UK local government pension schemes have criticized government plans to restrict their ability to divest from specific assets or put in place boycotts.
“This government policy would seriously impinge local government efforts to cut carbon and fight climate change.”The UK government intends to issue guidance later this year restricting the ability of individual funds to “pursue municipal boycotts, divestments and sanctions” on top of official policy.
The move, if successful, could damage the ability of some funds’ long-term approach, according to the Environment Agency Pension Fund [EAPF].
“We express considerable caution that the guidance should not be politically motivated and should be signed off by the local government pension schemes advisory board, advised by the investment sub-group whose role is to consider [environmental, social, and governance] risk areas,” the pension wrote in its response to a wider consultation on changes to investment rules.
“A robust fiduciary framework… ensures that funds make decisions in the long-term best interests of their members,” the EAPF added, stating that government guidance should take into account individual funds’ policies on issues such as climate change.
Earlier this week, a group of elected representatives for London stated their objection to the government’s plans and called for Mayor Boris Johnson to step in.
“This government policy would seriously impinge local government efforts to cut carbon and fight climate change,” said London Assembly member Fiona Twycross. “It is retrograde, ill thought through, and flies in the face of the government’s supposed own localism agenda.”
“It is perfectly possible to securely invest public money without having to turn a blind eye to the horrific human rights abuses that occur in countries such as Saudi Arabia,” added fellow Assembly member Stephen Knight.
Greg Clark, Secretary of State for Department for Communities and Local Government (DCLG), declared last year that it was “inappropriate” for individual pensions to boycott particular countries and the UK defense industry.
“Divisive policies undermine good community relations, and harm the economic security of families by pushing up council tax,” Clark claimed. “We need to challenge and prevent the politics of division.”
Proposing the new guidance, the DCLG said that pension funds’ “predominant concern should be the pursuit of a financial return on their investments, including over the longer term,” and that “they should not pursue policies which run contrary to UK foreign policy.”
However, in June 2014, the Law Commission—the body in charge of reviewing UK laws—stated that pension trustees were within their rights to “make investment decisions that are based on non-financial factors,” provided that there were no significant financial drawbacks to the decision.
The consultation period for the investment regulation changes closed last month, and the government is currently formulating its response.
Related: Divestment Doesn’t Work, Says NZ Super & The World’s Largest SWF Bans a Stock. Does It Matter?