Labour must take a lead on tackling climate change – and that includes turning pensions fossil-free
At home and abroad, we cannot ignore the systemic challenge of climate change.
We have to stand up for the clean industries that can power the future, that already employ more people than the entire teaching profession and that are continuing to grow, bringing new jobs and investment to regions across the country. From solar start-ups to offshore wind manufacturing, these are the high-growth industries that can revitalise regions and bring the high-skill apprenticeships and jobs so many communities are crying out for.
We are also aware that tackling climate change is central to a responsible foreign policy in the 21st century. The Tories are slashing climate diplomacy jobs in the Foreign Office and trying to downplay Donald Trump’s dangerous climate scepticism. This is reckless, irresponsible and a dereliction of our responsibility to the international community to manage threats to global security and drivers of injustice.
Tackling climate change goes beyond simply transforming our energy systems. Governments around the world have now agreed to set their entire economies on a path to net zero carbon in the second half of the century to avoid dangerous climate change.
In light of this political commitment, as well as the increasing frequency of extreme weather events around the globe, the financial risks of climate change have become a mainstream concern. Financial decision-makers, including the Bank of England, the G20’s Financial Stability Board, the World Economic Forum, the World Bank, and the European Systemic Risk Board, all now highlight climate change as a core risk to financial stability – both in the devastating physical impacts climate change will have, but also in the risk of high-carbon assets becoming stranded as the world steps up its action to reduce emissions.
Managing climate change and global financial stability is a daunting challenge. It is here that Labour’s strong historical involvement with progressive movements for social change can teach us useful lessons about overcoming what can seem impossible problems. In particular, we must learn from a tactic that was used so effectively in the 1980s to mount opposition to the underlying cause of a social, political and economic problem: the divestment movement.
The call for institutions to divest funds that were supporting the apartheid regime in South Africa was a powerful and engaging tactic that helped delegitimise state-enforced segregation. We know today that burning fossil fuels is causing dangerous and disruptive climate change. So the imperative to shift our economies away from fossil fuels is clear.
But ensuring a smooth, managed transition is essential to avoid bursting the ‘carbon bubble’. Analysis from financial experts Carbon Tracker based on data from the International Energy Agency shows that 80 per cent of the known reserves of fossil fuels currently valued on the global stock markets must remain unburned to avoid dangerous levels of warming. This ‘carbon bubble’ has the potential to leave over $2 trillion worth of high-carbon assets ‘stranded’.
The most vulnerable in society are always hit hardest by financial disruption, and many of our pensions are currently highly exposed to a sudden devaluation in fossil fuel stocks. So while it makes good business sense for companies to understand these risks, we need transparency to make our entire society resilient to this inevitable transition.
We have seen in recent weeks that there are some determined laggards who have made denying the need for climate action central to their identity politics. Climate change is not an ideological issue. That is why we need clear disclosure of companies’ investments and transparency over the risks posed to asset holdings from climate impacts and a disorderly transition. The Financial Stability Board’s taskforce on climate change-related disclosures published recommendations in December on how this might be achieved. Proper transparency will allow investors to make prudent choices about which companies are preparing for the future rather than putting their heads in the sand.
Last year I coordinated a letter from 140 legislators worldwide calling on the world’s stock exchanges to embrace these voluntary disclosures as standard practice.
As we start to better understand our risk level, so we can better manage those risks by gradually winding down our exposure to these high-risk, high-carbon assets.
Figures released in December last year showed that 688 institutions across 76 countries have made divestment commitments, covering $5 trillion in assets under management. There is considerable momentum with the divestment movement, which has doubled in size since September 2015.
And among these new recruits, I am proud to say Labour councils in Waltham Forest and Southwark have led the way by recently announcing that their local government pension schemes are going fossil-free.
Unfortunately we’ve yet to make such headway at a national level in the UK.
In 2015 the Environment Agency was the first pension fund in the world to commit to aligning its investments with the target of limiting global warming to 2°C. The fund’s investment officers said their analysis over the past decade of the growing financial risks from climate change made it important to divest from oil, coal and gas stocks and instead choose investments in clean energy.
But MPs are having a harder job of it. Over the past two years, MPs past and present from across the political spectrum have repeatedly asked the trustees of the Parliamentary Contributory Pension Fund how exposed their £589m fund is to fossil fuels – but we are yet to get a straight answer.
While the trustees have now acknowledged that climate change ‘may’ be a financial risk, and may have a material impact on the long-term financial performance of the PCPF’s investments, they have so far resisted calls to take prudent steps to disclose and manage these risks.
And so last month, we launched Divest Parliament, a campaign which is already attracting broad support from parliamentarians who want to understand where their pensions are invested and to make sure our pension pot commits to phase out funding for the polluting energy that we have passed legislation to transition away from.
This is a real chance for MPs to show leadership, and help set the gold standard for responsible investment and climate risk management. Labour has been a consistent champion of climate action – from the last Labour government passing the world-leading Climate Change Act in 2008, to last year nearly 70 Labour councils across the country signing up to run their cities on 100 per cent clean energy by 2050.
As MPs, we constantly demand transparency and clarity of others to enable us to pass laws and to scrutinise the government in the public interest. In the face of the greatest threat to security and prosperity that humanity faces, we must now have full disclosure and transparency about where our own assets are placed.
Image: Alexander G