London Borough of Hackney Pension Fund will cut exposure to fossil-fuel equity investments by 50% over the next six years.
The move was approved by the borough’s pensions committee this week.
The changes follow a review by the committee for the £1.2 billion ($1.5 billion) pension fund looking at the financial risks posed to its fossil-fuel exposures in light of the Paris Agreement, a global action plan to help limit global warming and its impact. The decision is partly in response to a carbon risk audit carried out by Trucost last summer, assessing the operational carbon footprint and exposure to fossil-fuel reserves of the pension fund’s equity portfolio, and setting out where it is most exposed to the risk of stranded assets.
“The results of this assessment suggest that the greatest risk with regards to potentially stranded assets is concentrated in companies with coal reserves within the passive U.K. equity (managed by UBS Asset Management) and active emerging markets equity (managed by RBC Global Asset Management) portfolios; however, some concentration of oil and gas reserves can be found within the two active global equity mandates,” managed by Lazard Asset Management and Wellington Management, said a document for the Tuesday committee meeting.
The pension fund’s exposure to fossil-fuel investments, which it measures by future carbon dioxide emission levels, will initially by reduced by 50% over the next six years, said a notice on the Hackney Council’s website. The pension fund expects to move further away from fossil-fuel investment in the longer term. Further details could not be learned by press time.
“Climate change is probably the greatest threat facing humankind,” said Councilor Robert Chapman, chairman of the pensions committee, in the notice. “There is also a threat to our pension fund in that investments in fossil-fuel assets become stranded, which means that they’ll lose their value as a result of necessary worldwide action against climate change.” Mr. Chapman added that he can “foresee a time when our fund will have no fossil-fuel investments.”
The pension fund will be part of the London Collective Investment Vehicle, an asset pool of London borough pension funds. The notice said it has taken a year to get to this point in its fossil-fuel considerations in part due to the creation of the asset pool, which affects all England and Wales local government pension schemes. “This has a significant impact on how we can put our plans into action as we need to consider what our pool … is able to offer,” said a news release on the council’s website.
While the analysis covered all sectors within the equities allocation, “clearly this analysis will be repeated in the future to allow the fund to measure progress against its target; it is hoped to extend the scope in future to also cover fixed-income assets,” the committee document said.
Spokesmen at the Hackney Council could not be reached for comment by press time.