Fossil fuel divestment a ‘waste of time’

Divestment policies are a waste of time and do not achieve their aim of reducing carbon emissions, according to a leading chief investment officer.

Robert Waugh, chief investment officer of the Royal Bank of Scotland Group Pension Fund, was speaking at the Pensions and Lifetime Savings Association (PLSA) investment conference in Edinburgh today.

Pressure on pension funds from campaigners calling for divestment from fossil fuel companies has ramped up in recent years due to concerns over the effect on the environment.

But Waugh told delegates that selling shares to another investor merely shifts the problem to someone else, rather than resolves it.

He said: “There are loads of things you can do where you are doing your fiduciary job and enhancing your return per unit of risk and still providing capital to new areas.

“But dealing in secondary equity markets just moves capital. I can sell my stock into the market and it makes no difference to anyone. Divestment is a complete waste of time.”

Faith Ward, chief risk officer, at the Environment Agency Pension Fund, said that her organisation had done some selective disinvestment on a risk-based approach.

She said: “One of the things when we analysed our portfolio from the bottom up and looked at our carbon and fossil fuel exposure was that our active managers were managing that quite well.

“Although they held some stocks they had a good rationale and knew what they were doing around that.

“On the passive portfolio, we felt there was more risk that we had less control over. Our value portfolio had six times more fossil fuel and carbon exposure than the underlying developed index.

“That is where we have taken action and we feel that having smarter indexes allows us to manage the financial risk while reducing the exposure, which does lead to some disinvestment.” She also added that she preferred the term “decarbonise” to “disinvest”.

“I might own the same amount in a particular company in five years’ time but the amount of carbon they have in their balance sheets would be anticipated to be less. It is not about moving away from those companies but working with them as to how they can transition to low carbon.”

Mark Fawcett, CIO at workplace pension scheme provider NEST, said on divestment: “As a wholesale strategy it doesn’t work. Selectively it can.”