Wiltshire’s Jennifer Devine: Why we will divest from fossil fuels

In 2023, following extensive debate and deliberation over two meetings by our Committee, we made the significant decision to divest all fossil fuel assets by 2030, a move that aligns with our target to achieve net-zero carbon emissions across all investment portfolios by 2050. This decision was not taken lightly. It stemmed from a deep understanding of the risks associated with climate change and the urgency to shift towards more sustainable energy sources. As a long-term investor, we need to protect the fund’s investments from climate change risk, and safeguard the financial future of the fund, and a plan to divest is one tool we will be using to achieve this goal.

Historically, our approach has always focussed on engagement; we firmly believe in the power of engagement as a tool to drive meaningful change. So how can setting a plan to divest, which could potentially look like taking the lazy option, sit alongside engagement? While we’ll always promote engagement where we can, there are undeniably situations where engagement is not going to be enough, particularly with companies in sectors such as oil sands, whose extractive business models offer limited scope for transition. In these cases, engagement doesn't provide a viable path to aligning with our net-zero objectives. These companies are simply not going to be able to transition and are therefore fundamentally misaligned with a net zero future. In these instances, divestment becomes a necessary tool in our strategy.

Balancing divestment with engagement

So, why 2030? Because this gives us time to engage! By this time, we believe that any company willing and capable of transitioning away from fossil fuels will have made significant progress. Such companies will no longer be primarily fossil fuel companies, having effectively shifted towards more sustainable practices and technologies, and therefore we will be happy to remain invested. On the other hand, companies that have not demonstrated tangible progress towards transition by 2030 are unlikely to align with our vision for a sustainable future.

Balancing divestment with engagement is not straightforward and involves us being able to develop an understanding of each high-risk company in our portfolio. Our plan for divesting requires us to take several steps. First, we have assessed our exposure to companies that meet our definition for being a fossil fuel company. Unsurprisingly, this has ended up as a very short list of 10 or so names.

We’ve been championing sustainability throughout our investment strategy for some time, so we were not anticipating extensive exposure. Our next steps are to research each company in turn, looking at annual reports, industry tools (such as Transition Pathway Initiative and Climate Action 100 scores), and manager views to form an opinion on two questions: whether the company can transition, but also whether it is demonstrating meaningful intent to do so.

If we decide the answer to these questions is “no”, that means that our ongoing investment would be introducing a very real risk that the company will not adapt to the challenging landscape of the future, and potentially ultimately failing and causing financial detriment to the Fund. At this point we are asking our managers to divest. This may not always be immediately possible, for example in pooled investment vehicles, but we hope that our ongoing request will eventually help to change views and generate action.

If we assess the answers as “yes”, then this is where engagement comes in – we will be pushing our managers to engage with these high-risk companies, so that hopefully by 2030, they will have delivered real World positive change, and earned their place in our portfolios.

A passion for energy security

We also approach this issue from a completely different angle – that of opportunity. Divestment discussions at our Committee were fuelled by a passion for ensuring not only the sustainability of our investments but also the broader issue of energy security. The transition away from fossil fuels must be responsible and considerate of the current and future energy needs.

We have made significant investments in renewable energy infrastructure. A prime example of this is our £100m commitment to the Wessex Gardens fund, where alongside other LGPS partners we have jointly committed £330m to renewable infrastructure in the South West. This project allows us to both benefit from and contribute towards the provision of more green energy in our local area.

As a pension fund, our primary responsibility is to our members and employers. We know that they are passionate about this topic, and where possible (i.e. without sacrificing returns) we would want to invest in line with their wishes. This approach definitely supports that.

Our strategy at Wiltshire is about striking the right balance – knowing when to engage and when to divest. This approach reflects our commitment as a pension fund to not only secure financial returns but also to invest in a sustainable future for our members and the planet.

Also read:

Wiltshire teams up with five other Brunel funds to back renewables

Wiltshire Pension Fund to divest all fossil fuel assets by 2030