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MPs' pension pot under threat from 'carbon bubble'

20 February 2015

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The GBP 478million Parliamentary Contributory Pension Fund is in danger of taking a financial hit if they do not divest from fossil fuels, a group of MPs and Lords has warned.

Eleven MPs, including Green Party MP Caroline Lucas, and two Lords challenged the fund's trustees last year to shift its investments from oil and coal companies because of widespread fear they are overvalued.

However, the chair of the fund's board of trustees, Labour MP Brian Donohoe, rejected the call, saying trustees' lawyers had advised that excluding a sector is "incompatible with their legal and fiduciary duties of investment."

Mr Donohoe added that it would be impossible that MPs "would share a moral viewpoint in one area of investment."

Now, the MPs and Lords have accused Mr Donohoe of failing to understand the economic dimension of their case, and of putting MPs' pensions at financial risk.

"As we stated in our original letter (sent October 2014) climate change has significant financial implications for pension funds, it is not merely a matter of morals or ethics," said a second letter.

"We remain concerned that a failure to acknowledge the risks of continued investment in fossil fuels industries would in fact be to the financial detriment of the scheme."

The letter, signed by Labour, Liberal Democrat, Green and SNP MPs, but no Conservatives, adds: "We are concerned that the trustees, in regarding climate change and fossil fuel exposure as a moral issue, have not undertaken a proper evaluation of the financial impact these risks may have on the fund."

Heavyweight figures, including the governor of the Bank of England Mark Carney, have endorsed the idea that investors face a "carbon bubble" because the market value of big players in the fossil fuel industry is based on carbon reserves that cannot be burnt without the world experiencing dangerous climate change.

A growing number of institutions – including the Rockefeller Brothers fund, Stanford University and Glasgow University – have signed up to a global divestment campaign urging investors to pull their money out of the fossil fuel industry.

Last week the California senate called on two state pension funds to pull their combined USD 500bn (GBP 325) portfolio from fossil fuels, and there was a coordinated global day of events backing the divestment campaign.

First published 19.02.2015

Lindsay.sharman@wilmington.co.uk