Pension funds are quitting fossil fuels. Could they invest in community energy?

If we want to stop climate change then we can’t burn the world’s known fossil fuel reserves, and we need to stop investing in the fossil fuel industry. Trouble is, plenty of pensions are. But it doesn't have to be this way. 

Where would be a better place to put our pensions?

Would it be possible to invest a pension fund in good stuff? What about community renewable energy projects like REPOWERBalcombe?

Lancashire County Pension Fund are showing the world how it's done. Two years ago today, they announced that they had bought a £12 million bond in Westmill Solar Co-operative. The first pension fund to invest in community energy in the UK!

Westmill is the world’s largest community-owned power station. They own a 4.5 MW ground mount solar array - that's enough electricity for 1500 homes. And, although Lancashire County Pension Fund bought bonds, the project is owned by the co-operative members - local people who have invested in the project for the good of their community and the environment, and to receive a good rate of return.

The £12 million bond is being paid back to Lancashire County Pension Fund over 23 years. It’s a low risk investment for the pension fund, and long term finance for the co-operative - everybody wins!

Two years on, how are things going? Trevor Castledine from Lancashire County Pension Fund is pretty pleased: “ The Westmill Solar investment was a good one for the fund because it met our investment needs – essentially because it is long term and inflation protected. We have to deliver against strict investment criteria, so as to receive a good rate of return for our members. The decision was a financial one and this investment was superior in financial terms to the traditional high-carbon investments. We are happy with how it’s been going for the last two years. And would definitely encourage other pension funds to consider similar community energy projects in the future.”

Could my pension do invest in community energy too?

The short answer is yes. In many ways community renewable energy projects and pension funds are a perfect match. Community energy projects offer a competitive rate of return and are super secure compared to other investments.

However Lancashire County Pension Fund is unique in that the fund is managed in-house, so they can deal with investments of a size appropriate to just them. But most pension funds are outsourced to fund managers dealing with multi-million pound portfolios. These funds are generally looking for much larger investments than what the average community energy project can offer.

Local authority pension funds could play an important role in scaling up community renewable's

And, of course, pension funds are in it for the money - they need to find the best rates of return, not just the most planet-friendly option. But there may be hope. The future of fossil fuels is looking increasingly questionable, and as fund managers begin to see this, sustainable options look like a better bet.

Chris Goodall from Carbon Commentary think this could just be the start. "There are a number of brokers managing deals similar to that of Lancashire County Pension Fund at the moment. We can expect to see more of the smaller pension funds going for this type of investment in the future."

How can we make it happen?

Community Reinvest is a project investigating options for councils to divest public funds and reinvest in community renewable energy. They’ve been researching the carbon exposure of the £180bn invested in UK local authority pension funds.

Dr Jo Ram from Community Reinvest, thinks it's a no brainer. "Local authorities have both a democratic and fiduciary responsibility to invest positively and to ensure that public sector investments are not detached from real world consequences.

"Due to the financial risk of the carbon bubble, renewable energy investments can be a more secure and socially positive investment for pension funds than fossil fuels.

"Local authority pension funds could play an important role in scaling up community renewables - it would match their investment criteria, and the ethical considerations they should be making - it’s a win-win situation."

It’s time to take a more proactive role in considering what our pensions are invested in. Get in touch with your pension provider and find out what they’re doing with your money. Or check out ShareAction, who are campaigning for fossil free pensions.

Happy divesting!