18th October 2016

Here we reproduce correspondence with  Councillor Kieran Quinn, Chair of Greater Manchester Pension Fund. In May 2016 we wrote an open letter to him, covering possible losses the Fund had sustained due to the declining value of coal stocks, and about the Fund’s preference for engagement with fossil fuel giants rather than divestment.  Here we reproduce that letter, and with Kieran’s permission, his response.  Finally we present our reply to his response to which we have not received a reply.  In this correspondence we demonstrate that he has not provided either clarity about the goals of engagement with fossil fuel companies and nor has he produced any evidence of significant results in terms of the greenhouse gas emissions produced.


The original Open Letter

Fossil Free Greater Manchester

c/o Manchester Friends of the Earth
Green Fish Resource Centre
46-50 Oldham Street
Manchester
M4 1LE

Friday, 13 May, 2016

Councillor Kieran Quinn,

Chair, Greater Manchester Pension Fund,

Guardsman Tony Downes House

5 Manchester Road

Droylsden

M43 6SF

Dear Councillor Quinn,

Further to your comments in response to the Tameside Radio interview with one of our members (also covered in the Tameside Reporter), we would like to thank you for your engagement with the issues raised. In particular we were pleased to hear you acknowledge our effectiveness in raising public awareness of climate change and greenhouse gas emissions from fossil fuels.

Given your recent comments we would like to ask for responses to the following questions:

  1. You disputed our suggestion that the Greater Manchester Pension Fund (GMPF) recently lost approximately £148 Million in the value of its coal stocks. This figure was based on the publicly available information on GMPF’s holdings, together with published data on share price movements. The calculations were done by the think tank Platform and only cover the losses in value of four coal mining companies in the last 18 months from April 2014 (Anglo American, BHP Billiton, Glencore and Rio Tinto). Considering the Fund may have assets in coal companies other than the four listed we speculate the losses may be even greater. Platform’s study (also covered by Damian Carrington in the Guardian of 12 October) is at this link: http://platformlondon.org/p-pressreleases/uk-local-council-pensions-lose-683-million-with-coal-crash/. (See appendix.) However, we acknowledge that this analysis may have missed some changes in holdings (information on which is not available in real time). To allow us to check our calculations could you please provide the holdings data on fossil fuel companies that have coal assets for the last 18 months from April 2014 (and ideally to the end of March 2016). This will enable us to quantify the actual loss that occurred as a result of falling share values of your major fossil fuel stocks.

  1. In your interview you agreed with us on the need to leave fossil fuels in the ground as part of a major transformation in global energy systems to renewables. However, you disagreed with us that divestment is an effective way of pursuing that goal, instead arguing for engagement as a shareholder with fossil fuel companies. Could you set out the specific goals of your engagement strategy? We are somewhat sceptical, we must admit, because fossil fuel companies are just that, fossil fuel companies, with an interest in the exploitation of fossil fuel reserves rather than the promotion of alternative forms of energy. What is it you hope to achieve by engagement?

  1. In the light of the above, could you say what the successes of your engagement strategy have been so far? Is it possible to quantify them in terms of saved emissions or investments in alternative energy? Or is success limited, as we suspect, to adoption of resolutions to improve risk management in relation to unburnable reserves and stranded assets?

While we are critics of the amount of fossil fuel holdings the Fund has and of the failure to embrace a managed programme of divestment, we would like to recognise and commend the GMPF’s good practices. Specifically, the Fund’s decision to divest from the tobacco industry, the recent investment in offshore wind and the change to the Fund’s Statement of Investment Principles which now acknowledges the relevance of ethical factors in investment decisions. The threat that tobacco poses to public health is indisputable; scientists have determined that fossil fuels pose the same indisputable threat to public health and the global economy. We, and the 4000 people who have added their voice to our petition, believe that there is no ethical, financial or scientific reason to retain investments in the fossil fuel industry.

In light of this it is encouraging to see the Fund’s recent investments in renewables. Paired with a strategy of phased removal of investments from oil, gas and coal companies, this would provide the basis for a rebalanced investment approach in keeping with the threat of runaway climate change.

Globally, institutions worth $3.4 trillion had, by December last year, already committed to some form of fossil fuel divestment (see http://350.org/cop21-divestment/). Therefore, if the GMPF decided to divest from fossil fuels, they would join a growing number of leading health, charitable and financial institutions.

We look forward to hearing your responses.

Yours Sincerely,

Dr Ali Abbas and Dr Mark Burton

for Fossil Free Greater Manchester

Appendix

Calculations (from Platform) of losses over 18 months from April 2014.

Source:

http://platformlondon.org/p-pressreleases/uk-local-council-pensions-lose-683-million-with-coal-crash/


Councillor Quinn’s response

To Dr Ali Abbas and Dr Mark Burton
for Fossil Free Greater Manchester
By Email
Guardsman Tony Downes House
5 Manchester Road, Droylsden
Tameside, M43 6SF
Tel:
0161 342 3016
Email:
Kieran.quinn@tameside.gov.uk
Website: www.gmpf.org.uk
Date: 06 June 2016
Dear Dr Abbas and Dr Burton
Thank you for your letter and for acknowledging the work we are doing towards an orderly
transition to a low carbon economy. We will continue to do all that we can on this important issue.
We were extremely pleased to have recently been ranked 30th in the world by the Asset Owners
Disclosure Project (AODP) for the leadership we have shown in managing climate risk in
investments.
As we have consistently indicated to you, the Fund has no plans to divest from fossil fuel
companies at this time. The primary duty of the Management Panel is to pay the pension promises
earned by its members. In doing this it is also critically important that the cost is affordable to
members, employers and the taxpayer. Many local government services are under extreme
pressure due to Central Government cuts and it has never been more important than now to
maximise resources for front line services. Moreover, in reaching decisions the Fund must comply
with its fiduciary responsibilities. Indeed, our recent investment in the South Lanarkshire wind farm
was driven by our expectations of generating a commercial return.
GMPF has an excellent long term investment track record. It is important to note that over the last
25 years, the value of its returns has been over £2 billion more than would have been the case if it
had achieved the average LGPS fund return. All employers and the taxpayer have benefited from
this outperformance through lower employer contribution rates and GMPF being better funded than
most LGPS funds, which will provide more long term benefits to the employers in the Fund and
enables more to be spent on local services.
A recent report from the Carbon Tracker Initiative (http://www.carbontracker.org/wp-
content/uploads/2016/05/Sense-Sensitivity_Full-report2_28042016.pdf) highlighted the significant
value of the oil majors’ upstream assets within a 2 degree warming scenario. Perhaps surprisingly,
Carbon Tracked argue that this value is likely to be maximised under a 2 degree warming scenario
rather than a ‘business-as-usual’ approach, unless oil prices move to historically unprecedented
highs. Carbon Tracker state that “this has crucial implications for [asset] owners who may be
surprised at just how much value can be created by oil & gas companies in a carbon-constrained
scenario”, and it is one reason why we have been engaging with companies to disclose an analysis
of their business models under a 2 degree warming scenario.
Shares in oil & gas and mining companies have been extremely volatile over the past few years,
with a falling oil price and uncertainty over the future levels of growth, and therefore demand for
commodities, in China. The study by Platform reflects this volatility.
The Fund is a patient, long term investor. Our overall ‘value’ style of investing may lead to
prolonged periods of over and underperformance compared to a style neutral approach. This
approach has served the Fund extremely well over the long term. Inevitably, over discrete, short
term periods within a volatile market, such as that identified by Platform, the value of our holdings
may decrease, as was the case with our holdings in mining companies in the 18 months from April
2014 to September 2015, but we will have received income over that period. Any decrease in the
value of our holdings is only crystallised into a realised loss if and when those shares are sold. If,
as you requested, we had disinvested from these shares in September 2015, the Fund would have
incurred a loss. However, our Fund Manager believes that the share prices of mining companies
will recover to generate positive returns for the Fund over their investment horizon. Indeed, in the
first quarter of 2016, mining shares were amongst the very best performers yet it would be wrong
to claim this as a ‘success’ in isolation. The Management Panel has challenged, and will continue
to challenge, the Fund Manager on this issue.
We should also acknowledge that the large mining companies’ operations (including those tracked
by Platform) are much more diversified than a singular focus on coal. Your attribution to coal as
the sole reason for the decrease in value over-simplifies the situation. Furthermore, some mining
companies are now adapting their business models and divesting of coal assets themselves. But
we acknowledge the importance and relevance of mining companies to climate change, which is
why we co-filed climate change resolutions at Anglo American, Rio Tinto and Glencore at this
year’s AGMs.
Engagement is a key element of our approach to climate change. By joining forces with 69 other
LPGS funds within the Local Authority Pension Fund Forum, we collectively have a very powerful
voice. If we disinvest, we cannot engage with these companies. Rather, we would encourage you
to work with us to achieve your objectives.
The focus of LAPFF’s engagement to date has been on those highest emitting companies where
we can have the biggest potential impact. We are clear that ‘business as usual’ for fossil fuel
companies is not an option, and that is why we believe that challenging these companies to
disclose their business models, and the assumptions that underpin their investment decisions, will
lead to greater capital discipline. This could have the dual success or enhancing shareholder
value, whilst also reducing greenhouse gas emissions.
We fundamentally believe that if fossil fuel company transparency and disclosure can be improved,
all investors within the market will be armed with the necessary information with which to make
investment decisions that fully reflect the risks of stranded assets under a 2 degree warming
scenario. LAPFF has seen a ‘step change’ in companies’ attitudes towards disclosure as a result
of this engagement (see http://www.lapfforum.org/press/files/2016_Rio_AGM_result.pdf).
In order to enhance and refine the engagement approach, LAPFF has recently commissioned a
paper from the Carbon Tracker Initiative on how best to engage with oil and gas companies on
aligning their business plans with a 2 degree warming scenario. The paper will be published in
summer 2016 and we look forward to being able to share further details of this exciting work.
Finally, the outcome of all LAPFF engagement is published within the Quarterly Engagement
Reports (see http://www.lapfforum.org/Publications/engagement).
Yours sincerely
Councillor Kieran Quinn
Chair – Greater Manchester Pension Fund


Our reply to Councillor Quinn

Fossil Free Greater Manchester

c/o Manchester Friends of the Earth
Green Fish Resource Centre
46-50 Oldham Street
Manchester
M4 1LE

Wednesday 6 May, 2016

Councillor Kieran Quinn,

Chair, Greater Manchester Pension Fund,

Guardsman Tony Downes House

5 Manchester Road

Droylsden

M43 6SF

Dear Councillor Quinn,

Your letter of 6 June in response to our open letter.

Thank you for taking the time to write a detailed response to our open letter, which as you have separately acknowledged is consistent with your aspirations for transparency.

We are pleased to see you have taken our concerns seriously and that GMPF aspires to act constructively to mitigate the serious threat of climate change. However, we are not persuaded that the strategy you have adopted towards the fossil fuel companies is adequate to meet this ambition.

Our position

Fossil Free Greater Manchester believes that a responsibly managed divestment from fossil fuel shares is not only key in facilitating a rapid transition to a low carbon economy but also necessary to prevent exposure to large losses for the fund in the long term. We are supported by the 5,000 people who have so far added their names to our petition and shown support for the campaign, showing their concerns about the amount of money GMPF has invested in fossil fuels. Meanwhile, 87 per cent of the 177 local candidates in Greater Manchester, cross party, who responded to the Manchester Friends of the Earth election survey last month also said the Fund should divest from fossil fuels, like 68 other Pension Funds worldwide.

Our concerns regarding GMPF’s strategy

Firstly, we would like to recognise the positive steps GMPF has taken which demonstrate commitment to your ambition. Namely recent investments in wind power, utilising the carbon tracker as well as engagement tactics. However, although these actions demonstrate a desire to achieve positive results we are sceptical about the effectiveness of your strategy. Our concerns were not mitigated when you did not directly answer two of the three questions we asked you; the specific goals of your engagement strategy and what objective results you have achieved through this method.

We do acknowledge that engagement with companies is an essential part of the tool-kit of responsible investors. But a tool-kit needs more than one tool. The evidence is that the fossil fuel companies have shown no moves away from strategies of further exploration and extraction of fossil hydrocarbons. There is no prospect of them becoming integrated energy companies. We note that GMPF apparently divested 95% of its Exxon holdings between 2014 and 2015. This is consistent with the Fund’s ethical duty in the face of this particular company’s failure to respond even to anodyne shareholder resolutions. As advised, we have studied the engagement reports from LAPFF and can find neither objectives nor outcomes commensurate with the scale of change that is necessary in these companies’ practices. The content of the “Aiming for A” resolutions to the three big mining companies, for instance, goes no further than “…reducing operational carbon emissions, maintaining a portfolio of assets resilient to future energy scenarios, and supporting low-carbon energy research and development” but nothing directly related to the enormous emissions from the continued exploitation of fossil fuels.

Whilst we acknowledge that GMPF will not make losses on coal until stocks are sold, it is important to recognise that their valuation has radically decreased and by holding onto these stocks GMPF runs the risk that these volatile stocks do not recover in the long term. We note the good performance of GMPF in the past, but can’t see evidence that would attribute this to the Fund’s high exposure to fossil fuels. The world is changing for good, so strategies that worked in the past when fossil fuels stocks were deemed to be “defensive” investments may not work in the future and perhaps this is already recognised in the management panel’s continued challenge to your contracted fund managers.

Conclusion

Our proposal remains that in keeping with its duty to beneficiaries, members and the wider population, GMPF,

  • Immediately freezes any new investments in fossil fuel companies;
  • Divests from any company which is involved in the exploration or production of coal and unconventional oil or gas within two years, and from all fossil fuel companies within five years;
  • Works with the Greater Manchester Combined Authority to develop and fund a low-carbon investment programme for Greater Manchester.

We would still appreciate a direct answer to our two questions on engagement:

Could you set out the specific goals of your engagement strategy?”

and

Could you say what the successes of your engagement strategy have been so far? Is it possible to quantify them in terms of saved emissions or investments in alternative energy?”

You might also consider a further question on engagement:

What criteria do you use to decide that engagement has not been successful and that exit from those stocks has become appropriate?”

Thank you for your attention.

Yours sincerely,

Chris Smith, Tamara Williams Barnes, Mark Burton, Ali Abbas

for Fossil Free Greater Manchester


Reponse to our reply?

So far we have not received a reply to our second letter.  We can only conclude that the Fund has no answer to our arguments and requests for clarity about either its engagement strategy or  its success.