Ethical Investment

John Finnie speaking from within the Edinburgh University building occupied by students in protest at fossil fuel investments
John Finnie speaking from within the Edinburgh University building occupied by students in protest at fossil fuel investments

“There can hardly be a more nakedly selfish act than profiting off of the human suffering of climate change.”

— John Finnie MSP

Divestment – refusing to hold stocks and shares in unethical industries or companies – is one of the most important tools we have in the campaign for a fair, sustainable economy. Most people don’t own significant investments directly, but many of us are members of pension schemes that own shares on our behalf. Getting these schemes, which might hold hundreds of millions of pounds’ worth of investments, to divest from damaging industries can make a big difference.

Investigating the Scottish Parliamentary Pension Scheme

Divest Scotland Scottish Parliament Pension Scheme Campaign, 24/10/2015: Friends of the Earth Scotland and other campaigners at the Scottish Pariament, to encourage the Parliament's pension scheme to rethink their investments. With them are Colombian anti-mining activists Danilo Urrea (fourth from left, holding placard) and Samuel Arregoces (right). Photography for Friends of the Earth Scotland from: Colin Hattersley Photography - - - 07974 957 388
Friends of the Earth Scotland campaigners call on Holyrood to clean up its pensions.
Photo: Colin Hattersley for FoES.
John has been leading the campaign for the ethical investment of MSPs’ own retirement pot, the Scottish Parliamentary Pension Scheme (SPPS). The SPPS is managed by the financial services firm Baillie Gifford, and holds over £110m of assets on MSPs’ behalf.

Baillie Gifford issue a quarterly report on the fund, which lists all of its holdings and recent changes in the portfolio – you can download the most recent report here. It shows that the fund is currently invested in companies such as Shell, BP, British American Tobacco and the engineering firm Ultra Electronics, which manufactures defence systems for Israel’s submarines.

On 13 November 2014, John’s questioning of the Scottish Parliament authorities revealed that almost one tenth of the SPPS was being used to bankroll fossil fuels, tobacco and the arms industry (read the Official Report of the question and answer here). David Stewart MSP, answering on behalf of the Scottish Parliament Corporate Body (SPCB), promised to ask the pension scheme’s trustees to look into their investments, but noted that the trustees can’t direct investment decisions because the scheme is invested in a ‘pooled fund’ – an excuse that would turn out be a recurring theme.

On 25 March 2015, the chair of the pension scheme trustees, the Liberal Democrat MSP Tavish Scott, wrote to John, repeating the excuse about pooled funds and informing him that the trustees had decided that a ‘segregated fund’ (i.e. one created just for the Scottish Parliament Pension Scheme and therefore able to take account of any ethical investment policies it might want) would be too expensive and therefore they were going to carry on investing in fossil fuels and the arms trade. Mr Scott wrote:

“There presentational advantages in moving to a segregated arrangement in that Fund Trustees could direct investments. However, this would be outweighed by disadvantages of additional costs and administration that would be incurred in running a segregated portfolio.”

John was shocked by the attitude displayed in this response, saying:

“I am taken aback by the coldly amoral attitude of the letter from Tavish Scott. In it he dismisses the argument for investing ethically as merely ‘presentational advantages’, and refuses to act on the grounds that to do so would cost the MSPs’ pension fund a tiny annual sum.

“Even if it were true that there are no managed funds with ethical investment policies – which it is not – 2% of MSPs’ annual profits is a small price to pay for not contributing to death, disease and environmental destruction.”

John was pointing out that the trustees have presented a false choice – between a no-holds-barred unethical managed fund on one hand and a prohibitively expensive bespoke plan on the other. In fact, there are many off-the-shelf managed funds which apply ethical tests to their investments, which the trustees have consistently chosen not to acknowledge.

In September, John put this question to the SPCB directly – had they even considered the many ethical funds on the market? He asked: “what assessment [the SPCB] has made of ethical investment funds with respect to the investment decisions of the Scottish Parliamentary Pension Scheme.”

Their answer? — “Under the Scottish Parliamentary Pensions Act 2009 the fund trustees are responsible for the day to day management and administration of the Scottish Parliamentary Pension Scheme, including investment policy. Given their lead responsibility and the statutory position which requires them to operate independently of the SPCB, the Member might wish to raise this matter with the fund trustees.”

In other words, the SPCB made no effort to find an ethical fund, and no longer wanted to discuss the matter at all. So in an effort to get them to take responsibility, John changed tack to focus on something that is undeniably the SPCB’s job – maintaining the reputation of the Parliament.

Building on John’s work so far, Friends of the Earth Scotland (FoES) published a new analysis, in The Herald and investigative journalism site The Ferret, which found the scheme’s investments in weapons, tobacco and fossil fuels stood at £3.2 million. FoES and the Campaign Against the Arms Trade started new campaigns to push the Parliament to divest. The publicity gave John the opportunity to ask: “Will the SPCB agreed to undertake and make public a risk assessment of the reputational damage such arrangements, associations or funding are causing to an institution that I know we all hold very dearly?”

Once again, his question went unanswered. You can watch the exchange below:

John has now written to the SPCB to ask them once again about how pension investments in destructive industries harm the Parliament’s reputation.

The economic case for divestment

The moral case for divesting from devastating industries like fossil fuels is unmistakeable. But there are also clear economic reasons to do so.

As John said back in November 2014, many MSPs talk a good game about potential of Scotland’s renewable energy industry, but by allowing their pension money to bankroll the old fuels they are failing to support emerging industries:

“I want an ethical investment policy that takes our money out of fossil fuels, tobacco and weapons, and puts it into socially useful activities like clean energy instead.”

Furthermore, there is a huge risk that fossil fuel investments are overvalued and could crash, taking investments with them. The Price of Doing Too Little Too Late, a report from the Greens/EFA group in the European Parliament, and the Scottish Environment LINK report Scotland and the Carbon Bubble, amongst many others, outline the danger. The value of fossil fuel investments continues to be based on the value of known (and projected) fossil fuel reserves that are in the ground, but the logic of governments’ stated goal to halt climate change means that much of those reserves cannot be extracted and burned. So either the economy will collapse under catastophic climate change, or the marketable value of existing reserves has been grossly overstated – either way, fossil fuel investments are a bad risk.

John investigated the SPPS’s exposure to the ‘carbon bubble’ risk in a parliamentary question on 7 January 2015, eliciting the now-expected excuse about the trustees not having direct control over investments (you can see the full question and answer here). The response revealed that the SPPS invested more than five times as much in fossil fuels as it does in renewables, with clean energy accounting for just three-quarters of one percent of the portfolio.

The SPCB repeated Baillie Gifford’s argument “that there is a strong argument and responsibility for investors to be active in the discussion”. As John would later say,

“These are companies like Shell, which is operating based on a strategy that allows global average temperature to rise by 4°C – twice the level considered the maximum safe increase by scientists. Companies which, despite their huge profits, take more money in subsidies than the world’s governments spend on healthcare. The idea that these companies can be made benign by ‘engagement’ is utterly, and probably wilfully, naïve.”

Students and universities taking action

John has been supporting People & Planet, the student movement for action on poverty and the environment in their Fossil Free campaign for divestment from climate-wrecking energy, in partmership with and Operation Noah. Thanks to the local People & Planet group, Glasgow University became the first in Europe to divest, ditching £18m of fossil-fuel assets from its portfolio. Not only was this a breakthrough for campaigners, it proved that such a move was legal, neutralising one of the favourite arguments of opponents of divestment.

Campaigners at Edinburgh University are fighting hard to repeat that success. After its government body voted unanimously against calls to divest from the dirtiest fossil fuels on 12 May 2015, students occupied the university’s finance office in protest. John visited the occupation to lend his support, saying:

“I am optimistic about our chances, not least because of the courageous actions of the students I’ve met here today. As long as there are principled people willing to fight for our future, we have a chance of human welfare ultimately winning out over corporate profit.

He turned out to be right: after ten days of occupation, the university reversed its decision and announced that it would be divesting from three of the world’s biggest fossil fuel producers.

What you can do

The trustees of the Scottish Parliamentary Pension Scheme may be reluctant to take action on fossil fuel, tobacco and weapons investments, but they ultimately answer to the scheme’s members – your MSPs. Please write to your representatives – you can do that through Friends of the Earth Scotland – to tell them you don’t agree with them personally profiting from the suffering caused by these industries, and ask them to write to the trustees demanding an ethical investment policy.

Please also support Fossil Free and Friends of the Scotland in their campaigns – we always have more success when we act together.