Forget a windfall tax, our pension funds need to give up their fossil fuel addiction
Yesterday, Shell reported their highest ever quarterly profits after raking in $9.13bn. Only days before, BP had similar results, with the largest earnings in more than a decade.
Even if you didn’t know much about the industry, with the surging price of oil and gas, you could have easily predicted this. Indeed, many politicians did, with calls for a windfall tax growing louder and louder.
While the immediate situation – the war in Ukraine – is increasing oil giants’ bottom lines, the global funnels of cash heavily invested in the continued supply of fossil fuels are keeping the industry profitable.
A massive £2.6tn is invested in pension funds in the UK, making it one of the largest and most significant investment pots. Approximately £128bn of this sum is invested in fossil fuels, putting the UK’s largest pension providers on the list of biggest climate change offenders.
What’s worse is the lack of transparency on this: most everyday pension holders have no clue they are part of a global system that is propping up assets directly antithetical to the transition to renewable energy.
While becoming vegetarian, cutting down air travel, or choosing a green energy provider are all established consumer methods to reduce carbon emissions, fossil fuel-free pensions could be over 20 times more powerful in the fight against global warming than these actions.
We rightly extolled the virtues of former Bank of England Mark Carney’s efforts to direct capital towards renewable energy. But all the while, streams of our money are undoing all of these efforts.
The issue is so deeply embedded in the pensions world that almost all of the biggest providers are guilty – including the Universities Superannuation Scheme (USS), the largest in the UK; Aviva Pensions, managing £44bn; and the BT Pension Scheme, valued at £57bn, all holding considerable funds in fossil fuels.
But wouldn’t rapid divestment from fossil fuels mean people losing out on their pensions?
In fact, the profitability of sustainable investing renders this idea of a “necessary compromise” a total myth. Take the performance of two exchange–traded funds (ETFs) as an example. One steeped in fossil fuels – the IXC – and the ICLN, made up of renewable energy companies. If three years ago, you put £1,000 into the clean energy fund, your savings would have grown by 31.06 per cent compared to 7.04 per cent in fossil fuels – you would be £236 richer.
Pension funds have always invested in fuel companies because of the certainty we would always need it. It’s a stable, low-risk investment driven by a world that, well, drives on fuel. In 2020, the price of oil went negative for the first time in history when – you guessed it – everyone stayed home. Our world stopped moving, it stopped driving, for a moment.
But pension funds are also based on ensuring the stability of our future, in making sure the money we invest during our careers is enough to see us through our retirement. There is an irony, then, in it investing in an industry leaders in the world are desperately trying to phase out. Putting that money into the companies that will be at the forefront of our future also ensures the profitability of that future, even if it seems riskier right now.
To start to drive this change, consumers need to be able to question where their money is going, and the kind of future they are investing in.