• William Bourne


One of my clients, East Sussex Pension Fund, has over the past 18 months been on a journey to migrate its traditional equity portfolio, largely invested passively, into a more sustainable portfolio. With Brighton and Hastings within the county, there has unsurprisingly been political pressure from divestment activists, too often not members of the Pension Fund. The culmination was a Full Council motion in October 2019 calling on the Fund to investigate ways to reduce holdings in fossil fuel companies.

The Committee responsible for investing the Fund’s assets was determined to make decisions for the good of the stakeholders but at the same time needed to provide a substantive response to these political demands. The journey is not yet complete but the equity portfolio has been radically reshaped to focus on companies who are positioned for the transition to a lower carbon economy. The consequence of the changes made has been to reduce the fossil fuel exposure in the portfolio by 50%, although that was an outcome of the decisions taken rather than a target as such.

As East Sussex’s Independent Adviser, I have written an account of how we approached the problem and what the Fund has done. The past 18 months have involved a great deal of time, work and some difficult discussions, all done against the background of the lockdowns. But if you are grappling with similar issues, you may find it worth reading. It is available on the Fund’s website here.

At the most recent Committee meeting on 1st March, we listened to a presentation from the Director in charge of the UN Principles for Responsible Investment programme. The managers of over US$100tr have signed up to the principles, which are becoming the base standard for responsible investment. She spent some time addressing the question of engagement versus divestment and suggested a policy of engagement and escalation as more likely to achieve results than the latter.

She used Royal Dutch Shell as an example of the drawbacks of blanket divestment. The company has committed to reducing carbon intensity by 45% by 2035 and going net carbon zero by 2050. There is a big question mark whether they can deliver against these testing targets. But if they get anywhere near their ambition, she suggested that Shell, with its expertise in providing infrastructure and big project investment, will be part of the solution and not part of the problem.

And if that is the case, why would any rational investor wish to pursue a policy of blanket

disinvestment? Shell and its like should be part of any portfolio universe, even if not today an investment. Escalation provides an effective route to persuade the laggards and uses divestment as an ultimate threat. But blanket divestment from fossil fuels simply removes the option to invest in those oil companies which do turn out to be saints and not sinners. And academic theory tells us that all options have value.

That is why, like her, I believe the blanket disinvestment lobby is mistaken in their approach and it is time to push back at their arguments. I was glad to see this week’s statement by Guy Opperman, the UK pensions minister to say that “merely selling your stocks that make you look bad from a fossil fuels standpoint is a reverse greenwashing because it doesn’t actually fix the problem”. I wholeheartedly agree.