Oxfordshire Pension Fund divests from UK and emerging markets over ESG concerns

Oxfordshire County Council’s Pension Fund has sold off £250m of its existing UK and emerging markets funds due to environmental, social and governance (ESG) concerns, with the funds freed up to be invested with its pool, Brunel Pension Partnership.

At a meeting earlier in June, the authority’s Pension Fund Committee agreed to reduce its existing exposure to the UK market and in particular to FTSE100 companies that have links to major oil, gas and mining companies by £160m.

The pension fund, valued at £3.15bn in March 2023, is also looking to move the remaining £320m, which is invested in FTSE100 companies, into a FTSE250 portfolio.

A spokesperson from Oxfordshire County Council said: “The decision to divest was based both on a wish to reduce the overweight position to the UK stock markets, and as a concern about the exposure of the FTSE100 to the oil and gas majors and the relatively high carbon emissions associated with the portfolio.”

Divestment emerging markets

At the same time, the committee also decided to end the fund’s investments in emerging markets, which totalled £90m. This was due to concerns about social and governance issues – specifically within China and Saudi Arabia.

Bob Johnston, the Pension Fund Committee’s chair, said: “We recognise the risks to investment performance associated with poor ESG considerations and are keen to ensure our investments both deliver the returns to pay the pensions of our scheme members and ensure sustainable improvements for our planet.

“We are happy that these changes will further de-carbonise our investments as well as increasing the investments in those areas vital to allow the world to adapt to the risks from climate change.”

The Oxfordshire Pension Fund has committed to achieving net zero emissions on its investment portfolio by 2050 and is part of the Local Government Pension Scheme pool Brunel Pension Partnership.

Reallocation into Brunel’s portfolios

As a result of both divestments, £250m has been released, which will be reallocated into Brunel’s Sustainable Equities (£220m) and Paris Aligned Benchmark (£30m) portfolios.

According to Oxfordshire County Council, both portfolios now form an equal 16% of the total asset allocation of the fund.

“The Sustainable Equities portfolio was chosen to receive the majority of the re-allocated money as it aims to deliver investment performance above its market cap benchmark.

“So, it is consistent with the fund’s overarching fiduciary duty and in line with the investment returns assumed within the fund’s most recent actuarial valuation, whilst also looking to prioritise investments to support the adaptation and mitigation required from the risks of climate change, and therefore consistent with the fund’s climate change policy,” the Oxfordshire County Council spokesman added.