How Labour could fight for a fossil-free future via the City

Since the general election was called, a procession of climate-linked disasters has wrought devastation on lives and communities. From off-the-scale typhoons in Japan to mega droughts in southern Africa and out-of-control fires in California and Queensland, climate emergencies have become national emergencies. Closer to home, areas of Derbyshire and South Yorkshire have seen a month’s rain in a day, forcing evacuations and giving us drone footage of miles upon miles of deluged houses. 

The Conservative Party doesn’t want this to be the ‘climate election’, but Mother Nature clearly has other ideas. Put bluntly, the Labour Party gets climate and stands ready to act. Conference called out the government’s inadequate 2050 zero-carbon target in September and has championed the much-more-ambitious, but necessary, goal of taking the UK carbon neutral by 2030. We’ve seen exciting announcements in recent weeks and our manifesto looks set to propose transformative change. 

All these ideas are good, but are we missing the opportunity to call up a new, hidden army of potential climate activists? How can Labour’s manifesto empower more of us to play our part in addressing climate breakdown? How can a Labour government empower Britain’s pension fund scheme members to end fossil fuel investments? 

It looks like the City of London is already on the Shadow Chancellor’s radar. Back in June, John McDonnell commissioned a report on creating a progressive green finance strategy for the UK, and last week it landed on his desk. The report contains eleven key recommendations ranging from mandatory green disclosure to the promotion of low-cost climate-friendly finance. In short, the City of London won’t be able to shirk its responsibilities either. But, could we go even further in our manifesto?

Environmental and social justice needs a Labour Party manifesto proposal that would be good for tackling climate change while at the same time empowering pension fund scheme members; that is, require that pension funds poll their members over whether they want their money invested in fossil fuel companies, and, if they reply “no”, require that such money be invested in low-carbon or fossil-free funds.

Unfortunately, the system as it now stands allows both private- and public-sector trustees to invest pension money in whichever way they want, with zero recourse to their members’ wishes. And given the cosy cartel between the fossil fuel industry and finance, it is not surprising that pension funds are chocked full of names like the oil majors Exxon, Shell and BP and the coal giants Glencore and BHP.

A cynic might say that pension scheme members won’t care if their money is propelling the planet toward climate catastrophe as long as they are getting a better return. But the dirty little secret of the pension fund industry is that investing in the fossil fuel polluters produces worse returns, not better. This is not surprising since oil, gas and coal industries are facing a perfect storm.

First, the regulatory regime surrounding these firms is about to tighten like a noose as policy-makers finally comprehend the shortening odds of catastrophic climate change, with a little bit of help from Greta Thunberg, Extinction Rebellion, David Attenborough and the Sunrise Movement in the US. And the great pivot away from fossil fuels has now reached China and India, both of which are pouring money into renewables. 

Second, the competition is getting ever cheaper. In the electricity sector, first oil, then coal and now natural gas are being replaced by wind and solar. Why? Because wind and solar are cheaper. Similarly, oil demand for the powering of internal combustion engines will evaporate over the next few years as electric vehicle prices come down. The economics surrounding fossil fuel firms are terrible, and their share price performance is starting to reflect this inconvenient truth. 

Finally, a law-suit tsunami is looming. Just as tobacco companies have been taken to task for ravaging the lungs of smokers, fossil fuel companies are now being brought to court throughout the world for the damage they have done to the planet. Referencing all three of these factors, Mark Carney, the governor of the Bank of England, stated that there is an existential risk in lending to, or investing in, fossil fuel companies, but Big Finance has failed to act. 

What is to be done? While we can mandate change by government direction for divestment from the top, there is a compelling case for unleashing grassroots pressure for change from the bottom, too. A UNISON survey of Local Government Pension Scheme (LGPS) members in southeast England showed that pension holders: a) thought that climate change would have a measurable economic impact within their lifetime; b) felt ethics should be taken into consideration when investing pension fund money; c) had little idea where their pension money was invested; and d) didn’t believe their views were being considered by pension fund trustees. 

Already, the trend toward fossil fuel company divestment is accelerating, with $11tn of assets now carbon-free. The smart money is ditching shares in coal, oil and gas companies and running out the door. Labour can make sure that the UK pension fund industry is not the laggard here. By giving pension fund scheme members a voice that must be heard, the pension fund industry will be pushed from being an enemy to an ally in the fight against climate change.

And this would be a win-win for pension scheme members too: they get to choose the ethically right course of action and protect their pension fund returns at the same time. A rare case of having your cake and eating it. In these troubling and unsteady times, what is there not to like about that?