Waltham Forest Pension Fund has announced it will divest from fossil fuels over the next five years after concerns over stranded assets.
The decision made by its committee on 22 September was based on investment risk considerations including international government action to reduce carbon emissions.
The £716.5m fund has a low exposure to fossil fuels compared to other Local Government Pension Scheme (LGPS) funds, with just 2.2% exposure as at 31 March 2016.
There has been increasing pressure on the LGPS to exclude fossil fuels after data published last year by environmental campaign groups revealed the scheme had £14bn in these assets.
The committee's chairman Simon Miller who is also a Labour councillor for Leyton, told PP: "Over a number of years the committee has looked at its exposure (which is low in any case), had noted an increasing trend to divest, the growth of alternative funds that meet with the fund's investment strategy, and needs and considered information from advisers."
He also said alongside the divestment strategy the fund is keen to invest in ways that benefit its community more widely. This includes supporting local health, environmental and infrastructure needs where such investment meets the fund's requirements and rules.
The fund will look for suitable fund managers that can deliver its investment return objectives over the next five years.
He suggested its fossil fuel investments could be replaced by sustainable equities: "The government's requirements for local authority pension funds to invest through pools means that we expect the suitable investment opportunities to be identified by the London Collective Investment Vehicle (CIV) and we are aware that they are already looking at sustainable equities as an investment theme. Although this may take some time we do not believe this will be problematic."
Friends of the Earth Waltham Forest local divestment campaigner Rob Platts said Waltham Forest had shown true leadership.
"By divesting from fossil fuels, the fund is not only taking necessary action to protect fund members' pensions from risky investments, but it is also joining hundreds of public institutions worldwide in taking a stand against an industry which is causing climate chaos and endangering our future."
However, reaction to the pension fund's decision is likely to be mixed, given many people argue engagement is a better way to create change rather than full divestment.
Acknowledging that engagement is also important, Miller said: "We have an activist approach within our infrastructure allocation, which is biased towards clean energy. We will also be looking at sustainable investing in conjunction with the London CIV. In addition, the fund is a member of the Local Authority Pension Fund Forum and supports its activist approach on climate change and many other issues."
There is increasing awareness among LGPS funds over the future risks from investing in fossil fuels when governments around the globe have committed to tackling climate change.
Last year the Environment Agency Pension Fund (EAPF) substantially reduced climate risk by switching global passive equities into low carbon passive indices.
Haringey Pension Fund has divested from coal, while South Yorkshire no longer invests in coal and tar sands.
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