London CIV has raised concerns over a proposed bill to ban UK local government pension schemes from making investment decisions that appear to be “influenced by political or moral disapproval of foreign state conduct”.
Introduced in June, the Economic Activities of Public Bodies (Overseas Matters) Bill would ban public bodies, including local government pension schemes, from making procurement or investment decisions based on moral judgements of state conduct.
While it does not have a single territorial focus, the bill has been linked by the government and commentators with efforts to tackle the boycott, divestment and sanctions (BDS) movement against Israel.
Jacqueline Amy Jackson – head of responsible investment at London CIV, which manages £27 billion on behalf of London’s LGPS schemes – said she would not say responsible investment professionals particularly support the bill.
“Pension funds generally need to be aware of exposure to human rights abuses and we need to be cognisant that beneficiaries may expect their money does not support persecution of minorities,” she said.
She was keen to emphasise that public pension funds are not there to drive political agendas or be used as protests, and that they exist to protect pension money.
But, she said, the key point is that, aside from human rights issues or political opinions, the bill stifles mitigation of investment risk.
“From an ESG perspective alone, we do know that social risks can very quickly materialise into financial risk or significant financial costs or stranded assets. And that, of course, puts investments at risk. We are professionals in this area and… the government needs to trust that we’re understanding ESG and investment risk and making decisions solely based on that.”
Others have also criticised the bill. During a parliamentary debate at the start of July, conservative MP Kit Malthouse said the money in LGPS schemes was not the government’s money to direct.
If the government gets into the business of managing pension money and this results in losses from government decisions, members should be compensated, he added.
The LGPS Advisory Board said in a statement last month that administering authorities “take their statutory and fiduciary duties around the investment of pension funds very seriously”. The board said that, as far as it is aware, there is no evidence that any LGPS fund has instituted “inappropriate politically motivated boycott or divestment policies”.
This is not the UK government’s first attempt to introduce restrictions on divestments by local government schemes. In 2020, the Supreme Court struck down an attempt to introduce guidance restricting divestment from UK defence companies and foreign countries.
The bill is currently in committee stage, where it will be picked up again at the start of September. An attempt by opposition parties to kill it was defeated by 272 votes to 212 at the start of July.