UK Government is trying to stop divestment in England and Wales

The Chancellor, George Osborne, is leading local government pension reforms. Image by HM Treasury, Creative Commons.

You may have heard in the news that the UK Government is trying to clamp down on campaigns to divest local councils from fossil fuels and other dubious investments.

The UK Government intends to stop local councils from passing policy which could harm the UK’s trade interests.  This would be effected by issuing new guidance to local authorities which prohibits them passing boycotts and changing the regulations for local government pensions.

This looks a lot like a calculated effort to block action on the arms trade, fossil fuels, Palestine and other causes, as well as an attack on local democracy.

Whatever new guidance is issued to councils it will not apply in Scotland. This because Local Government is not reserved to Westminster and the local government pension scheme (LGPS) is regulated separately in Scotland.  So the UK Government cannot stop Scottish councils divesting in this way.

Currently pension divestment is legal if it can be shown to be supported by fund members and to have no “significant” impact on the financial health of funds. The changes the UK Government is proposing would make passing divestment policies on ethical grounds in England & Wales much more difficult. Recent successes, like divestment decisions in Haringey and South Yorkshire could be drawn into question.

This is of course very troubling, and Friends of the Earth Scotland is closely supporting our colleagues in the rest of the UK to help oppose these changes.

Until 19 February 2016 you can sign a petition again the changes here.

We want the Scottish Government to move in the opposite direction by ensuring more power over investments is given to pension fund members.  To support our campaign why not write to your MSP asking them to support divestment?

Find out more about this issue by reading Fossil Free UK’s online guide.

About Ric Lander

Ric Lander is Finance Campaigner at Friends of the Earth Scotland supporting their work to divest from fossil fuels and invest sustainably.
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2 Responses to UK Government is trying to stop divestment in England and Wales

  1. Ric Lander, FoE Scotland says:

    Some industry groups are now coming out against these changes:

    Government ‘may have gone too far’ in pension regulation changes

    Proposed pensions regulations in the public sector have been broadly welcomed by the body responsible for public sector pensions’ schemes, but the Pensions and Lifetime Savings Association (PLSA) has expressed concern that the government is going too far in terms of deregulation.

    In a letter to the DCLG, written as the consultation on proposals to revoke and replace the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 with new regulations closed on Friday, Helen Forrest Hall, defined benefit policy lead at PLSA, said the association welcomes the new regulations, but is concerned that they include no actual reference to the fiduciary duty of investments to pay members benefits.

    She also says that the regulations could give too much power to the government to direct how funds invest without regard for the cost to employers and members, and that the six month timescale the regulations allow for funds to publish an Investment Strategy Statement could be challenging.

    The letter also says that the new guidance that funds’ policies on environmental, social and government factors should reflect UK government foreign policy, which critics say could limit the power of pensions’ funds to divest from investment areas viewed as unethical, seems “unhelpful, unnecessary… and undemocratic”.

  2. Ric Lander says:

    Update: great news this week as the dictat requiring English and Welsh pension funds not to ‘undermine UK foreign policy’ has been deemed unlawful in the High Court. More follows. – Government’s LGPS

    Investment rules thrown out by court

    The government has suffered a major defeat in the High Court after its rules on Local Government Pension Scheme (LGPS) investments were deemed unlawful.

    The investment guidance, issued last September, requires LGPS funds to have policies on environmental, social and governance (ESG) issues but also added they could not pursue policies contrary to central government foreign and defence policy.

    The guidance said “pension policies to pursue boycotts, divestment and sanctions [BDS] against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the government” and funds could not “pursue policies that are contrary to UK foreign policy or UK defence policy”.

    The policy was particularly contentious as LGPS funds and campaigners said this limited their ability to take up ethical investment, particularly BDS action against companies operating in Israeli settlements in Palestine.

    A bid was launched in the courts by the Palestine Solidarity Campaign (PSC) to overturn the regulations via a judicial review, where it argued the government had acted outside of its powers, and it was “lacking in certainty”.

    It also cited Article 18.4 of the EU’s directive on the Activities and Supervision of Institutions for Occupational Pension Provision (IORP), which states “member states shall not subject the investment decisions of an institution… to any kind of prior approval or systematic notification requirements”.

    However, in his judgment, issued today, the judge Sir Ross Cranston only agreed with the first argument, stating the minister for the Department for Communities and Local Government (DCLG) Sajid Javid had “acted for an unauthorised purpose and therefore unlawfully”.

    His reasoning was the “guidance has singled out certain types of non-financial factors, concerned with foreign/defence… and stated that administering authorities cannot base investment decisions upon them. In doing this, I cannot see how the secretary of state has acted for a pensions’ purpose”.

    He stated specifically that this guidance could preclude LGPS funds taking ESG factors into account even if there no “significant risk” of financial detriment or “no good reason” to believe members would object.

    Cranston therefore granted a judicial review, meaning the government may have to rethink its approach to the rules if it wishes them to take effect.

    PSC chair Hugh Lanning welcomed the ruling, and said local councils would be happy to be able to invest funds as they see fit.

    “Today is a victory for Palestine, for local democracy, and for the rule of law,” he said.

    He added: “This ruling upholds the right of local councils and their pension funds to invest ethically without political interference from the government of the day.”

    A spokesperson for DCLG said the government would consider whether to appeal: “It is an important principle that foreign policy matters are for the UK Government to decide. We will consider the judgement and next steps.”

    Unison national officer for capital stewardship Colin Meech also welcomed the judgment, and called on the government to replace the guidance with the IORP directive.

    “It was always preposterous to us that the LGPS funds had to invest in the best interests of UK foreign and defence policy,” he said.

    “We have been telling various governments since 2007 that they must implement the EU IORP directive into the LGPS. The judge did not say that the directive did not apply to the LGPS and therefore we now hope that the current government dismantles the 2016 regulations and replaces it with article 18 of the directive.

    “This will mean that the LGPS funds must invest in the best interests of scheme members, as all other pension schemes in the UK must do. The best interests of scheme members are aligned with all sponsoring employers in seeing that their pensions are delivered in the most efficient manner. For 10 years LGPS scheme members have been denied their statutory rights, this must be rectified.”

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