UK Supreme Court strikes down government ban on ethical divestment

The UK Supreme Court has struck down a government ban which prevented UK local government pension schemes (LGPS) from divesting from companies connected to Israel’s military occupation of Palestinian territories and the UK defence industry.

At the heart of the ruling is a 2016 UK government-issued guidance which barred LGPS funds from carrying out ethical divestments “against foreign nations and UK defence industries”, while allowing for ethical considerations in other areas such as health and the environment.

The government ban was initially found unlawful by the High Court in 2017, in response to a case brought by campaign group the Palestine Solidarity Campaign (PSC) and LGPS member Jacqueline Lewis. However, that judgement was overturned in 2018 after the Court of Appeal ruled that LGPS funds “should not pursue policies that are contrary to UK foreign policy or UK defence policy”.  

The latest ruling is a review of the appellate court decision.

The apex court ruling has also been acknowledged by the LGPS Scheme Advisory Board (SAB) – a statutory body supporting best practices among LGPS member funds – which had put off issuing key guidance on responsible investment in February in anticipation of the forthcoming Supreme Court decision.

The SAB said in a statement that it “has yet to consider the implications of the judgement”.

LGPS funds are some of the largest defined benefit pension schemes in the world with assets of over £275bn (€315bn) across eight pension pools.

The PSC was represented by Bindmans, the practice founded by leading human rights lawyer Professor Sir Geoffrey Bindman.

Jamie Potter, a partner at the firm, said: “LGPS members now have the freedom to pursue their own principles in respect of the role of the arms trade and foreign countries in violations of human rights around the world, when determining how their pension monies are invested.”

Commenting on the decision Tom Powdrill, a spokesperson for UK governance research and proxy voting firm PIRC, which advises a number of LGPS funds, said to RI: “Pushing this policy was always a high-risk strategy for the government as LGPS funds were simply not planning to divest over this issue. Secondly, this was a political intervention in investment decisions – exactly the problem it was purporting to solve. Leaving aside the complicated politics of the issue, most people in the LGPS will think the outcome is the right one."

Separately, the UN has published a database of 112 companies with operations in the illegally occupied Palestinian territories, more than three years after being mandated to do so by the UN Human Rights Council in Geneva. The document’s publication is potentially significant for investors looking to avoid exposure to human rights abuses in the region.

Special Rapporteur Michael Lynk, a human rights expert appointed by the Council, said that while “the international community has rightly condemned the illegal status and harmful impact of the Israeli settlements”, continuing to engage in trade and commerce with the settlements “sustains their viability and undercuts its own pronouncements”.

“Without these investments, wineries, factories, corporate supply and purchase agreements, banking operations and support services, many of the settlements would not be financially and operationally sustainable.”