Summary

USS have recently released their annual TCFD Report on their approach to the climate emergency[1]. We welcome their description of positive actions taken and the collaboration with Exeter University to improve the modelling of impacts of the climate emergency[2]. However we remain seriously concerned about USS’s continued investment in fossil fuels, particularly in new projects, and their adherence to a policy of ‘engagement’ which is clearly producing minimal progress. This year has already seen repeated extreme climate events, highly anomalous warming of the oceans and poles, and record overall temperatures. There is a critical need for more effective action now to reduce emissions quickly.

We urge USS to take the following steps:

  • Join other UK and European pension funds and over 100 UK universities by divesting from fossil fuels.
  • Divest from banks and other lending sources that finance new fossil fuel projects.
  • Divest from those major carbon emitters that have no credible plans to decarbonise significantly in the next decade.
  • Rapidly increase investment in proven and cheap renewable energy such as solar and wind, the industries supplying them, and the industries accelerating the transition such as electric vehicles, battery development and electricity infrastructure.
  • Divest from those companies where USS has voted against the board or CEO on grounds of insufficient response to the Climate Emergency.
  • Consult all members (current, deferred and retired) at least every 3 years on their emission reduction plans and investment strategy.
  • Produce annual report cards on the top emitters (including Scope 3) in their portfolio and their decarbonisation progress. 
  • Commit to excluding from its climate emergency plans contributions to any company’s claimed emission reduction pathways from carbon offsets and putative future carbon capture technologies. 
  • Make clear what their planned absolute emissions pathway is and how it is consistent with the Paris agreements.
  • Publish annual accounts which list the size and identity of all of their holdings, following the lead of pension funds elsewhere.
  • Take more account of the risks involved with the current enormous gaps in emissions data and commit to a faster reduction in emissions accordingly.
  • Rapidly increase efforts to improve data, unilaterally and working with the industry. 
  • Put the more realistic scenarios recently announced into effect without further delay.

Discussion

1. Progress

We welcome the following actions taken by USS as evidenced in their TCFD Report:

  • A greater integration of climate concerns into decision-making throughout the organisation.
  • A move towards a more focused approach on the top carbon emitters.
  • Development of more awareness of data gaps and work to fill them.
  • Development of more realistic scenarios which include tipping points and major political and economic instabilities.
  • A first attempt to describe Scope 3 emissions.
  • Progress with some major emitters such as Cemex.

2. Critique

Last October, DivestUSS released a report The Universities Superannuation Scheme’s Response to the Climate Emergency[3] which provided a detailed analysis of USS’s policies and gave a number of recommendations, most of which are still relevant. In response to USS’s 2023 TCFD report we note that:

  • USS’s latest data[4] (June 2023) reveal holdings in
    • 46 of the world’s biggest fossil fuel companies.
    • 50 of the top 190 companies with the biggest fossil fuel expansion plans.
    • 5 of the top 10 lenders to fossil fuel companies worldwide and 33 of the top 60. 
  • USS’s stand in favour of ‘engagement’ and against divestment is unsupported by independent evidence[5] and is inconsistent:
    • When asked for supporting evidence, USS sent DivestUSS a single research paper which was financed by an organisation which is heavily funded by the fossil fuel lobby.
    • Companies such as Shell themselves state that divestment risks “material adverse effect on the price of our securities and our ability to access capital markets” and can “adversely affect our potential partners ability to finance their portion of costs”.
    • USS decisions to move investment into renewables such as via their £5bn Climate Tilt and their Long Term Real Return strategy already involve decisions not to invest in more carbon emitting industries. 
  • USS voted against the appointment of the Chair of the Board of BP this year after the company significantly reduced its commitment to cutting its carbon emissions without consulting shareholders[6]. Despite having no confidence in the Chair of the company USS remains invested as far as we are aware.
  • USS focusses on reducing the carbon intensity of their portfolio rather than absolute emissions.  Carbon intensity can vary widely due to changes in the valuation of their assets. Climate change depends on absolute emissions and the reduction path to net zero – this path is not clearly described by USS, which prevents understanding of the consistency of their commitments with global warming targets.  
  • USS maintains investments in numerous companies with no credible plan to decarbonise in the coming years at the rate required to meet the Paris goals. Examples are 
    • Shell[7] , which has, for example, set no interim targets for the next 26 years for 95% of its emissions (Scope 3).  
    • BP, which as noted above has shown that its climate pledges cannot be trusted.
    • Glencore[8], a leading contributor to coal carbon emissions with no plans to reduce production in the coming decade in clear contradiction with all Paris scenarios[9], and which was fined last year over $1bn for worldwide bribery and market manipulation offences.
    • Heathrow[10], where USS holds a 10% stake. Flights, which continue to increase, are 97% of emissions but the company has made only a highly qualified target of an “up to 15%” cut in air-based emissions between 2019 and 2030.
  • USS policies are in contradiction with 101 UK universities[11] who have committed to divesting from fossil fuels as part of their response to the climate emergency.
  • USS have highlighted a £500m investment in private businesses, citing electrified aviation and carbon capture. The UK Climate Change Committee has not included the former as a factor in significant carbon reductions from mass aviation[12]. The latter is heavily promoted by fossil fuel companies and consistently used to justify continued emissions. Current and planned facilities are scheduled to capture 0.4Gt CO2 per year by 2030[13], which is about 1% of current global annual emissions. Any failure of assumed future carbon capture technology will simply lock in higher temperatures.

3. Data gaps

There are major and serious gaps in the data that USS hold on the carbon emissions of their portfolio. (In a number of cases this reflects external difficulties in obtaining it.) For example[14]: 

  • USS does not provide details of all its investments, as is required of pension funds since in Australia for example since March 2022[15].
  • The data for the majority of the emissions in the USS portfolio (Scope 3 and sovereign debt) are missing and/or not reliable [p. 8].
  • The data for only 8.4% of assets under management (Scope 1, non-sovereign) are from “verified reported” sources [p. 42].
  • Scope 3 data is still poor and USS gives no company or sector breakdown of these, or mention of fossil fuel companies where these are ~ 85% of their emissions [p.40].
  • No data on emissions is given for the Defined Contribution Ethical options [p. 48].
  • Based on available data, only around one quarter of USS investments can be said to be currently aligned with well below 2 degrees of heating [Scopes 1,2, Defined Benefits, p.47].
  • USS this year significantly lowered their 2021 carbon intensity values by 13%, in a change “almost entirely driven” by properly assessing renewables in their peer group [p.39]. It is essential to pick up anomalies like this quickly to ensure data is as reliable as possible in order to underlie the best decisions.

DivestUSS

September 2023

References

[1] DivestUSS (https://divestuss.org/) is a group of members of USS that aims to ensure that it pursues a strategy that invests its members funds worldwide in a way that protects the environment for future generations, respects human rights and promotes corporate responsibility, alongside its aim to ensure good pensions.

[1] https://www.uss.co.uk/news-and-views/views-from-uss/2023/07/07252023_our-latest-progress-to-net-zero

“USS TCFD Report 2023” Main report; “Climate change and your pension” summary of TCFD Report available at the above link. See also

https://www.uss.co.uk/how-we-invest/responsible-investment/our-journey-to-net-zero

[2] “No time to lose: New scenario narratives for action on climate change”, https://greenfuturessolutions.com/news/no-time-to-lose-report-uss-university-of-exeter/

[3] https://divestuss.org/divestuss-report-on-usss-response-to-the-climate-emergency/

[4] Factsheet: USS holdings June 2023  https://divestuss.org/uss-holdings-june-2023/

Data link available from https://divestuss.org/report/

[5] See https://divestuss.org/divestment-doesnt-make-any-difference/ for details.

[6] “BP faces green protest over new climate goals” https://www.bbc.co.uk/news/science-environment-65385834 BBC News 27/4/23.

[7] See  https://divestuss.org/uss-and-shell-wheres-the-transition/ for an analysis.

[8] See https://divestuss.org/uss-and-glencore-what-ethical-policy/

and “BlackRock breaks with Glencore over environment policy”, https://www.ft.com/content/5b0d426a-87fe-4998-a3d6-3cf9f5669e6aFinancial Times, 10/9/23.

[9] Investor Bulletin: Glencore’s door open for engagement, https://www.accr.org.au/insights/investor-bulletin-glencore’s-door-open-for-engagement/ ACCR 14/9/23.

[10] Heathrow Airport Holdings, 2022, Annual report & financial statements, p.34. https://www.heathrow.com/content/dam/heathrow/web/common/documents/company/investor/reports-and-presentations/annual-accounts/airport-holdings/Heathrow_Airport_Holdings_Limited_2022_ARA.pdf

[11] https://peopleandplanet.org/fossil-free-victories Accessed 13/9/23.

[12] UK Climate Change Committee Sixth Carbon Budget 2020, Ch 3.7 https://www.theccc.org.uk/publication/sixth-carbon-budget/#downloads

[13] International Energy Agency, https://www.iea.org/reports/about-ccus , https://www.iea.org/energy-system/carbon-capture-utilisation-and-storage

[14] Information is from the USS TCFD Report in the first citation in this list, with page numbers in brackets. 

[15] https://ministers.treasury.gov.au/ministers/jane-hume-2020/media-releases/superannuation-portfolio-holdings-disclosure-0