Research

UK councils invest £9bn of pension funds in fracking companies – new research

180829 Ros Wills

Cuadrilla’s shale gas site at Preston New Road near Blackpool where fracking is expected this month. Photo: Ros Wills, 29 August 2018

Data released today suggests that UK councils have invested more than £9 billion from staff pension funds in fracking companies, despite opposition to the process.

The news comes as the first high volume hydraulic fracture in the UK since 2011 could be days away.

Many councils have opposed the concept of fracking and there are planning policies against the process in Scotland, Wales and Northern Ireland. The most recent public opinion survey puts support for fracking on 18% and opposition at 32%.

Despite this, council funds remain invested in the industry overseas, according to the data published by 350.org, Platform and Friends of the Earth.

According to the data, the largest single pension fund investment in fracking companies is estimated at almost £1bn by Greater Manchester. This is nearly double the amount in the next highest, West Yorkshire, at just over £0.5bn.

Councils with the highest percentage of their pension funds invested in fracking are: Dumfries and Galloway, Greater Manchester and the London Borough of Merton, each with 6-7%.

In Lancashire – the site of the UK’s first ever horizontal shale gas well – the pension fund has invested £187m, or 2.6%, in companies that rely on fracking. In 2015, the county council refused Cuadrilla’s plans to frack at two sites in Lancashire and the authority opposed the schemes at two public inquiries.

In Scotland, where there is a moratorium on fracking, the data says councils collectively invested a total of £927m of pension fund money in 12 companies that frack.

Glasgow City Council has the largest investment in Scotland at £388m, through management of the Strathclyde Pension Fund, the country’s largest council pension fund.

Scottish investment in fracking appears to be increasing. Scottish council have £35m more invested in companies that frack than a similar study found a year ago.

Paul Wheelhouse

Paul Wheelhouse, the Scottish Energy Minister, announcing a moratorium on fracking, 3 October 2017

 

Last year, more than 60,000 people opposed fracking in a Scottish government consultation. The SNP administration announced it would not support planning applications for fracking and is currently carrying out an strategic assessment of the policy.

Despite this, Scotland’s councils are profiting from a practice that is not permitted in Scotland, the groups argue.

The investment data was compiled from Freedom of Information responses. Platform asked every council that manages a UK local authority pension fund for a full list of investments for the year 2016-2017. It analysed the data to calculate the amount invested in the industry based on 24 companies identified to be participating in fracking. These ranged from multinational companies, such as Shell, BP and ConocoPhillips, to IGas, the smaller stock market-listed operator with shale gas interests in the UK.

A report, Divest Fracking, which accompanies the data said the expansion of gas extraction is threatening to undermine efforts set out in the Paris Agreement to limit the global temperature increase to 1.5C.

It said analysis by Oil Change International had shown that reserves in currently operating oil and gas fields alone would resulting in warming beyond 1.5C

“This means that fossil gas must be phased out, not increased.”

The report added:

“Getting UK councils to divest from all fossil fuels represents a powerful way to do [this]”

Research by GoFossilFree.org shows that commitments to divest fully from fossil fuels have been made by seven councils in Derby, Hastings, Monmouthshire, Oxford, Reading Southwark and Waltham Forest.

Another 10 councils have made partial commitments to divest: Brighton, Bristol, Cambridge, Hackney, Haringey, Kirklees, Lewes, Norwich, Sheffield and Stroud.

pnr 180828 Ros Wills2

Outside Cuadrilla’s shale gas site at Preston New Road in Lancashire. Photo: Ros Wills, 28 August 2018

Reaction – Lancashire

Matthew Brown, Leader of Preston Council

“It’s disappointing to see local authority pension funds being invested in the fracking industry. Fracking destroys local landscapes, threatens communities and fuels climate change across the globe. Council pension funds should be going to support clean fossil free energy which will secure a good return for members and help tackle climate change.”

Claire Stephenson, Frack Free Lancashire

“It’s incredibly short-sighted and worrying that Lancashire County Council has such a vested interest in a dirty fossil fuel industry like fracking.

“Climate change is an urgent issue and is happening right now across the globe. Our politicians have an ethical and moral responsibility to divest from climate-damaging fossil fuels and show climate leadership by supporting clean, renewable energy.

“This shocking revelation of where our councillors have their pensions invested is unsupportable and we urgently call for change and divestment.”

Reaction – England

Deirdre Duff, divestment campaigner, Friends of the Earth

“UK councils should know better than to invest in fracking companies. These companies are inflicting their fracking operations on communities around the world, and this can have significant impacts. Many UK councils have rightly opposed fracking in their own area – however it is shocking that they still support the global fracking industry. We should remember too that the climate change caused by fracking will affect us all, no matter where the fracking is conducted.”

Sakina Sheikh, divestment campaigner, Platform

“The devastating fires and record temperatures this summer have brought the impacts of climate change home. Neither local communities nor our climate can afford for the fracking industry to win. Our councils are providing everyday support to the frackers, it’s time to stop. It’s time to divest from fossil fuels.”

Reaction – Scotland

Mary Church, Friends of the Earth Scotland’s head of campaigning

“Opening up new frontiers of fossil fuels like fracked gas whether here or in the US is completely irresponsible in the context of the global climate crisis. The Scottish Government and Parliament oppose fracking because of the serious risks it poses to our environment and health. If fracking is too dirty and dangerous for us here in Scotland we shouldn’t be trying to profit from it taking place in other countries either.

“The pressure will be on SNP, Labour, Lib Dem and Green Councillors on Pension Committees whose parties oppose fracking in Scotland to put in place an investment approach that supports a healthy future for us all, instead of making a quick buck from dirty industries like fracking.”

Stephen Smellie, UNISON Scotland deputy convenor and Strathclyde Pension Fund member

“Using pension funds to invest in fracking is wrong on environmental and safety grounds. Fossil fuels in general and fracking particularly are risky investments given doubts about the financial viability of fracking and the need to reduce the reliance on fossil fuels. There are other better ways to invest our pension funds and Councils should be living up to their climate change obligations, investing in clean energy solutions, not more fossil fuels.”

  • A global day of action, Rise for Climate, is planned for Saturday (8 September 2018) to promote 100% renewable energy.

70 replies »

  1. Pension funds have invested in fossil fuel companies because they bring far better returns than anything else and that benefits and helps fund people’s pensions. Most people will want the best returns so that they get a decent pension. To try and get councils to divest their pension funds away from fossil fuels may well bring a poorer return on the investment and the result will be lower pensions, except I am not sure how public sector pension schemes work. Because public sector workers will have a defined pension amount compared to their salary, does that mean that if the investment returns are poor that the tax payer then will have to pick up the difference? People with a private pension, if those pension funds were made to divest would receive less income if the investment returns were less after dropping fossil fuel investments. What would people rather have, a decent pension or less because their pension funds were withdrawn from a valuable investment return source because green NGO’s were using pension funds as a political weapon? Try selling that to pensioners, ‘oh, we divested from fossil fuels because we were bullied into doing so by the green NGOs unfortunately your pension will not be as much as you expected, or don’t worry if you are in the public sector the tax payer will make up the difference, if not, you will just get less’. By the way, don’t forget the huge salaries the employees of these green NGO groups earn whilst telling us all we should be poorer. CPRE for example, their average salary is over £40,000, most of the others will be likewise. It’s easy to force lower incomes on others from gilded towers.

    • Nice sermon Lorraine, but where is your evidence that divestment from fossil fuels means lower returns?

      Analysis done by Sustainable Insight Capital Management concluded that “tighter portfolio constraints do not necessarily hinder performance” and that all 3 of the fossil fuel portfolios they put constructed outperformed the S&P 500 over 1, 3 and 5 year terms. All three also provided “a superior risk adjusted return compared to the S&P 500 index”

      Analysis of historical data by Impax “shows that over the past seven years eliminating the fossil fuel sector from a global benchmark index would have actually had a small positive return effect. Furthermore, much of the economic effect of excluding fossil fuel stocks could have been replicated with ‘fossil free’ energy portfolios consisting of energy efficiency and renewable energy stocks, with limited additional tracking error and improved returns.”

      So you are presenting a false choice here Lorraine. The choice is not between investing in fracking and lower pensions. It is a moral and ethical choice which reflects growing and valid concerns about the role played by fossil fuels in climate change, but it is not one which (as you seem to be trying to claim) necessarily has negative implications for those whose pensions are dependent on the investments.

    • Individual investors are free to back whatever activities they feel morally comfortable with.
      Public bodies however have wider responsibilities especially if they
      have oversight on planning that affects the health, safety and quality of life of their own electorate. They must be seen to have come to the right decisions which isn’t possible if they have a financial interest in allowing a decision.
      If an individual councillor had a vested interest in the business they would declare their interest and wouldn’t vote on an application, here the entire council may have a vested interest in allowing an application.
      As for investing more widely, in the US shale ponzi scheme for example, past performance is not necessary a guide to future earnings.

      • Dorkian
        In my opinion

        The funds belong to the pensioners, not the council ( thankfully … Maxwell had input to that ).

        The investment strategy is up to the trustees and the members. Maybe an absence of investing in fossil fuel is ok. Up to them by vote.

        However, as the bulk of the members will be council employees ( not councillors per se ), then the odd vote of a councillor for or against a planning application in the hope of swelling the returns of the pension scheme seem far fetched.

        Closer to home, councillors have found better ways to swell their bank accounts, see Rotten Boroughs in Private Eye ( supporting planning permission on land owned by their mates, giving juicy contracts to their friends etc etc ). Private eye used to call Doncaster the ‘beacon of sleaze’ tho I expect it is better now.

        Voting to allow a BP fuel station to be built as the fund is a few % invested in Bp ( say ) would be a big stretch, even though Bp are spending millions on fitting electric car charger points.

        Not that the members always get it right. Some years ago the British Coal Mineworkers Pension Scheme wanted pension cash to be invested in UK coal mines! Fortunately, the government, which guaranteed the fund, would not allow it. Now the fund wants the cash back the gov keeps as part of the deal to provide a guarantee!

    • THE BIGGEST INVESTOR….. THE WORLD BANK will NOT be investing in Fossil Fuel extraction after 2019.

      Whilst the big players take note of the serious financial and human cost of Climate Change … They have the intelligence to to see that investing in Fossil Fuel extraction is not the smart way forward , but yet some Councils are jumping in with both feet …… Talk about taking chances with Tax Payers money …. This looks like, typical Millennium Dome mentality .

      It’s Official: The World Bank Will Stop Fossil Fuel Financing After 2019

      https://www.sciencealert.com/the-world-bank-will-stop-fossil-fuel-financing-beginning-in-2019

      World Bank Group Announcements at One Planet Summit

      http://www.worldbank.org/en/news/press-release/2017/12/12/world-bank-group-announcements-at-one-planet-summit

      • AND BEFORE ANYONE jumps in and says that Councils have NO SAY where Pension Fund managers invest their money…… THAT’S NOT TRUE .

        For YOU, ME or ANYONE investing their money in any form of Pension Plan …… Simple , Basic common sense would dictate that you would first do your research as to what companies your Pension Fund Manager would be likely to be investing in …

        Looking ahead and taking note of the World Banks stance on the matter . COMMON sense may tell you that long term prospects for Fossil Fuel investment , especially FRACKING may not be looking good.

        Investing money in the FRACKING direction when taking note of the strong public opposition, is almost on a par to investing your money in an Elephant Tusk carving company, CLEARLY financial suicide .

        You therefore would choose a company which does NOT invest your funds in that particular area .

      • Jack

        Good oh, though they pulled out of coal exploration some while ago, and dabbled in gas as a replacement.
        The big worry was funding coal fired power stations, to the annoyance of Germany ( as a contributor to the bank ).
        See …Tracking the global coal plant pipeline …
        But they have not banned funding fossil fuel powered power plants yet.

  2. The issue here is the fear to let go. We have investment opportunities in renewable technology as well as energy, The new wealthy corporations are in technology and data too, they are also worth their research for investment. Then there’s Iand, old buildings, etc they could repurchase for management and/or development. You simply can’t go on saying “But, but… oil”!

  3. Fine. Divest and invest in whatever options they choose. I think they have the right to choose their own investment and not impose it on other people.

  4. Well said Lorraine. Your content was spot on, and certainly not hypocritical like some of the response. The antis have always had a blind spot to basic economics and your comment will be exercising a few grey cells, but there will be no sensible response.

    I suppose refracktion could explain the sort of income you may get from companies like Tesla who have not made a profit in 15 years and therefore pay no dividend. Or, why he invested in fossil fuels?

    Easy to suggest others should end up picking up the bills the antis want to produce. They already have with policing costs at PNR and elsewhere.

    Last time I saw data, Shell alone was paying out $16 billion in dividends per year. Much of it into pension pots. I have yet to see any “sustainable” alternative to where this type of money would be found. Maybe possible in the future, but not the case now.

    It will certainly not be out of the antis pockets. They are not content with attempts to impose fuel poverty on the elderly, they now seem to want to raid their pensions as well, and reduce the public services available to help them by reducing UK taxation because of high proportion of imports of gas and oil. Caring sort of group, aren’t they?

    “Cheap oil and gas is sloshing around the world markets” was the mantra being suggested by them a short while ago. Maybe some of those responsible for pension fund investing have a bit more realism and knowledge?

    • Martin – another incomprehensible ramble from you. At least you are very consistent

      BTW Nobody is suggesting Councils should invest in Tesla and I have no investments in fossil fuels. If all you have to offer is the same false choices Lorraine spouts, along with inaccurate jibes, I really don’t know why you bother old thing.

  5. I would say there is a very real risk linked to pension funds investing in fracking and fossil fuels and especially fracking. It is a serious issue that goes beyond a moral decision, climate change is real and is here. It should be a risk factor when making investment decisions. Especially from pension funds that must look to the longer term. The risk of stranded assets is real and of significant concern. And I personally respect the opinions of the LSE and other financial experts rather than the comments on here from some supporters of the industry that seem to have made fracking a personal fight, to try and score points at any cost, rather than participate in sensible debate.

    http://www.lse.ac.uk/GranthamInstitute/faqs/what-are-stranded-assets/

    https://oilprice.com/Energy/Energy-General/Why-Is-The-Shale-Industry-Still-Not-Profitable.html

    https://www.desmogblog.com/2018/04/18/finances-great-american-fracking-bubble

    https://www.wsj.com/articles/wall-streets-fracking-frenzy-runs-dry-as-profits-fail-to-materialize-1512577420

    https://www.investopedia.com/articles/investing/072215/can-fracking-survive-60-barrel.asp

  6. This debate is completely academic. Local authority pension schemes are completely independent of the local authority who legally can have no influence on the nature of individual investments.

    • I appreciate your point Mike but it doesn’t hide the fact of the conflict of interest between Local Councils making planninng decisions on oil and gas development here in the U.K as being not to develop futher fossil fuel extraction as the reason for refusal. But knowing full well they are invested to the tune of £Billions in overseas fossil fuel extraction…

      Ignorance is not a defence when making Nationally Important decisions for the benefit of the U.K then deviating from Government guidelines and claiming some personal moral high ground when making planning decisions whilst all the time gaining financial benefit from the same activity in another Country…

  7. The AIM listed minnows are not investments, they are purely a gamble, where in the vast majority of occasions you WILL lose money because these little companies are so financially unstable they never stop issuing new shares to the market, continuously diluting the business. The market is littered with these failed companies.
    THE AIM CASINO IS NOT A PLACE TO INVEST.

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