The UK’s largest pension scheme has announced it is to divest from selected coal, tobacco and weapons manufacturers, following years of campaigning by members and activist groups.
The Universities Superannuation Scheme, which has more than 400,000 members made up of academic and academic-related staff and manages assets worth more than £68bn, has been the target of protests by members and outside pressure groups since the 1990s, when a student-led campaign resulted in it being the first UK pension scheme to create a responsible investment team.
The divestment announcement made on Monday came after an extended campaign by groups including ShareAction and Ethics for USS. They argued that assets totalling £1.6bn held by the hybrid scheme in fossil fuel companies, tobacco manufacturers, arms companies producing white phosphorous and cluster munitions, contravened the ethical views of USS members.
The move entails a complete divestment from British American Tobacco and Imperial Tobacco, in which USS presently holds assets worth £205m.
After many years of USS closing its ears to members’ views on the scheme’s investments, it seems new leadership at USS is once again listening
Catherine Howarth, ShareAction
USS Investment Management will now begin the process of fully divesting from companies in these sectors, where investments exist and where they are controllable, within two years if not earlier, the scheme stated. This is to allow new processes to be introduced to change the way the scheme’s money is invested.
The exclusions will apply to both the defined benefit section and within the default funds of the defined contribution section of USS.
Commenting on the decision, Simon Pilcher, chief executive of USS Investment management, said: “This is a major development for us and one that will balance both keeping the financial promises made to hundreds of thousands of members in the higher education sector, with investing in a responsible way over the long term. The exclusions we have announced today will be kept under review and may be added to over time.”
However, much of the scheme's estimated £1bn investment in fossil fuel companies will be excluded by a provision that a company must make more than 25 per cent of its revenue from thermal coal mining to qualify for divestment, an exemption that is likely to anger campaigners.
Commenting on the decision, Dr Sue Blackwell, member of Ethics for USS, noted that “it is high time that USS acknowledged that divestment on ethical grounds by a pension fund is perfectly legal, subject to certain constraints such as consulting the members of the scheme”.
A good start, but more to do
A ShareAction report attributed USS’s willingness to accede to member demands to the hiring of Mr Pilcher as chief executive of USSIM last year.
Mr Pilcher, the report said, “appears now to be open to the types of changes long demanded by scheme members, to reflect widely-held ethical preferences of people working and teaching in UK universities, and the financial impact of societal pressures to respond to the climate emergency”.
The move is long overdue, but welcome, said ShareAction chief executive Catherine Howarth. “After many years of USS closing its ears to members’ views on the scheme’s investments, it seems new leadership at USS is once again listening,” she noted.
“There is much further to go with this process,” she added, “and we hope USS will look now to follow other large UK schemes in establishing a robust new approach to regularly ascertain the views of members on investments held for their benefit, building members’ preferences into the scheme’s stewardship policy as well as taking further, bold steps to halt investment in fossil fuels.”
USS ‘way behind’ on climate action
The decision not to divest from fossil fuel companies that make less than 25 per cent of their profits from thermal coal mining drew criticism from environmentalists, who argued that much more needs to be done for USS to meet its climate obligations.
Professor Martin Siegert, co-director of the Grantham Institute for Climate Change & Environment, told Pensions Expert that the scheme was “way behind” in taking the steps needed to combat the climate emergency.
“For a pension fund not to be appreciative of issues around climate seems to me to be a dereliction,” he said. “We’ve got a real problem coming with the climate. For us to be blind to that and just look at balance sheets as we have been over the past few years is inappropriate, and something anyone with common sense will understand is not the right thing to do.”
“Universities need to be held up as being places where we’re thinking about the future,” he said. “Universities need to demonstrate strong leadership.”
In reply to Mr Siegert's comments, a spokesperson at USS said the pension scheme takes "climate change very seriously and we do not believe we are 'way behind' other pension funds."
MPs’ scheme under fire for dragging feet on climate change
The pension scheme for MPs is not doing enough to combat the risks posed by climate change, according to a divestment campaign backed by 360 current and former parliamentarians.
"Indeed we believe we are more developed in our thinking and our actions than most UK pension funds," the spokesperson said, giving as an example of a detailed scheme-wide scenario analysis programme and stress testing recently concluded, which looked at the impact of global warming based on different temperature increases on the USS portfolio.
The spokesperson explained that when making investment decisions, USS Investment Management looks at mainstream factors, such as balance sheets, but also considers the risk of stranded assets and other factors "that might come about as a result of changing consumer preferences or as a result of a tightening of regulation or an increase in taxation".
However, the spokesperson added: "The trustee can only take non-financial factors into account where they do not pose a risk of significant financial detriment on an investment and it has good reason to believe that the scheme’s members share each other’s views on that non-financial factor."
