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A decision to divest from fossil fuels, taken for financial reasons – such as a view that assets will become ‘stranded’ in the ground – is an acceptable reason for a fund to do so. Photograph: Bill Ross/Corbis
A decision to divest from fossil fuels, taken for financial reasons – such as a view that assets will become ‘stranded’ in the ground – is an acceptable reason for a fund to do so. Photograph: Bill Ross/Corbis

How to get your pension fund to divest from fossil fuels

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As part of the Guardian’s Keep it in the ground campaign, which is urging the world’s largest charitable foundations to move their money out of fossil fuels, we look at personal divestment and how you can encourage your pension scheme to shift its portfolio or offer divestment options. If you’d like more information, sign up to our series on personal divestment and we’ll make sure you get all you need to know in your inbox.


What you need to know

1. Can I make my pension scheme entirely divest from fossil fuels?

There are no legal barriers to a pension fund selling out of fossil fuel investments. The fidicuiary duty of trustees to ensure the best returns for members is a flexible one, according to industry body the National Association of Pension Funds. As the law stands, a decision to divest, taken for financial reasons – such as a view that the assets of BP, Shell, etc, will become “stranded” in the ground and therefore worthless – is an acceptable reason for a fund to do so.

It becomes legally trickier if divestment is done for moral or ethical reasons, although that has not been tested in court. Generally, pension schemes based on final salaries have less flexibility than the more common “defined contribution” schemes where your pension is dependent purely on stock market returns.

2. What if they say divestment isn’t technically possible?

This is because many workplace pension funds simply follow an index – such as the FTSE 100 – where giant resource companies such as BHP Billiton and Glencore (both big coal miners), as well as BP and Shell, make up a significant part of the index. But in recent months big index companies, such as MSCI and FTSE, have created indices which track the FTSE 100 or the S&P500 but eliminate the fossil fuel companies. Pension funds, if they want, can choose to track these indices, making divestment relatively straightforward.

3. Will divestment hit returns?

Not necessarily. Indeed, in recent years indices which screen out fossil fuel companies have outperformed those that don’t. MSCI found that investors who divested from fossil fuels would have earned an average return of 13% a year since 2010, compared to the 11.8% earned by conventional investors.

4. I am self employed with a personal pension. Can I divest?

Yes and no. Major pension providers such as Standard Life, Aviva and Legal & General do not currently offer a fossil-free option – the best you can do is to encourage them to do so.

Alternatively, you can shift your pension into a “self-invested personal pension” and then direct the money into a fund, such as Jupiter Ecology, which is entirely fossil-free. As and when index funds without fossil fuels become available, you may want to diversify into these as well.

5. I am a student with no pension. Is there anything I can do?

Yes – encourage your parents to divest. The website Push Your Parents is aimed at college and university students who want to influence their parents on climate change. It carries a range of resources including a template letter to send to mum and dad laying out your concerns.

If you’d like more information, sign up to our series on personal divestment and we’ll make sure you get all you need to know in your inbox.

Your 10-minute plan – how you can divest your life

The bad news for climate change activists is that few pension funds in the UK – a £2tn industry that is the world’s second biggest – offer their members an option not to be invested in fossil fuels. Indeed, many of Britain’s biggest pension funds – including Tesco, Lloyds, Glaxo and even the Westminster MP’s own scheme – were accused last week of “wilful negligence” for failing to protect members’ savings from climate change risks.

But there is no need for despair. Every member of a pension scheme – no matter how small the amounts of money they have – can follow a few simple steps to enact change.

1. Find your pension

Let’s be clear about who can and who cannot divest. If you work in the NHS, for a state school or the civil service, you are unable to divest because your pension is not actually invested in the stock market – it’s an IOU from the government. However, if you work in local government or in the private sector, then part of your pension is almost certainly invested in coal, oil and gas companies.

If this is you, then ask your employer for the email address of the trustee of your pension scheme. In some schemes, these may come under the title “convenor” or “chair of the scheme”. If you work for a small company, however, you are unlikely to have a trustee – but you should still ask your employer for the point of contact for your pension scheme.

2. Download our template letter

The Guardian has created a standardised letter to send to your trustee, or if you don’t have one, to your investment manager. It asks your pension scheme how much of your money is currently invested in fossil fuels, if there is a fossil fuel divestment option, and if not, could one be set up. Just copy and paste it into an email and send it to the correct email address. You have now begun the process of change.

3. Act on the response

If you are offered a divestment option, you still have to enact the transfer. Send a request to your workplace pensions department asking for your pension money to be transferred into the fossil fuel-free fund. More likely, you will be told that there is no fossil fuel-free option, or that there is an “ethical” investment option. This is not the same as divestment – most ethical funds screen out “sin” stocks such as tobacco, arms and gambling companies, but retain investments in fossil fuels. Email again and ask when the trustee will offer an option to divest.

4. Share what you discover

The more scheme members who request change, the more likely it is that the underlying investment manager will offer a divestment option. Many people find pensions daunting, so tell your colleagues your experience and explain how they can act, too.

5. Next steps to take

A face-to-face meeting with your pension trustees or investment manager will focus attention on divestment, and is more likely to lead to change. Don’t be daunted, as there is now plenty of assistance available to help you make a case for divestment. ShareAction, a charity, offers a range of tools, such as free workshops or even lunchtime meetings at your workplace. It will help you decipher the jargon and empower you to take the next steps.

Most trustees are actually delighted to hear from members – on the whole, being a trustee is a lonely job where trying to get anyone to listen to pension issues is a challenge. But trustees also have strict legal responsibilities to all members, and often limited resources. Preparing ahead can ensure that you are not batted away with talk of “fidicuiary duties” and so on.

Fires flare off the gas from crude oil at Iraq's oldest oil processing plant in the town of Baba Gurgur.
Fires flare off the gas from crude oil at Iraq’s oldest oil processing plant in the town of Baba Gurgur. Photograph: Khalid Mohammed/AP

Pushing at an open door

No UK pension fund is entirely divested from fossil fuels, but there are three giant schemes where members can really make a difference.

The staff scheme at HSBC, which is also one of the largest funds in the world, with £25bn under management and 190,000 members, allows members to opt in to its “sustainable and responsible equities fund”, which has no exposure to fossil fuels.

If you work for a charity then you may find your pension is with the Pensions Trust. This is a group arrangement – it covers staff at Scottish housing associations, Oxfam, the British Red Cross, Christian Aid, and many other charities – which is taking a proactive stance on climate change. “We look explicitly at carbon risk in the investment decisions we make for our entire portfolio. We are still at a relatively early stage, but as part of the implementation of this policy we are conducting an in-depth research project on whether we should reduce our exposure to fossil fuels across all of our assets,” it said this week.

The National Employment Savings Trust is another scheme open to change. It is the default option for the millions of employees who are part of the “auto-enrolment” programme. It already has 2 million members, and once all employers large and small have to offer a pension, it is expected to have 4 million members in the UK.

It says 2.3% of its investments are currently in fossil fuel companies. In a statement it said: “A divestment option isn’t something we’re offering our members at present. If there was a strong member desire to see such an option this is clearly something the trustee would want to consider very carefully.”

It added: “We’ve conducted research into climate change and how financial markets are responding. Many experts recognise the compelling argument for stranded assets, but there was little agreement as to how this would play out. Our approach looks to understand the risks in terms of carbon exposure – we are looking to sign up to the Carbon Disclosure Project and the Institutional Investors Group on Climate Change.”

‘For our grandchildren’s futures, we can’t go on like this’

Former Bristol city council employee and grandfather Richard Lawrence freely admits he knows little about the ins and outs of pensions. Yet after witnessing the impact of climate change in Bangladesh and Nepal – and fearing the dramatic impact it will have on his grandchildren – he decided to tackle his pension fund, the giant £3.3bn Avon scheme, about its holdings in fossil fuel companies.

Richard Lawrence, pictured with his granddaughter in Bristol, believes large pension funds can invest positively in a low-carbon future. Photograph: Adrian Sherratt/The Guardian

“I have seen some of the consequences of climate change first hand, and when I came back it just seemed like a no-brainer that fossil fuels have to be kept in the ground. I had to do something. I am a grandfather and, considering the future for my grandchildren, it is so obvious that we can’t go on like this.”

He checked the Avon fund’s investments, “and it became quite apparent that it was heavily invested in the likes of BP and Shell”. Along with two other members of the scheme, he sent emails to the organisation’s chairman explaining their deep concerns about the fund’s fossil fuel investments.

He soon discovered there was no option for members to opt out of fossil fuel investments. So they decided to request a meeting with the pension fund to air their views and encourage change. “They were quite surprised that anyone wanted to come in,” Lawrence says. One official told him they couldn’t discuss investment issues, but Lawrence and the other members had come prepared.

He had been in contact with the growing number of organisations that help pension fund members take control of their money, such as ShareAction. He had also become involved in Fossil Free Bristol, which is running a local divestment campaign via Facebook. Then, just ahead of the meeting, the Guardian began its Keep it in the ground campaign. “We felt so much stronger that at last there was a national newspaper that was supporting this as well.”

Lawrence and his fellow members were granted only five minutes to state their case, so they began by taking turns to read out their statement, outlining the financial risks of fossil fuel investments and calling on the pension fund to start a process of divestment.

“I wasn’t fazed by the set-up, but then I’m quite used to committee meetings,” Lawrence said. “The vice-chair of the fund was open to our ideas about engagement, but we were surprised that when we suggested the Avon fund should divest from fossil fuels over the next five years, we were told that such a timescale was a bit too short.”

Lawrence is keen that divestment shouldn’t be seen negatively. It is as important to him that Avon not just sells its holdings in fossil fuel companies, but uses some of its enormous funds to invest more positively in a low-carbon future.

Where will the campaign go from here? The chair of the Avon board did declare that the value of fossil fuel assets is not clear over the long term, which Lawrence sees as recognition of the issue at least. “It’s a good start,” he says, but he won’t stop there. He and other members of the Avon scheme will now continue to press the fund to divest within five years – bolstered by widespread local support. Bristol was named 2015 Green Capital of Europe, and the city council has already committed not to invest funds in the fossil fuel industry.

  • Keep it in the ground is the Guardian’s climate change campaign, urging the world’s largest charitable foundations to move their money out of fossil fuels. As part of this, we are running a series and hosting a webchat on personal divestment. Get everything in your inbox.

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