The Strathclyde Pension Fund had £508 million invested in the fossil fuel industry last year, according to research by campaign groups Friends of the Earth and Platform.
The fund, administered by Glasgow City Council, is the pension scheme for about 180 local employers, including other local councils as well as colleges and charities.
The council declared a climate emergency in 2019 and Glasgow councillors recently backed a motion calling on the fund to withdraw from fossil fuel investments.
Robert Noyes, an energy economist at Platform, said: “As we approach the UN climate talks in Glasgow this November, local councils have a simple choice.
“They can pay polluters to wreck the planet, or they can play their part in the global climate effort by ending their fossil fuel investments.”
Strathclyde Pension Fund said it was already making changes.
A spokesman said: “Direct investments in industries like oil and gas are already decreasing. They are also dwarfed by our investments in clean, renewable energy.
“Meanwhile, the fund’s exposure to oil and gas is less than half of what it was just five years ago, in terms of a percentage of our passive equity - and closing in on a two-thirds reduction in terms of the overall value of the fund.
“Strathclyde Pension Fund is one of the first large pension funds to approve divestment as a tool to address firms that do not engage with the climate crisis.”
All eyes will be on Glasgow next month, when world leaders including US president Joe Biden will gather for the UN climate conference.
It has intensified the long-running debate over the ethics of pension investments in the fossil fuel industry, particularly within the Local Government Pension Scheme - one of the UK’s largest public sector retirement schemes, administered by nearly 100 town hall funds across the country.
Three-quarters of UK councils have declared a climate emergency, but the research shows every local government pension fund in the country invested in coal, oil or gas last year.
The Local Authority Pension Fund Forum (LAPFF), which represents the majority of council schemes, said its members were taking a variety of approaches in tackling the issue.
It said some were divesting from fossil fuel-intensive companies and others had decided “that excluding all energy companies could lead to greater volatility of returns and creates its own risks”.
Pensions minister Guy Opperman has urged councils not to divest, saying it was perfectly appropriate for them to hold stocks in the likes of BP or Shell.
He branded the move “reverse greenwashing because it doesn’t actually fix the problem”, in an interview with the Financial Times.
How do local authority pension schemes work?
Local authorities provide a retirement income for their employees through the Local Government Pension Scheme (LGPS), one of the UK’s largest public sector pension schemes.
The scheme is administered locally through 86 regional pension funds in England and Wales, 11 in Scotland and one in Northern Ireland. There is also a fund representing the Environment Agency.
Neighbouring councils sometimes band together to form these funds, so they do not always correspond exactly to local authority boundaries.
These funds invest the pensions of more than 6 million people in financial assets, with the intention of growing this money.
Decisions on how to invest are made locally by committees usually made up of councillors, trade union representatives and other interested parties.
In recent years local pension committees have come under increasing pressure to align investments with social or environmental aims.
How much money do local authority pension funds invest in fossil fuel industries?
Local authorities across the UK had £9.9 billion invested in fossil fuels last year through their pension funds, according to research by environmental groups Friends of the Earth and Platform compiled through Freedom of Information requests.
That works out as £1,450 for each of the 6.8 million members of the Local Government Pension Scheme in the UK, and about 3% of the total scheme value.
The amount local government pension schemes invest in fossil fuels is declining. Similar research in 2017 revealed £16 billion invested in coal, oil and gas industries.
How does the private sector compare?
Fossil fuel investments are very common in private sector retirement schemes, but some providers are looking to reduce their investments in the most harmful holdings.
Scottish Widows, one of the UK’s biggest pension providers with 6m customers, last year announced it was divesting £440 million from companies that failed to meet its environmental, social and governance standards.
A spokesperson said they prefer to have a dialogue with carbon-intensive companies that they invest in, “to drive positive change by exerting an influence on them”.
The spokesperson said: “But there are some companies involved in activities that have such a negative impact on the planet and society that they pose an investment risk.
“Due to the nature of their businesses, or the nature of our investments in them, we believe engagement is not always appropriate and we will divest.”
Many private providers also offer customers the option of investing in more ethical alternatives to their standard funds.
Across the private and public sector combined, about 85% of Defined Contribution pension savers are in a scheme with a net zero carbon target.
Six of the top 10 Defined Benefit schemes, equating to assets of over £250 billion, have made net zero commitments, according to the Department for Work and Pensions.