Ref: ML.BD.C0079.LM.13.02.15
Date: 13th February 2015

Dear Brian,

Thank you for your reply of 10th December 2014 regarding the exposure of the Parliamentary Contributory Pension Fund to risks associated with climate change, carbon and investment in fossil fuels.

We are concerned that the issues we raised have not been adequately addressed and would like to reiterate our request for information on the key areas set out below and a meeting to discuss the detail of our concerns.

In particular, we are perplexed at your comment that exclusion of fossil fuel investments would be incompatible with the Trustees’ legal duties. Nor do we agree with the characterisation of climate change as a “moral” or non-financial factor. As we stated in our letter, climate change has significant financial implications for pension funds. It is not merely a matter of morals or ethics. Accordingly, we remain concerned that a failure to acknowledge the risks of continued investment in fossil fuel industries would in fact be to the financial detriment of the scheme. 

The Law Commission’s recent review of trustees’ fiduciary duties, on which your lawyers’ advice appears to be based, stated that “there is no impediment to trustees taking account of environmental, social or governance factors where they are, or may be, financially material”.  In fact, the Law Commission went even further and said that “trustees should take into account financially materially factors".

Following on from the concerns expressed by the Governor of the Bank of England, the Secretary of State for Energy and Climate Change, Ed Davey, has recently warned that financial authorities must examine the risks posed by coal, oil and gas companies to prevent pension funds investing in what could become “the sub-prime assets of the future".

The collapse in the price of coal and the decline in the price of oil to below $50 a barrel, reinforce these concerns even further. We would therefore expect the Trustees to pro-actively consider these issues in full.  We are concerned that the Trustees, in regarding climate change and fossil fuel exposure as a moral issue, have not undertaken a proper evaluation of the financial impact these risks may have on the fund.

We therefore request further information about the PCPF’s integration of climate change risk and carbon risk into its investment activities. While we welcome the development of the Trustee’s ethical investment policy, we do not see that consideration of these risks is in conflict with the Trustees legal duties.

Since our previous letter, there has been an increasing amount of action in the investor community to consider the financial risks of high-carbon investment and to cut exposure to fossil-fuel assets.  For example, in December, large pension funds and asset managers urged oil and gas companies to explain how they are dealing with prospect of tougher climate change policies in advance of the Paris climate conference.  Last month, Nordea, the largest Nordic fund manager, with $228bn of assets, announced plans to blacklist up to 40 coal-mining companies from its investment portfolio.

To reiterate, the key areas we would like to understand further include:

·         whether an assessment of the carbon intensity of the fund has been carried out and if so the results of that assessment and details of any actions that has resulted in;

·         how much of the fund’s assets are invested in fossil fuel companies;

·         how much of the fund’s assets are invested in industries that facilitate a transition to a sustainable low-carbon economy e.g. renewable energy, water and energy efficiency, forestry, waste management and recycling;

·         whether, if the fund has passive index tracking investments, consideration has been given to using fossil fuel free or carbon tilted indexes; and

·         whether the fund would give any consideration to asking its investment managers to examine the financial feasibility for PCPF to reallocate capital away from fossil fuel companies over a period of time.

We would be happy to meet to discuss the above further. We look forward to hearing from you.

Yours sincerely,

Caroline Lucas MP

Tessa Munt MP
Joan Walley MP
Julian Huppert MP
Mike Crockart MP
Laura Sandys MP
Alan Whitehead MP
Elfyn Llwyd MP
Martin Horwood MP
Jonathan Edwards MP
Hywel Williams MP
Mark Durkan MP
Baroness Jones of Moulsecoomb
Lord Judd          

cc. PCPF Trustees Board