Pensions: Low-carbon Investments

Baroness Jones of Moulsecoomb Excerpts

Thursday 20th March 2014 Grand Committee

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I congratulate the noble Lord, Lord Harrison, on getting this debate on to the agenda because it is crucial to our future and our security as a nation. It is also a real pleasure to be in a debate where I did not say the words “climate change” first. It is great that more and more people are understanding how challenging this will be. Earlier this week, I was in a debate on fracking in which proponents of fracking said that we have to frack to deliver our carbon-reduction targets. Even proponents of fracking, which I think is the most disastrous anti-climate change measure, are using climate change as a big stick and something that we have to take into account in the future.

It has already been said that the local authority pension funds have a current market value of around £200 billion. That is a sizeable amount and if it can be manipulated and used in the right way, it can have a huge impact. There have been several reviews of pension fund rules, including the 2001 Myners report, but pension funds are still investing billions in tobacco, arms and fossil fuel companies. My work on this has been trying to encourage various pension funds to invest more ethically but also in a greener way. It is not easy. The noble Lord, Lord Whitty, mentioned that pension funds are risk-averse but the fact is that there is a huge risk if they do not take climate change into account. In fact, the green economy is growing at a steady 4%, with lots of promise, so actually it is not a bad investment.

The big problem is that pension funds could be exposed to what is termed the “carbon bubble”, in that they have invested very heavily in fossil fuel companies and similar, but those assets cannot be used if we are to avoid dangerous climate change. That is a real concern because those pension funds could plunge if that sort of carbon bubble becomes imminent.

The government Budget was depressing yesterday—business as usual, and less green than the previous Budget, if that is possible. I abhor that the Government seem unable to see this problem, which is happening in front of their eyes.

Last year I met with Edi Truell, who is the chairman of the London Pensions Fund Authority, and pressed him to make the authority more ethical, in the sense that it could be more transparent about policies and implementation. My concern was that the LPFA was acting like an absentee landlord, not looking closely at what the companies it invests in are doing: whether they pay the living wage, for example—which should be an automatic component of whether it invests—and, of course, whether those companies are ethically and even soundly run.

I also talked to the London Pensions Fund Authority about positive investments in areas such as energy infrastructure. The fund is currently looking into the possibility of raising £4 billion, with other pension funds, to fund a 620-mile-long cable to Iceland, which would enable us to share enough energy to power 2 million homes. Iceland could be the Saudi Arabia of renewable energy supplies.

For many years people have campaigned to get quite a lot of pension funds to invest more ethically. For example, East Sussex County Council has been lobbied many times. The fund is valued at around £1.9 billion and is one of the largest pension funds in England and Wales. It has been considering one of the three things that should now happen, which I will now propose to the Government.

First, pension funds should sign up to the UN principles for responsible investment. That is an elementary step. Secondly, the Government should require pension funds to disclose much more information; for example, their socially responsible investment policy implementation and performance monitoring. The people who get the pensions want money for their pensions—of course they do—but at the same time they want to feel that they are not raping and pillaging the rest of the world.

Pension funds should also try to make more positive investments. For example, Lancashire County Council’s pension fund has just invested £12 million in the UK’s first community-owned solar development in south Oxfordshire. That sounds like such a win-win situation. It is good for Lancashire and absolutely brilliant for south Oxfordshire.

As I have a little time left, I will give noble Lords the three tests of sustainability. I wrote these for Boris Johnson when he became Mayor of London; I stood over him and made him read them, which was absolutely pointless. However, I will read them to noble Lords. The first test is: does it ask everyone, at every level of society, to do something? It is not enough to expect the Government, or the local council, to fix our problems. We all, as individuals, have to do something, but the Government cannot expect us to do it on our own—everybody must do something.

The second test is: could it cause potential problems downstream? This is one where Greens are absolutely brilliant, because we are very good at spotting potential messes. A classic example is biofuels. People such as Richard Branson were saying, “Fine, I’ll fly all my aeroplanes on biofuels”. In fact, if you grow biofuels, you are cutting down virgin territory and forest, and taking land that could be used for food—and food supply will be an area where we will have huge problems in the future. You have to make sure that you do not create more problems downstream.

Finally, does anything claim to be “the” answer? There is no one answer. The problem of climate change is so complex and diverse that we need 1 million, or 2 million, solutions. As Al Gore says, there is no silver bullet, only silver buckshot. The problem is so complex, so we need complex solutions.

Doing the right thing now will save us money. It might feel expensive, but it will be a lot more expensive—exponentially so—in the future. Therefore anticipating, adapting to and mitigating climate change is absolutely urgent. Pension fund authorities have so much power through their investments that they should be exemplars of how to deal with it.