“no group involved in the expansion of fossil fuel projects could claim that it was on a pathway to net zero” – Mark Campanale
This is a bold claim on a day when our Chancellor calls on the world’s finance industry to put its muscle behind our hitting global emission targets. It would seem that as in pensions so in wider financial services, Britain is going to be in the van.
Under the new Treasury rules, financial institutions and listed companies in the UK must come up with net-zero transition plans, which will be published from 2023.
The strategies will need to include targets to reduce greenhouse gas emissions, and steps which firms intend to take to get there.
A Transition Plan Taskforce made up of industry leaders, academics, regulators and civil society groups will also be set up by the government.
It will set a science-based “gold standard” for the plans in order to guard against so-called “greenwashing” – where environmental initiatives are more about marketing than substance.
However, the government said there was “not yet a commonly agreed standard for what a good quality transition plan looks like“.
And although the plans will need to be published, the government said “the aim is to increase transparency and accountability” and the UK was not “making firm-level net-zero commitments mandatory”.
The onus is placed on financial institutions and listed companies (not private companies) to show how they might invest contrary to Mark Campanale’s dictum and be on a pathway to net-zero. It will be for the market to determine if these plans are adequate or credible.
UK listed market indices, into which our workplace savings flow, are packed with mining stocks and many are seeing the writing on the wall. In August BHP Billiton announced plans to delist in the UK and relist in Australia, as investors chose to invest in smart beta strategies which excluded dirty stocks planning to grow through the expansion of fossil fuel projects.
Will it now become unlikely that these projects will go ahead? Or will more of the dirty stocks flee to safer listings or go private.
The New York Times has researched the financing of fossil fuels , publishing an article in October claiming private equity firms have invested at least $1.1 trillion into the energy sector since 2010.
The overwhelming majority of those investments was in fossil fuels, according to data from Pitchbook, a company that tracks investment, and a new analysis by the Private Equity Stakeholder Project, a nonprofit that pushes for more disclosure about private equity deals.
This will come as a concern to those of us saving into UK pensions and hearing that our funds will be moving into private equity. It looks like the onus will be on our pension funds to ensure that these new investments do not go into a dark web of high-carbon activities. That task will be made harder by privately held companies not being required to publish their “pathway to net zero”.
Can consumers be the agent of change?
If the polluters are driven towards private markets , can we rely on the financiers of those markets to get them to clean their act up? Or will the “dirty dozens” find refuge in in the ownership of hedge funds that pay lip-service to a net-zero pathway while exploiting the very real profits of selling coals to Shanghai/Mumbai and any economy not signed up to a 2050 net-zero pathway?
London is at the heart of global investment, it is good that we are setting the pace and there are undoubtedly good reasons for ongoing investment in polluters. Many argue that we cannot exclude stocks that grow through fossil fuels from our portfolios.
But public agency is important here, supply follows demand. When investors in Pension Bee demanded an alternative to a Future World fund that did not exclude polluters, they got one.
But when People’s Pension told State Street they wanted no exposure to what they considered the most extreme forms of ESG risk, they did not include polluters. The £15bn pot will need to explain in future how it can meet its net-zero targets while investing in stocks that exploit the mining and sale of fossil fuels.
This is the amount of investment we’ve removed from companies because they’ve failed to meet our rigorous environmental, social and governance (ESG) standards. #responsibleinvestment #ESG
Read more here > https://t.co/KDXoquF4Zc pic.twitter.com/72N6xy0KKj
— The People’s Pension (@PeoplesPension) October 13, 2021
The worry is that by divesting this money, savers in People’s Pension are now further concentrating investments in pollutants. I suspect that this will need to be addressed , and soon. You can read more about People’s Pensions position on responsible investment here.
If Fossil Fuels are our new F words, how can we invest in them?
The “Commonly Agreed Standard” for the transition path to net-zero cannot include investments for the growth of fossil fuels. Mark Campanale is right and he sits on the advisory board of the new GFANZ group set up by Mark Carney to make the financial services industry the agent of change towards net zero.
If we make it standard practice not to invest in organizations promoting growth in fossil fuels then divestment is not discretionary, it is a matter of course.
If it is no longer possible for a trustee of a pension fund to find financial institutions which invest in F words, then the fiduciary dilemma falls away. The easiest way for trustees to align to a net zero pathway is by us denying them the chance to use such bad language.