Nearly a billion dollars has been wiped off the value of coal investments by UK public pension funds over the past 18 months, intensifying pressure on the schemes to pull out of “stranded” fossil fuel companies.
The findings come two weeks after Mark Carney, the governor of the Bank of England, warned that investors in coal, gas and oil face “potentially huge” losses from climate change that could make vast reserves of these commodities “literally unburnable”.
Mika Minio-Paluello, a researcher at Platform London, the environmental campaign group that analysed the pension schemes’ holdings, said the combined $978m ($971m) drop in the value of their coal investments reinforced the argument in favour of fossil fuel divestment.
The campaign group examined the exposure of 61 public sector schemes to four large coal companies, BHP, Rio Tinto, Glencore and Anglo American, which are also under pressure fromsliding commodity prices and the slowing Chinese economy.
He said: “Our local councils are risking their pension funds by investing into coal and fossil fuels. The burden of failing coal companies will be dumped on the public and pensioners.
“If councils had divested from coal and reinvested into public transport and social housing two years ago, then pension holders, the climate and public services would all be better off.”
The group estimated that the collective losses across all 101 public sector schemes were likely to be much higher than $978m, but 40 of the funds did not provide adequate data on their holdings.
The Greater Manchester Pension Fund, the largest local government scheme, with £18bn of assets, saw the biggest drop (£148m) in the value of its coal investments, according to the research.
Other schemes that encountered big falls over the past 18 months include Teeside (£46.9m), East Riding (£35.4m), Kent (£32.6m), Strathclyde (£26.2m) and Worcestershire (£23.7m).
A spokesperson for the Worcestershire fund said: “Our key aim [is to] continue to pay pensions as they fall due. Part of that trade-off involves ensuring our portfolio is diversified across sectors. This inevitably means we will invest across a range of industries and that will, at times, include fossil fuels.”
Other large investors have cut their exposure to coal entirely or intend to. Two weeks ago, Bill de Blasio, the mayor of New York, proposed that the city’s five pension funds, which collectively oversee $160bn of assets, divest from coal.
A statement on the mayor’s website highlighted a recent study by MSCI, the data provider, showing investors who divested from fossil fuel companies would have earned an average annual return of 13 per cent since 2010, compared with the 11.8 per cent return earned by conventional investors.
The chief investment officer of a large public pension scheme, who requested anonymity, agreed North American coal stocks are “not a good investment because of the availability of cheaper, cleaner gas”.
However, Edmund Truell, former chairman of the London Pensions Fund Authority and pension adviser to Boris Johnson, the mayor of London, believes investors should not rule out coal investments indefinitely.
He said: “The LPFA has no direct holdings in coal assets [as] there were more attractive investment opportunities elsewhere. There is always a price for risk, however, and in my view there is a price at which a coal asset is attractive. It is just that we have not seen that price level yet.”