What do pension funds have to do with the climate crisis?
With more than $46 trillion in assets worldwide, pension funds are the world’s largest asset owners and among the biggest investors in fossil fuels. Climate change poses serious risks to both pensioners and their investments.
In the US alone, pension funds are worth $4 trillion ― and almost all pensions invest in the fossil fuel industry, providing them with both the social and financial capital that they need to operate. Until pension funds divest from fossil fuels, they are complicit in the climate crisis.
Most pension funds strive to align with climate policies through their investment practices; however, pension funds are not making effective use of actions, such as divestment, to address climate change. Nearly 30% of fossil fuel industry shares are held by pension funds – with as much financial power as pension funds hold, they could be a force to reckon with in the battle to confront, slow and mitigate climate change.
What the heck is a pension fund anyway?
A pension plan is defined as a retirement plan where both employers and employees contribute capital into a pool of funds put aside for future pension payments. The funds are invested on behalf of the employees instead of just sitting idly in bank accounts. The returns generated from the investments serve as earnings to the employee upon retirement.
Pension funds typically aggregate large sums of money to be invested into the capital markets, such a s stock and bond markets to generate profit. A pension fund represents an institutional investor and invests large pools of money into public and private companies. The main goal of a pension fund is to make sure there will be enough money to cover the pensions of employees when they retire
Why should pension funds divest their money from the fossil fuel industry?
Fossil fuel companies are valued in part, based on their reserves. “Because climate science has indicated that the majority of these reserves need to stay in the ground in order to maintain a safe climate, the potentially stranded assets become worthless.”
Divesting from fossil fuels will allow pensions to avoid major losses and gain the opportunity to reinvest in less risky sectors including in climate solutions, local business and clean energy companies.
Pension fund divestment from fossil fuels not only supports sustainable growth and a transition towards a low-carbon economy, it fulfills a prudent financial responsibility to protect the rights of pensioners by refusing to profit off of companies committed to the destruction of the climate.
Pension funds must take climate protection seriously. The fastest way for pensions to address climate change is to divest from their fossil fuel holdings.
Why is divestment important?
According to a new report from the International Energy Agency, current commitments and actions to limit global warming and offset climate change will not be able to counteract the effects of increasing carbon emissions from energy and industry. The IEA has stated that a major shift away from fossil fuels is necessary to meet government targets and has suggested that all new coal power plant construction be suspended.
An original report from the Carbon Tracker Initiative found that the world’s fossil-fuel companies had five times more carbon in their reserves than scientists believed could burn while staying within a safe temperature target. That means that if those companies carry out their business plans, the planet will overheat.
Without financing, these companies would not be able to continue to pollute to the degree that they do, nor have the political influence that they continue to wield. From being direct investors in these companies to providing cash, loans, credit facilities and insurance, financial institutions such as banks, pension funds, insurance companies and asset managers enable fossil fuel companies to expand fossil fuel use.
What is the Climate Safe Pensions Network doing about this?
We’re building a people powered grassroots movement to hold pensions funds accountable and divest their holdings from the fossil fuel industry
How can I get involved?
You can join our network by finding a local campaign near you here
Can I start my own campaign?
Yes! You can start your own campaign in your area with support from our network. Please email email@example.com to join the Climate Safe Pensions Network and get your campaign started.