London Pension Urged to Divest from Fossil Fuels

Pressure is building in the UK capital to reduce the risks it faces from climate change and extreme weather.

The London Pension Fund Authority (LPFA) should divest from fossil fuels and help the UK’s capital city reduce the risks it faces from climate change, according to the London Assembly.

The city’s government made the recommendation in a 44-page report into the risks posed to London’s economy by a changing climate, presented by its economic committee.

“The London Pension Fund Authority should draw up a plan for discussion of [divestment] at its board,” the committee said, “looking 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.”

“Funds could instead be invested into responsible funds, which deliver appropriate returns to the taxpayer,” the committee said.

The report also called on London Mayor Boris Johnson to push for divestment from fossil fuels within the city’s balance sheet, and instead focusing on sustainable investment in areas such as infrastructure.

Endowments and sovereign wealth funds have led the global divestment movement, with Norway’s Government Pension Fund Global vowing earlier this year to exit fossil fuel companies in January 2016. The Church of England’s investment fund, the Rockefeller Brothers Fund, and endowments for Stanford and Oxford universities have also taken steps to divest from carbon-heavy holdings.

However, the report also highlighted potential problems with divestment. Simon Howard, chief executive of the UK Sustainable Investment and Finance Association, told the committee that there was far more money invested in fossil fuel companies than in renewable energy.

“This opportunity is frequently in the venture capital/private equity space, and regulators treat [those] assets… in a different way,” Howard said.

Jenny Jones, a member of the economic committee, said in her introduction to the report that London-based businesses “import risks through their supply chains” that can pose problems for London as a financial hub. As well as the threats to global insurers based in the city, Jones cited flooding in Thailand in 2011 and its knock-on effects on the global IT industry as an “early warning of something much more disruptive to come”.

The report is available in full on the London Assembly website.

Related: How to Make Money from a Changing Climate & The Fine Art of Shareholder Engagement