Pension Fund and Fracking
The Falkirk Council Pension Fund invests in a range of global assets worth £2.3bn (as at June 2018).
The Fund has appointed a number of external investment managers to invest its monies. The managers operate what are known as “discretionary mandates” which enables them to invest in an unconstrained fashion and in the range of companies that they consider will best generate returns for the Fund, taking due account of the risks involved.
The Fund does have some indirect exposure to fracking but in the context of a £2.3bn Fund this is minimal. (n.b. the Fund’s holdings in the Oil, Gas and Mining Sectors is around 4% of the Fund value with only a very small element of that being related to fracking).
The Fund’s minor exposure to fracking is the result of having holdings in tracker funds (where the Fund automatically has a share in all the companies in an index) and through owning shares in certain large companies which have fracking as a small part of their overall operations.
Legally, pension funds are required to pursue the best financial returns for their stakeholders. (This was re-affirmed by a Law Commission report of 2014). Non-financial factors can be taken into account in determining investment strategy, but only where the overall impact is likely to have no significant impact on the Fund’s returns.
For Falkirk, excluding companies with fracking as a small part of their operations could lead to returns for the Fund being materially affected in which case the Fund would have acted illegally. In addition, narrowing the range of companies in which the Fund is invested would reduce its diversification, leading to an increase in risk and, by extension, the possibility of adverse investment outcomes.
The Fund takes its responsibilities as an asset owner extremely seriously by reviewing its approach to environmental, social and governance (ESG) matters and by being part of the Local Authority Pension Fund Forum (LAPFF) – an umbrella group of 70 UK local authority funds which acts collectively to influence corporate behaviour for the better. In recent years, LAPFF has been at the forefront of campaigns to get companies to improve their climate change disclosures and have clearly defined business models which take into the transition to a lower carbon environment.
The Falkirk Fund itself is an investor in various renewables projects, including solar, wind and hydro energy.
In general terms, where corporate activity is a cause for concern, the Fund has a policy of engagement with companies rather than divestment since it is considered more beneficial for a responsible asset owner such as Falkirk to retain some influence over controversial activities (such as fracking) rather than pursue a policy of disinvestment which could lead to shares being passed to less principled owners.