Money in local government is held in several different forms, and the money controlled by any particular authority will depend on the level of local government, their size, and the set-up of local government in the area.
The vast majority of local government funds are held in their pension funds, though they also have bank accounts and cash reserves.
As employers of large numbers of people, local governments are required to put aside and manage money for workers’ pensions.
There are 99 regional funds, each managed by a local government on behalf of the pension fund members. Combined together, they cover 4.6 million members with a total value of £231 billion, making up the Local Government Pension Scheme (LGPS).
Pension fund members include current and former local government workers as well as thousands of public bodies and third sector organisations in an area, like schools, fire services and NGOs.
Local government pensions are organised differently across the UK:
In England, some areas have more than one layer of local government (a District Council under a County Council for example). The pension is usually managed by the ‘top’ layer: Oxford County Council administers a pension fund for itself, as well as on behalf of smaller bodies like Oxford City Council and West Oxfordshire District Council (and many smaller public and third sector organisations in the county).
In other areas there are “unitary authorities” with only one level of authority who administer their own funds – like the Isle of Wight and Hull City Council.
London is different as most boroughs run their own pension funds, but some are administered by London Pension Fund Authority (LPFA).
In Scotland and Wales, there is only one tier of local government, but not all local governments administer their own pension funds. In some areas, these funds are managed by one local governments on behalf of another. For example, Orkney manages its own pension fund, but Falkirk runs the pension for Falkirk, Stirling and Clackmannanshire.
Through these pension funds, UK local governments invest in fossil fuels. These investments are usually managed by an external fund managers (like JP Morgan and Aviva), under the instruction of the local authority (rather than by in house government officials). These investments can be made directly or indirectly, actively or passively.
Direct investment means that individual shares in a company (eg Shell, BP and BHP Billiton) are bought (actively) by a fund manager and they have a direct holding in the company.
Indirect investment means purchasing a stake in a financial product invested into a variety of different companies, some of which may be fossil fuel companies. These financial products (sometimes called co-mingled funds) can be actively managed – the product manager actively chooses what to include and how much – or they can be passive “tracker funds”, whose performance follows the movement of a share index such as the FTSE 100. Such schemes are popular with public investors as they are perceived as being low-risk and allow fund managers to outsource day-to-day investment decisions.
It is easiest to divest from fossil fuels when funds are actively managed since these shares are bought and sold on an individual basis. Excluding fossil fuels from indirect or passive investment can be harder, but is becoming increasingly possible. The 5 year timeframe for divestment is to allow time to get out of these more complicated products.
How much do local government pensions invest in fossil fuels?
Unless your local government has chosen to not invest their pension fund in fossil fuels (and we’re not aware of any so far) you can safely assume that they have invested in fossil fuels. You don’t need to wait on a final figure to start campaigning, it’s best to get moving first.
An investigation in 2013 found that five local government pension funds had collectively invested £1.11 billion in fossil fuels. BP, Shell and BHP Billiton alone make up 20% of the FTSE All Share Index, so any fund that is tracking the FTSE will contain large fossil fuel investments. Most pension funds are even more weighted towards these three companies, because in the past they were seen as ultra-safe and highly profitable investments.
Detailed information about local government pensions investments may be available on individual funds websites, but is not always easily accessible information.
First of all, it’s worth emailing the Finance Officer (sometimes called the 151 Officer) and asking them directly. This is how the Oxford campaign found their information.
It can take a while for councils to respond (although they are legally obligated to respond within 20 working days), and you may need to chase them to ensure the information requested is provided in the right format ( preferably a spreadsheet, for example Microsoft Excel).
Once you have the information, you can then compare the holdings to the list of 200 companies to find the total.
COMING SOON: To save you the trouble, in July 2015 a new resource will be available from Fossil Free UK, showing how much each local government fund has invested in fossil fuels. Contact [email protected] for more information.
Local governments receive income from various sources such as government grants and council taxes, and borrow additional funds for infrastructure works. They will often receive funds at a different time from when they need to spend them, and surplus cash may be ‘invested’ to maximise its value until it is needed. These short-term deposits held by local governments are called cash reserves or treasury investments / deposits.
Surplus cash in this form (totalling £41bn for the combined 468 UK local governments) isn’t invested directly in equities (such as fossil fuel companies) but deposited with a variety of UK, US and EU based banks, building societies and money market funds.
There’s an “approved counterparties” list of organisations that receive council deposits in the council’s Treasury Management Strategy decided each year (you can find yours here).
While these cash reserves are not directly invested in fossil fuel companies (see campaign demands for clarity on this), the banks, building societies and money market funds that hold the cash reserves do invest in shares of fossil fuel companies, and financial products which are “exposed” to fossil fuels. Move Your Money have shown that the ‘big 5’ banks have £66 billion in fossil fuels.
Local governments have any number of bank accounts which they use for transactions such as receiving council taxes and parking fines, and paying for staff wages and building rents.
Given the relatively small amounts of money involved, characterisation as a service rather than an investment and the obstacles stopping local government from changing their bank account providers (since the Cooperative Bank withdrew from service provision, the majority rely on just four UK banks: HSBC, Barclays, RBS (including Natwest) and Lloyds (including Bank of Scotland)), transactional banking is not likely to offer fertile ground for divestment campaigning.