Nest dumps ExxonMobil over climate change risks

Nest, the £20bn UK government-backed workplace pension scheme, has sold its holdings in ExxonMobil and four other energy companies after criticising their progress on managing climate change risks.

The group, which looks after the retirement savings of 10m UK workers, has dumped investments worth £40m in Exxon, Imperial Oil, Korea Electric Power Corp (Kepco), Marathon Oil and Power Assets, the Hong Kong-based electric utility company.

Frustration over the response of some fossil fuel companies to the threat of catastrophic global warming is driving a small but growing number of influential pension funds to divest from businesses that are perceived as blocking progress towards a lower carbon economy.

“These five companies have not done enough to convince us that we should remain shareholders,” said Katharina Lindmeier, a senior responsible investment manager at Nest. “They will not return to our portfolio until they demonstrate clear progress in preparing for a low-carbon economy.”

The pension scheme had held the five companies in a £9bn climate aware fund run by UBS. The Swiss bank has decided to apply the same exclusions across its suite of climate-aware tracker funds, which hold assets of about $20.8bn, as well as its actively managed equity and fixed income sustainability funds.

Francis Condon, head of thematic engagement and collaboration at UBS Asset Management, said the decision to sell followed three years of discussions with 49 oil and gas companies identified as laggards on climate change performance.

“Our three-year engagement programme provided the companies with time to understand our concerns and act on them,” he said. “However, where we have not seen tangible progress, we are taking action.”

UBS declined to disclose the value of the shares it had sold but the sale marks the first time its asset management arm has divested from energy companies because of climate change risks.

Most large institutional investors oppose divestment because they prefer to use persuasion or their voting power as shareholders to influence the behaviour of companies.

But some of the world’s largest pension funds have hardened their stance on climate change risks and opted to divest from companies that rely on fossil fuels to make profits.

ABP of the Netherlands said in October that it would sell its entire holdings in fossil fuel companies worth more than €15bn.

The New York State Common Retirement Fund, the third-largest US pension fund, pledged last year to sell out of energy companies that do not have a plan to cut emissions and transition away from fossil fuels.

Nest has also introduced an ambitious new carbon reduction target as part of its plan to reach net zero emissions by 2050. It has committed to a 30 per cent reduction in the carbon footprint of its portfolio of publicly traded stocks and bonds by the end of 2025. These two asset classes are expected to make up to 75 per cent of Nest’s entire investment portfolio in 2025.

“We want to be on the front foot on climate change to achieve better risk-adjusted returns for our members,” said Lindmeier. “The new climate target demonstrates that Nest is not hanging around.”

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