Local authority pension funds investing more than £9 billion in the global fracking industry

14 / 09 / 2018

Summary

New data and reports have suggested that local authority pension funds across the UK have invested over £9 billion in the international fracking industry. News about this has come as the topic of fracking was recently removed from the government’s quarterly public attitude survey, commissioned by the Department for Business, Energy and Industrial Strategy, just days after the government gave the go-ahead to frack for the first time in 7 years. The first hydraulic fracture in the UK (since 2011) could be happening anytime now.

The problem with fracking…

Fracking is controversial, with many UK citizens and residents objecting to any plans for fracking in their local areas. Government polling and surveys across the UK have shown little support in fracking. Deirdre Duff, divestment campaigner with Friends of the Earth has stated that “UK councils should know better than to invest in fracking companies. These companies are inflicting their fracking operations on communities around the world, and this can have significant impacts” and that “Many UK councils have rightly opposed fracking in their own area – however it is shocking that they still support the global fracking industry. We should remember too that the climate change caused by fracking will affect us all, no matter where the fracking is conducted.

Some may, therefore, feel opposed to having their pension pots invested in such an industry. Despite this, UK pension funds have still invested over £9 billion into the fracking industry, with the Greater Manchester Pension Fund investing the largest amount (almost £1billion), and West Yorkshire Pension Fund investing over half a billion. The councils with the highest percentage of their pension funds invested in fracking are: Dumfries and Galloway; Greater Manchester; and the London Borough of Merton (each with around  6-7 percent of the total pension fund invested in fracking companies).

Pension funds’ reasons for investing in fracking

From the pension schemes and the scheme trustees’ perspective, one of their main fiduciary roles is to ensure that the fund is looked after and that the members of the scheme receive their benefits on retirement. One of the ways to ensure this is to invest properly. Scheme trustees obtain advice in relation to legal, actuarial and investment matters, and so decisions in relation to investments are not done so lightly. An investment report is usually produced with the investment adviser explaining why certain options should be invested in, which takes into account risks and potential yield. Trustee meetings would include discussions on investment (and other) matters, and minutes would also be taken to show the trustees’ thought process, prior to any decisions being made and to record decisions.

A spokesperson for the Dumfries and Galloway council and pension fund explained that “The fund’s main responsibility was to ensure that scheme members and their dependants receive all benefits as and when they become payable.” The spokesperson further added that “In view of the principal objectives the Pensions Sub Committee take the view that non-financial factors should not drive the investment process at the cost of financial return on the Fund.” Another spokesperson for the Isle of Wight council, whose pension fund appears in the top 10 fracking investors said that “The Isle of Wight Council Pension Fund has a fiduciary duty to ensure it has sufficient funds available to pay pensions.” With this in mind, it may just be that the fracking industry is an attractive option to invest in, for the purpose of yield.

Wedlake Bell comment

Although the above is true, some may argue that with such a variety of investment opportunities available, fracking need not be the chosen investment option, especially if members do not really know or understand what the fund is being invested in.

For those members who may feel very strongly against fracking and whose pension pots are invested in such an industry, this does not seem right. Considerations for trustees in making such decisions would include the investment regulations, social and environmental factors and a need to trustees to consider the sustainability of their investment decisions. Non-financial factors should, indeed, not drive the investment process or final decision, especially from a trustee’s point of view. However, with climate change and environmental pollution and damage becoming more relevant than ever, is it really justifiable to invest in such a damaging industry (for the environment, and our and future generations) for the purpose of getting a better return? In my opinion fracking is a topic that should be taken seriously and should not be supported or encouraged, though, as a driver who regularly purchases her petrol from one of the world’s leading oil and gas companies (which has profited from its several international fracking projects), am I also indirectly supporting the industry?