Last month’s local elections in the UK might create a new challenge to responsible investment in Europe. Reform, the UK’s populist/radical Right party, performed very well. It achieved the highest vote share of any party at 30 percent, won the most seats (677 out of 1,641), took control of 10 and is the largest party on several others. Reform also won another seat in parliament, defeating Labour in a previously safe constituency, and two mayoral elections. This was undoubtedly a very good set of results for them.
Reform now has real political power at a local level and it appears its leadership intends to use this to apply national policy. In response to the council results, Reform leader Nigel Farage told council staff working on climate change or diversity to look for new jobs, and deputy leader Richard Tice took aim at investments in solar farms and battery storage.
This has led to some speculation about the impact on the Local Government Pension Scheme (LGPS). Toby Nangle has written a couple of very useful articles for FT Alphaville looking in detail at Reform’s potential influence via administering authorities.
His conclusion: totting up all the administering authorities which look likely to soon have at least one Reform councillor on its pensions committee, we get a number just north of £100 billion. This includes around £30 billion of assets overseen by administering authorities where Reform councillors will likely hold the majority of pensions committee seats.
The big question is how they might use this influence. I’ve been following how the “radical right” has been thinking about ESG issues for a few years and I think Reform’s new base in local government could be a significant development.
Reform hasn’t put much about its approach to pensions in the public domain. Its manifesto for last year’s general election advocated that the UK look to the Australian model of pension provision to tackle the “complexity, huge cost and poor returns” of our own system. It also included a brief reference to pension fund investment:
“The British taxpayer needs to be in control of Britain’s utilities. Launch a new model that brings 50 percent of each utility into public ownership. The other 50 percent would be owned by UK pension funds, benefiting from new expertise and better management.”
Realistically, Reform councillors on pension committees are not going to be pushing to take control of utilities just yet. However, building scale in UK pension funds to enable direct domestic ownership of infrastructure is popular with politicians across the spectrum. Reform councillors might even sympathise with some of the government’s agenda if it means using pooling to reduce costs while delivering “energy security” in the UK.
However, it seems likely they will be far more critical when it comes to responsible investment. Reform was vocal in its manifesto about “net zero”, advocating among other things: scrapping subsidies for renewable energy, fast-tracking licences for North Sea oil and gas, support for fracking and investment in nuclear power. It was also critical of “woke” diversity, equity and inclusion initiatives, saying it would “scrap DEI rules that have lowered standards and reduced economic productivity”.
At a practical level, Tice has used his seat in the House of Commons to attack the parliamentary pension scheme. He has criticised the fund for a shift towards ESG products which he claimed was “a significant cause of… underperformance”. It would not be a huge leap for Reform to apply the same approach to the LGPS and is something Farage seems keen to talk up.
We might expect particular scrutiny of LGPS investment in renewables, and the costs of any ESG products and services. Reform councillors might also challenge pension fund stewardship activity in relation to climate change or DE&I. It is questionable whether a Reform-led council would support their pension fund taking public positions against board members over concerns that transition strategies are not ambitious enough, for example.
Reform councillors will also have an indirect influence that might reduce the profile of ESG topics in the LGPS. Experienced council officers, and opposition councillors, will know that putting certain items on the committee agenda could invite trouble and may calibrate their approach on this basis. Similarly, asset managers preparing presentations to Reform-controlled committees will surely be editing their slide decks to downplay, rather than amplify, their engagement on ESG issues.
None of this requires Reform councillors to do much, rather than simply respond to what they see in front of them. But is a more co-ordinated approach possible? Some on the right of politics have already been thinking about this. A recent article by James Graham of the UK-based Prosperity Institute encouraged Reform to use its newfound influence over the LGPS to “defund net zero”.
“Newly elected councils should audit their pension fund’s strategies and remove any policy which is contrary to the aim of maximising financial returns,” it argues. “This will involve removing or rewriting responsible investment policies and scrapping net zero targets.”
The article includes a brief look at some RI policies in the LGPS, including those of the Local Pensions Partnership and the pension funds of the now Reform-controlled Lancashire and Kent county councils. As an example of how some investments are perceived, the article states: “The Clyde Wind Farm, which blights the once beautiful Scottish landscape south of Glasgow, was funded by Lancashire’s pension members.”
These positions have also been advocated more broadly on the right of politics. Graham wrote a similar piece for ConservativeHome earlier in the year and the Prosperity Institute published a much-longer report, Woke Capitalism in Britain: Diagnosis, Prognosis and Cure, in June 2024. This advocated using existing pensions legislation to reverse climate-related disclosure requirements on pension funds. It also called for the Financial Conduct Authority to exclude DE&I issues from its remit.
That report was endorsed by four Conservative MPs (all of whom subsequently lost their seats in the 2024 election), including Jacob Rees-Mogg. And going back to 2021, former Conservative special adviser Rupert Darwall wrote a paper titled Capitalism, Socialism and ESG, which was not sympathetic to the latter and asserted that the adoption of ESG objectives without consent “invites a populist backlash”.
All of this points to more challenges ahead and it would be wise for RI advocates to take a moment before responding.
Some may be tempted to view Reform’s advance in local government in the UK as another reason why we need to take pensions out of the hands of politicians. We may also see more calls for RI to be “depoliticised” and framed as a technocratic risk management exercise. However, a consistent thread in the populist right-wing critique of RI is that it lacks a democratic mandate despite embedding political considerations. Therefore, seeking to put it out of the reach of political debate and challenge risks adding fuel to the fire.
In What is Populism?, the political philosopher Jan-Werner Müller argues: “For neither technocrats nor populists is there any need for democratic debate… Hence it is plausible to assume that one might pave the way for the other, because each legitimises the belief that there is no real room for disagreement. After all, each holds that there is one correct policy solution and only one authentic popular will respectively.”
To me, responsible investment appears to be entering a phase that requires more openness about and engagement with political disagreement, not less.
Tom Powdrill is the director of Social Governance, a consulting firm focusing on workforce and social topics in stewardship.
