There’s a big elephant in the room – can you see it?
What is your pension fund invested in, exactly? Do you know?
Yes, ok, a workplace scheme, or a SIPP… you might even know the fund names, but what about the actual companies?
How oil prices affect your life savings
For a long time, there has been a tradition among pension fund managers to invest YOUR money into large oil and gas companies, because this type of company has produced steady, long-term attractive yields and dividends over time.
What is a dividend?
A dividend is a kind of regular bonus payment to shareholders, paid out of a company’s profits. Dividends are a kind of “thank you for your continued support” payment, and a good reason to keep holding shares if you want them to pay you an income. If a company’s share price falls, the dividend can be maintained as a way of encouraging people to keep their shares rather than selling them and pushing the share price lower.
Oil companies and dividends
Oil companies make a lot of profit, which enables them to comfortably pay decent dividends.
At one point, £1 in every £6 of income from a UK pension came from BP’s dividends.
However, these fossil fuel companies are currently experiencing the biggest slump since 1986, according to the head of BP.
With BP and its competitor, Shell, recently reporting huge capital expenditure cuts in light of the oil price decline, we are seeing the beginning of how this fossil fuel risk to our own savings and pensions could play out. They have so far managed to preserve the dividends that have made them popular with long-term income seekers, but for how long?
It is starting to seem ironic that, by looking for steady, long term returns, pension fund managers have traditionally turned to fossil fuel companies, which now look so volatile, to invest our life savings.
The thing is, their decisions have been mostly based upon historic rather than future performance and risk analysis that rarely includes global climate change policy decision-making.
But if you start to look at future performance, there is one big elephant in the room that pension fund managers are refusing to talk about: the risk that climate change and the necessity to deal with it pose to the £trillions of pension savings invested in these increasingly controversial natural resources.
“Decisions have been mostly based upon historic rather than future performance and risk analysis that rarely includes global climate change.”
Some managers are choosing to ignore the elephant and carry on as normal. Others are beginning to acknowledge that it is not the illusion they first thought, but is staring them fully in the face.
If we are serious about preventing future catastrophic climate change, we will have to get serious about leaving those oil and gas assets in the ground, where they belong. At that point, these assets will become “stranded”: impossible to legally extract. Oil and gas revenue will dry up faster than a spent well and the value of our pension pots – and the chance of you retiring in any comfort – will plummet.
Recent oil price shocks are already bringing the sector’s volatility into sharp focus, as even without the climate change agreements, the cost of extracting reserves from increasingly risky locations is too much for the oil majors to bear in a price slide, if they are to maintain their rude profits. Market forces are literally forcing them to leave the oil in the ground.
The British Medical Association and the Church of England, among others, are so worried about the threat to the long-term security of their assets (and of course, the planet) that they are pulling out of fossil fuel investments entirely (check out our #tippingpoint blog for more on this trend).
A coalition of NGOs has this week asked that the entire health industry to divest from fossil fuels, because – forget diabetes – it is climate change that is the biggest threat to human health this century.
A significant piece in The Telegraph recently said this could be the “sub-prime of this economic cycle”.
And at the end of January, 50 activist investors asked BP and Shell for more disclosure of their carbon risks.
How to face the elephant
Some people think that the best way to switch towards lower carbon investments is for shareholders in fossil fuel companies to actively engage with them to make them change. Others think we should just divest and put that money into something better.
“If we are serious about preventing future catastrophic climate change, we will have to get serious about leaving those oil and gas assets in the ground.”
We think there is no justifiable reason to keep letting pension fund managers pump our money and their faith into oil and gas, because there are plenty of alternative places to invest that are sustainable and deliver the same steady, long-term dividend benefits that attracted pension fund trustees to fossil fuel companies in the first place, at a much lower risk: clean energy is one such investment.
…If you didn’t know before what your pension fund is invested in, have we now convinced you it is worth finding out?
Now how about MOVING IT to something better?
But where do you move it to? That’s the difficult bit… and is the bit we are focused on resolving.
Pledge to move your pension
Trillion Fund is challenging the investment industry to come up with a low carbon pension option.
We need your help to prove there is demand for it.
This campaign is designed to pull together all of the backers of the divestment movement – as well as savers who no longer want their money to be placed at major risk, sustainability fund managers and sustainable investment advocates.
With new pension freedoms, allowing retirees to put their pension pot where they choose now in force, there is no better time to think about what our pensions are funding.
Add your name and email address and pledge your pension below if you agree that you want a more secure financial future – and you think it’s time energy moved on.
We’ll keep you updated on how the campaign is progressing and how close you are to saving the world.