How Waltham Forest has divested pensions out of fossil fuels

How is Action 35 tackling the climate crisis?

Council pension funds hold stocks worth billions of pounds in fossil fuel companies. Switching to green investments is an effective option for all local authorities.

In September 2016 the London Borough of Waltham Forest became the first local authority in the UK to commit to fully divesting its pension funds away from fossil fuels – oil, gas and coal. Divestment reduces the funds available to companies driving these polluting industries, which increase carbon emissions and accelerate climate breakdown.

The council surveyed divestment opportunities in 2017 and 2018, with the first transfers of money in 2018 and 2019. In September 2022 Waltham Forest became the first local authority to fully divest its funds from fossil fuels. This means the Waltham Forest Pension Fund now holds no investments in fossil fuel companies like Shell and BP.

It remains the only council to reach this landmark achievement. In 2021, about £10 billion of investments in fossil fuels were still held by local government pension funds across the UK, even though more than 75% of councils have declared a climate emergency. Divestment is a clear way for authorities to follow through on climate promises.

What impact has the project had?

By the end of the financial year when the divestment announcement was made (March 2017), Waltham Forest’s pension fund held £53.4 million of oil, gas and coal stocks (6.6% of the fund’s total value). By December 2018 that figure was £30 million, a 44% reduction.

By 2021 this proportion had further dropped, leaving only £3.5 million still to divest – huge progress in just a few years. And the final goal of full divestment was achieved the following year.

Waltham Forest’s pioneering example has provided a blueprint for others to follow. Four other local authority pension funds (Islington, Southwark, Lambeth and Cardiff) have committed to fully divest, with countless others now moving large proportions of their investments out of fossil fuels and into fossil-free funds.

Waltham Forest has committed to using the pension fund to make green investments, when suitable competitive opportunities arise, in order to benefit its communities and the environment. The council considers full divestment to be just the first milestone. It now intends to conduct critical analysis of its new pensions portfolio to demonstrate the real impact of divestment in the borough in terms of local wealth creation and reduced carbon emissions. It’s hoped that drawing out this impact will enable more dynamic storytelling around the topic.

What made this work?

Listening to local people

There's a pressing imperative for councils to divest. Declaring a climate emergency while doing nothing to divest is becoming politically untenable. Divestment has become a key focus for grassroots campaigners in recent years, raising awareness among local residents.

By working in step with passionate local activists organising the Divest Waltham Forest campaign, the council strengthened its case for divestment, as well as its reputation and working relationship with local people.

Councillor Simon Miller, then chair of the Pension Fund Committee, championed activists and invited them to present to the committee. Waltham Forest Friends of the Earth, GoFossilFree, PlatformLondon, Greenpeace Waltham Forest and 350.org all participated in the campaign – to ignore this level of coordinated grassroots action would've been a political risk. In Waltham Forest, divestment was therefore a unanimous cross-party decision between Labour and Conservative councillors.

A financially sound decision

Market changes and future risk make divestment a financially sound decision. Renewable energy technology keeps getting cheaper, with most solar and wind energy projects cheaper than fossil fuels. As the world transitions towards a low-carbon economy and fossil fuels become increasingly redundant, pension funds linked to the industry face a risk from stranded assets (something that once had value or produced income but no longer does).

Other risks to funds as markets adjust include write-downs (reductions in an asset’s value to offset a loss or expense) and a general fall in the value of oil, gas and coal stocks. Waltham Forest notes that, in the midst of the ongoing energy crisis, its pension funds are far more resilient, buffered from economic shocks tied to the volatility of global fossil fuel markets.

Benefits for local communities

Divestment can serve local priorities by enabling investment to be routed back into local communities for the social benefit of residents. Options include investment in wind farms, solar panel cooperatives and social housing.

Waltham Forest Council agrees with campaign group UK Divest's description of divestment as "popular, moral and financially prudent".

Divestment contributes to strategic priorities 

So-called “front-of-house” climate action on transport, renewable energy, tree planting, recycling and more benefits from the market-stimulating “back office” act of divestment. This is because divestment away from fossil fuels means opportunities to support low-carbon industries. In turn, this’ll make technologies like solar panels and heat pumps cheaper, and consequently more readily accessible to more people. Divestment is therefore closely linked to other council climate priorities.

What resources were needed?

There are few direct financial costs incurred when divesting. To implement divestment, Waltham Forest appointed 3 new managers tasked with identifying emerging markets where investments could be transferred to stocks with minimal carbon footprints.

Lessons from Waltham Forest

Pooled funds

Most councils in the UK invest through pooled funds. Waltham Forest belongs to the London Collective Investment Vehicle (London CIV), which manages the pension funds for all 32 London boroughs.

Waltham Forest Council was reliant on the London CIV having appropriate alternative options available for investment. This caused delays and complicated the goal of divestment.

Pooled funds may not have objectives that match up to an individual council’s wish to divest, but pooling also offers an opportunity for extended influence. Waltham Forest wants to work with the London CIV to help identify alternative investment options for all London councils.

Political commitment

Political commitment is an essential prerequisite before embarking on divestment, and councils must start as early as possible due to the slow nature of the process. The 6 years it took Waltham Forest to divest exceed the local election cycle, but councils must now think beyond the short term and persevere with delivering policies that may outlast the typical lifespan of a local politician.

Build some slack into delivery timelines 

Divestment requires patience and care to ensure that pensions are safeguarded. Councils may need to allow extra time to ensure that the pension fund is still of a value to protect the past and present workforce who depend on it. The timeline for divestment will vary depending on the nature of an authority’s current pension portfolio and the extent of existing investments. However, other authorities may be able to divest faster than Waltham Forest, as market offers have matured in line with rapidly developing renewable energy technologies.  

Divestment is a silo-busting issue 

The input of council teams that normally have little to do with climate policy has been necessary to achieve divestment. Accounting, procurement and legal teams have all been involved, broadening the notion of who can contribute to climate action within the council itself. Divestment proves that climate change isn’t an issue to be addressed solely by the council’s environmental department. 

Don’t be distracted by engagement

The divestment vs. engagement argument – that it's better to engage as an "activist investor" to push fossil fuel companies for improvements – has prompted intense debate. Vested interests and some local authorities have questioned the effectiveness of divestment, cautioning not to treat it as a cure-all.

However, local councils are simply too small an investor, even collectively, to secure significant changes from the fossil fuel industry via engagement. Councils won't convince companies to overhaul their core business model, nor is the timeline promising – with urgent action imperative, drawn-out advocacy is likely to yield too little, too late. This is illustrated by the recent decision of Dutch pension fund ABP (one of the largest pension funds in the world) to divest, because it felt it didn't have the power to influence fossil fuel companies to make the necessary changes. ABP has much more investor power and influence than any UK local authority pension fund.

Unhelpfully, the UK government has taken the view that engagement is preferable, with divestment a final option. Teresa Clay, head of Local Government Pensions for the government, advised in September 2021 that council pension funds should resist demands from campaigners to divest from fossil fuels. Yet councils should forge their own path, following Waltham Forest, and make the case for divestment forcefully.

Watch out for greenwashing

The fossil fuel industry has started to invest in some renewables or carbon-reducing projects, which can make it more difficult to work out what constitutes a green investment and what doesn't.

For instance, BP has invested in a large electric vehicle charging network in England, and Shell is investing in offshore wind. But both companies’ fossil fuel spending still vastly dwarfs any spend on renewable initiatives. Councils seeking to divest must conduct thorough research to ensure that investments that are labelled as ethical or ESG (Environmental Social Governance) are genuine alternatives and not still going to fossil fuel producers.

Councillor Johar Khan, Pension Fund Committee Chair at Waltham Forest Council.

Councillor Clyde Loakes, Deputy Leader and Cabinet Member for Environment at Waltham Forest Council.

Useful information

To find out more, please see UK Divest’s most recent report and its briefing for local councillors.

Friends of the Earth's view

It’s contradictory to declare a climate emergency but continue to invest in fossil fuels. Waltham Forest (with a handful of other councils) is leading the way in divesting its pensions and investing in solutions.

In addition to switching pension investment to support renewable energy, councils should be directly supporting renewable energy generation in their areas, including installing solar on council buildings (Action 32 of the Climate Action Plan) and allocating space for renewables in their Local Plans (Action 29).

Friends of the Earth is showcasing specific examples of good practice in tackling climate change, but that doesn’t mean we endorse everything that a council is doing.

This case study was produced by Ashden and Friends of the Earth. It was originally published in February 2022 and was last updated in November 2022.