Guide to Local Government Divestment:

campaign demands

What are we asking for in local government divestment campaigns?

the basic ask

While investment means buying stocks, bonds or other investments in order to generate financial returns, divestment is getting rid of particular stocks, bonds or investment funds. This could be for financial reasons, ethical reasons, or some combination of the two.

Fossil fuel divestment, therefore, is avoiding direct ownership of, or commingled funds that include, public equities and corporate bonds of fossil fuel companies.

The divestment movement asks institutions holding investments – in this case, local government pension funds – to resolve to:
  1. Immediately freeze any new investment in the top 200 publicly-traded fossil fuel companies;
  2. Divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within 5 years.

Additionally, you could also consider reinvestment asks – these consider how money currently invested in fossil fuels could be reinvested into clean energy, local infrastructure or other public goods. To find out more about reinvestment, check out the Reinvesting Pensions report from Community Reinvest.

Campaign Demands

As money in local government is held at different levels and the exact set-up varies across the UK, a commitment to go ‘fossil free’ may look different in different places, and campaigners will need to determine their own local approaches to fossil-free government accordingly.

While the majority of money is held in local government pension funds, some campaign groups have started with lower levels of government (that don’t control the pension fund) where the decision to go ‘fossil free’ is more straight forward. These smaller wins have helped to build momentum and get institutional support for approaching the pension fund (see Oxford’s case study).

Remember, it’s the public commitments – from our towns, our cities, our counties – to distance themselves from the practises of the fossil fuel industry and undermine their social and political license to operate that’s especially important.

The global divestment ask calls on organisations to commit to:

1. Immediately freeze any new investment in the top 200 publicly-traded fossil fuel companies.

2. Divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within 5 years.

These top 200 publicly-traded fossil fuel companies (identified by Fossil Free Indexes Carbon Underground 200 project) represent a large volume of fossil fuel reserves and have been useful for setting asset exclusion criteria.

5 years has been identified in consultation with the industry as a practical and financially prudent deadline to work to.

Additional demands could be included around local or sustainable reinvestment as appropriate.

If you’re approaching local government NOT controlling the pension fund (i.e. only holding cash reserves):
  • Even though they may not have any direct ‘investments’ through their cash reserves, they can still make a fossil free commitment; publically establishing their position on the fossil fuel industry, their support for the divestment movement and commitment to ensure no funds in the future are invested in fossil fuels
  • Their position should involve a commitment to work with their pension fund administrator to push them to divest (eg London Assembly motion here)
  • Several campaigns (eg Oxford and Bristol) have successfully built momentum and support for the campaign with ‘wins’ at lower levels of government (ie City Councils)

Cash reserves aren’t conventional ‘investments’; they are much smaller than pension funds, and there are limitations to completely leaving the biggest banks.  However there are a couple of campaign options.

You can ask your local government to contact the providers holding their cash reserves (likely the biggest five banks) to ask about their exposure to fossil fuels and plans to reduce this, and moving some investments to alternative banks and building societies (including Nationwide, Coventry Building Society, Triodos, Unity Trust Bank, The Cooperative, CCLA’s Public Sector Deposit Fund, or Metro Bank).

Move Your Money published a local authority guide to banking for social good in 2013 which contains further information on local government bank investments and financial policy, with further resources around divestment and fossil free options on their website.

Leicestershire Council chose to divest its treasury investments from Barclays in July 2012 following the LIBOR scandal for example.

If you’re approaching local government controlling the pension fund:
  • Pension funds across the country are in very different places in terms of their understanding and action around climate risk, and you may need to adapt your campaign to this.
  • Remember to stress the 5 year timeline, and that you’re not asking them to breach their fiduciary duty.
  • While the ultimate ask is full divestment, there are some intermediary steps needed for the fund to do due diligence which could be used to build the case and keep the campaign moving. These include asking for trustee trainings on climate risk, articulating investment beliefs in light of the evidence of climate change, conducting a carbon footprinting exercise to evaluate exposure to the risks posed by climate change, surveying fund beneficiaries about environmental concerns, monitoring and reporting on carbon exposure and adopting internal targets for green investments. Further suggestions and more information can be found in the Institutional Investors Group on Climate Change (IIGCC) Guide for Asset Owners or ShareAction’s Green Light Report.
  • The Local Government Pension Scheme (LGPS)  is unusual amongst pension funds in that its ‘fiduciary duty’ (it’s financial responsibilities towards stakeholders) is split between the fund beneficiaries (who would usually be the only ‘fiduciaries’), employers (including, but not necessarily limited to, local governments themselves) and local residents, whose taxes top up the pension pot (currently 21% underfunded) to make sure everyone everyone receives their pension. The duty owed to local residents and tax-payers means a wide body of people arguably should have some say in local government pensions. However it is important to bear in mind that ultimately the fund exists for the fund beneficiaries. UNISON have been campaigning on this to support their members (who make up a large percentage of fund members) and so building support amongst fund members will always need to be a central part of the campaign.

asks for pension funds

If you’re directly targeting a pension fund in your campaign (or institution controlling a pension fund) then the primary ask should be in line with the global divestment demands (listed above).

How can a pension fund go ‘fossil free’?
  • For divestment to count, it has to be a policy commitment – not just a (potentially temporary) shift in investment. Most funds will have a ‘Statement of Investment Principles’ – push for the commitment to be integrated into these, or encourage them to adopt a separate ‘Ethical Investment Strategy’.
    1. The decision probably only needs to be taken by the Pension Committee (rather than a full council).
  • Divestment won’t happen overnight – the five year time frame of the global ask acknowledges this. However, for a fund commitment to be meaningful it should assign a definite timeframe or deadline to the decision.

The primary ask to your target should always be full divestment from all fossil fuels, however, it’s also a good idea to have some ‘bargaining positions’ – should the fund not be willing to commit.

These are some options for ‘intermediate’ asks to the pension fund. For more information or advice on any of these, get in touch.

  1. Ask the fund to commit to undertake an annual ‘carbon footprinting’ exercise to calculate the climate exposure of their portfolio and publicly disclose this information.
  2. Assess the carbon risk of the portfolio both on the 2°C and 1.5°C limits and on the high economic and environmental risks associated with fossil fuel extraction. Stress test the portfolio under probable scenarios.
  3. Survey pension scheme members about their views on climate change and consider these views as part of their wider duty to manage the pension fund responsibly. This strategy is a bit of a gamble as how survey questions are framed has a significant impact on the results.
  4. Use the Corporate Knights ‘Portfolio Decarboniser’ tool to assess the financial risk of existing fossil fuel investments and the potential impact of excluding these.

asks for councils and other bodies

If your target doesn’t control a pension fund (e.g. a city council), there are still divestment demands you can make. The main way of doing this will be passing a divestment motion through full council.

How can a council go ‘fossil free’?
  • For a council or other body which doesn’t directly control a pension fund to ‘divest’ it has to fulfil certain requirements:
    • The motion passed must call on the relevant pension fund to divest (and pledge to apply pressure on the fund to make this happen).
    • It should also commit to adopting an investment policy in line with the global divestment ask.