LGPS funds should not join the Israel boycott movement

Some of the UK’s largest schemes, including the Universities Superannuation Scheme and the Church of England Pension Fund, have already declared their intentions to divest their assets from Russia, in response to the appalling conflict unfolding in Ukraine.

While official polls on attitudes are hard to come by, it is clear that public opinion is in favour of boycotting Russia and shielding investments from the market turmoil that is ravaging the nation.

Without consensus from members on the question, trustees are left to become moral arbiters on an incredibly sensitive issue

There is a clear financial and moral imperative to divest Russian assets. Allocations are small (seemingly going no higher than 0.5 per cent of portfolios), meaning the financial impact on assets will be minimal. 

A moral case for Russia’s invasion, meanwhile, is unfathomable to this writer.

A lack of liquidity will make divestment challenging for schemes, but for now, a clear statement of intent on exiting Russia will probably be sufficient for most members.

There is no British consensus on the Israel-Palestine conflict

The same clarity cannot be found in the case of another nation that has been a target for divestment campaigns.

Israel has been subject to campaigns for decades over its activities in Palestinian territories.

The Boycott, Divest and Sanctions movement has been a prominent voice on this issue since 2005. It says that “for nearly seventy years, Israel has denied Palestinians their fundamental rights and has refused to comply with international law”.

The UK government’s official policy on the dispute is to seek “a just peace between a stable, democratic Palestinian state and Israel, based on 1967 borders, ending the occupation by agreement”.

Tor Wennesland, the United Nations’ special coordinator for the Middle East peace process, recently told the Security Council that “all settlements are illegal under international law and remain a substantial obstacle to peace”.

There is, however, no clear consensus on the conflict among the British public.

According to YouGov, 27 per cent of British adults’ sympathies lie more with Palestinians than Israelis. Only 11 per cent of its survey respondents sympathise more with Israelis.

But 35 per cent of those surveyed said they do not know who their sympathies lay with more, while 26 per cent said their sympathies did not lie more with either side. 

More than half of British people, therefore, do not have a position on this conflict. What is more, these attitudes have not shifted substantially over the past three years, according to YouGov data.

New BDS legislation may prevent divestment

Consider the real-life example of the Merseyside Pension Fund, which is currently deliberating whether to engage further — not divest — with  nine companies it is invested in that are listed by the UN as operating in the occupied territories.

Wirral councillors recently voted to delay their decision on the matter. 

Labour councillor Brian Kenny, who is opposed to the proposal, having argued that it would unfairly single out Israel, told a February committee meeting that he had never known an issue “to attract so many emails, so many comments, from so many people as the issue before us”.

Conservative MP Robert Jenrick’s February amendment to the upcoming public service pensions and judicial offices bill received government backing, to the surprise of some.

This will allow ministers to guide against public sector pension schemes pursuing politically motivated boycotts and divestment policies. Jenrick cited the Merseyside fund in an accompanying article in The Times.

The government is also soon expected to table legislation specifically against BDS, which could possibly make it illegal for schemes to participate in the movement. 

Efforts to consult on this issue now may therefore end up being a waste of time, if LGPS funds find themselves banned from divesting from Israel on ethical grounds.

The Merseyside fund was reminded in a letter from UK Lawyers for Israel of its fiduciary responsibilities to members, which require it to prioritise maximising returns and paying its members.

“We note that strong feelings are held on both sides of the Israeli-Palestinian conflict,” the letter reads. “We do not believe that it can be said that there is a consensus in favour of divestment targeting Israel or areas under Israeli administration.”

The legal association argues that “the Israeli-Palestinian dispute does not lend itself to a consensus in the way that pollution or pay-day lending might”. 

“The divisive nature of the Israeli-Palestinian dispute is an unconvincing candidate for any consensus between beneficiaries,” it continues.

Schemes are allowed to consider ethical issues as long as any subsequent action does not deal a financially material blow to their investment returns. 

In Merseyside’s case, theoretically divesting from nine companies would unlikely hamper its returns in a serious way. Even in the event of a downturn in the region, its negligible exposure would not materially harm the fund.

But without consensus from members on the question, trustees are left to become moral arbiters on an incredibly sensitive issue. 

This is a very difficult position in which to place councillors, and indeed the trustees of any pension scheme. If the UN and the world’s leading diplomats are unable to resolve this dispute, it is a lot to expect trustees to take a conclusive view on the matter.

It is arguably unjust to screen out investments based on a minority view and impose this duty upon trustees without expertise on these issues. 

LGPS funds should, therefore, stay well away from BDS.

Alex Janiaud is deputy editor of Pensions Expert