UK Environment Agency divests in landmark move to help meet 2C limit
The UK's £2.9bn Environment Agency pension fund (EAFP) has become the first in the world to change its investment choices to help meet the internationally-agreed target of limiting global warming to 2C.
The move will include divestment of 90% of its coal assets and 50% of its oil and gas stocks by 2020.
The EAPF will also invest 15% of the fund in low-carbon energy, energy efficiency and other businesses that help tackle climate change by 2020 and has already moved its £280m of global share investments to a low-carbon index.
Mark Mansley, EAPF’s chief investment officer, said the new policy was not a “knee-jerk reaction” but followed over a decade’s analysis of the financial risks posed by climate change.
Mansley said the policy aimed to protect and grow the fund: “We believe it will help address the risks and opportunities as the impacts of climate change materialise and is entirely consistent with securing the long-term investment returns of the fund and our fiduciary duty.”
Christiana Figueres , the UN’s top climate change official, said the EAPF move was “more positive financial news ahead” of a crunch UN summit in Paris in December at which a global climate deal could be agreed. Investors responsible for $2.6tn have now committed to selling off their fossil fuel investments.
A recent analysis showed local government pension funds in the UK, which have 4.6 million members, have lost hundreds of millions of pounds in the last 18 months due to the sharply falling value of coal investments.
Scientists have shown that most existing fossil fuel reserves must stay in the ground to avoid the catastrophic global warming expected beyond 2C. Institutions including the World Bank, the G20 and city analysts are concerned that, if the world’s nations crack down on carbon emissions to halt climate change, those reserves will lose their value.
This analysis indicates that fossil fuel investments are a threat to both the climate and the value of investment funds. Bank of England governor Mark Carney warned recently that the losses were “potentially huge”.
The EAPF statement said it had already reduced the fund’s carbon footprint by 44% since 2008 and that fossil fuels currently made up about 2.5% of the fund. It said the financial risks and opportunities of climate change come from the physical impacts of extreme weather, changes in regulation to cut carbon emissions and the increased competition faced by fossil fuels from clean energy.
The EAPF said it would “support progress towards an orderly transition to a low carbon economy through actively working with asset owners, fund managers, companies, academia, policy makers and others in the investment industry”.