty to prioritise investment return.
“Our key aim must be to ensure we can continue to pay pensions as they fall due,” he said.
“Thus, the obligation of the LPFA board is to make investments that provide the appropriate risk/return trade-offs.
“Screening out stocks for investment or divestment on ethical grounds only is in conflict with the fiduciary duty if the decision risks significant financial detriment to the fund.”
The pressure on London’s local government pension scheme (LGPS) comes after its counterpart in Edinburgh rejected similar calls for divestment from its council.
The £5.1bn Lothian Pension Fund said the cost of divestment was too high – as much as £2.5m from around £150m in fossil fuel investments.
Other LGPS, such as the Environment Agency Pension Fund, a renewable energy advocate, have called for engagement over divesting, suggesting it would achieve better results.
Norway’s sovereign wealth fund, however, was recently ordered to divest fossil fuel stocks, a decision that could lead to €6bn in equity sales.