Report: Scottish Council Pensions Invest £1.7 billion in Fossil Fuels

Scottish pension funds are investing heavily in the companies contributing to climate change, according to a report published by Scottish think tank Common Weal, trade union UNISON Scotland, and environmental charity Friends of the Earth Scotland.

According to the report, Scottish council pension funds have £1.68 billion ($2.05 billion) invested in fossil fuels, which translates to £3,300 for each pension fund. This is in contrast to £234 million invested renewables and social housing across all funds.

“Council pension funds have huge clout and can shape our future. It’s time they used this power to invest in a future worth living in,” said Friends of the Earth Scotland’s Ric Lander, who authored the report. “Divesting from fossil fuels is an opportunity to contribute to a brighter future and put money back into local economies.”

The £1.68 billion represents 4.8% of the total value of the plan. Approximately £637 million of this was directly invested by councils, of which £543 million is invested in oil and gas, while £113 million is invested in coal. Some £1.05 billion of the funds that Scotland’s councils hold in fossil fuels is invested through intermediaries.

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“Councils invest in companies such as BP, who are fracking and drilling for oil in the Arctic as well as having a history of campaigning against subsidies for renewable energy, and BHP Billiton, the 12^th-largest extractor of coal in the world,” said the report.

Because the value of fossil fuel companies is directly linked to the amount of coal, oil and gas that companies can burn, the report argues that any action that governments take to tackle climate change threatens the future profitability of fossil fuel companies, and thus the pensions funds that invest in those companies.

“There is a strong financial case to say that government action on climate change makes fossil fuel investments inherently risky, and that they should be avoided by long-term investors,” said the report. “The future of pension funds is intrinsically linked with that of the wider economy. They will not be able to escape the damage that fossil fuels will wreak on our future economy. If this case is understood, divestment is simply an act of self defense for investors.”

The report also found that only six of the 11 Scottish councils that manage pension funds have ever discussed climate change at the board level. And only three councils are known to be actively investing in socially and environmentally beneficial infrastructure. The Strathclyde, Falkirk and Lothian Pension Funds invest in renewable energy and social housing, however, their combined investment represents just 0.7% of the Scotland-wide plan’s value.

Scotland is divided into 32 council areas. The Scottish Local Government Pension plan is worth £34.7 billion, and has more than 500,000 members. The plan’s advisory board estimates that 10% of Scots are a member of the fund, and that 20% of the population have a financial interest in the fund.

“Too many of our pension funds are investing in obsolete technologies and risking our members hard-earned contributions,” said UNISON’s Scottish Organizer Dave Watson. “The future of energy is green, and it is within sight. Our pension funds need to be part of the future, not the past.”

By Michael Katz

Pension plans run by the nation’s 15 largest cities face a familiar litany of woes, according to a new report from S&P Global Ratings.

Cities such as New York, Los Angeles and Houston are battling a combination of weak investment returns, less-than-robust employer contributions and longer lifespans for beneficiaries.

“Most municipal pension plans experienced the market downturn in 2008-2009 and have not been able to recover to funded levels seen in the early 2000s,” S&P Global Ratings’ report says. “Weak market returns in 2015 and 2016 have not made that recovery any easier. In addition, many plans are lowering assumed long-term rates of return in light of weak market performance, which contributes to declining funded ratios.”

The health of city pension funds varies widely. The typical plan is 70% funded, but Chicago’s pension is just 23% funded. Indianapolis has the best-positioned plan at 98% funded, S&P Global Ratings says.

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Pension liability as measured by the plans’ potential cost to taxpayers follows a similar trend. Chicago’s plan imposes the biggest burden by far, at $12,427 per Chicagoan. Indianapolis’ pension liability is just $66 per person.

Chicago made barely half of its legally required pension contribution in 2015. Given the precarious numbers underlying Chicago’s pension plan, it’s no surprise that it has the lowest rating among the 15 cities, at BBB+. Three big-city pension plans–Austin, Columbus and San Antonio-–were rated AAA.

Meanwhile, most plans are reducing their assumptions about rates of return. The median assumed rate is 7.5%, and 12 of the nation’s 15 biggest cities have reduced their return assumptions since 2014.

Lower returns are creating budget squeezes for many cities.

“As pension funded ratios continue to decline whether through underfunding, benefit structures, changes in assumptions or poor market returns, the effect will be increased annual costs for most cities,” the study says.

Many cities are tackling their pension woes by cutting benefits for new employees, boosting employee contributions, or shifting new workers to defined contribution plans. Because these moves affect only new employees, it might be decades before cities see any savings from pension reform.

In many big cities, pensions benefit police and firefighters, workers with the political clout to fend off reductions in benefits. In Chicago, the state constitution prevents the city from changing the benefits it promised employees.

“In general, it’s difficult for cities to reform current benefits,” said Sussan Corson, credit analyst at S&P Global Ratings and lead author of the study.

Chicago faces a particularly dire pension picture, and the political, economic and legal realities vary from city to city. But, Corson said, the overall pressures squeezing city pension funds are no different from those stressing retirement plans run by states and the private sector.

Other cities included in the survey are Dallas, Jacksonville, Philadelphia, Phoenix, San Diego, San Francisco and San Jose. The S&P Global Ratings’ survey did not look at asset allocations.

By Jeff Ostrowski