Polluted Pensions? Clearing the air around UK pensions and fossil fuels

UK pension funds have an estimated £128 billion invested in fossil fuels, equivalent to nearly £2,000 for every person in the UK, according to new research by Friends of the Earth released today.

This is the key finding from “Polluted Pensions? Clearing the air around UK pensions and fossil fuels”, a report published by Friends of the Earth England Wales and Northern Ireland, Friends of the Earth Scotland and Platform published just days before the start of COP26. 

The report investigated the investments of six of the UK’s largest pension funds and found a typical investment in fossil fuels to be 4.3% – when applied to the whole pension sector this amounts to £128 billion, £1,916 per UK citizen.

Earlier this year, the IEA stated that there should be no new investment in fossil fuel infrastructure if the Paris climate goals were to be reached. Pension investment in fossil fuels undermines UK and UN efforts to rapidly phase out fossil fuel use and presents significant financial risks.^[2] Despite this, the report found that none of the UK’s largest pension funds were found to have credible plans to divest from fossil fuels.

The report also reviewed the reporting of 27 of the UK’s largest pension funds and schemes and found that half published no information about their investments, including Now Pensions, with 1.8 million members, and the BT Pension Scheme, valued at £57 billion. Only 7 of the 27 funds published detailed information about their investments.

A recent review by the Work and Pensions Select Committee^[3] concluded that the UK Government should use COP26 to encourage other countries to follow the UK’s lead on climate and pensions, but today’s new data suggests the UK pensions industry makes a poor role model.

None of the UK’s largest funds are currently committed to divestment. However, 150 funds globally have made divestment plans, Including the London Borough of Islington, which was commended in the report for having detailed plans to divest from fossil fuels and invest in green projects. Other UK pension funds were also commended for having clear divestment policies: the London Borough of Lambeth, Cardiff, and the Welsh Parliament. All pension funds were encouraged to follow their example.

The London Borough of Islington Pension Fund, valued at £1.4 billion in 2021 with 21,000 members, is highlighted as a successful example of fossil fuel divestment. It has implemented a number of initiatives to address the climate crisis including committing to divestment of all fossil fuels by 2022. Since 2016, the climate emissions from Islington’s investments have reduced by 69%.