ESG news
“NOT PUBLIC MONEY” – SUPREME COURT BACKS LGPS INVESTMENT INDEPENDENCE
The trustees of local authority pension schemes have gained more control over how their assets are invested after the Supreme Court ruled that guidance set by the government in 2016 is unlawful. The judgement was on a guidance which ef- fectiviely forbad local government pension schemes from boy- cotting counties and defence companies if it went against gov- ernment policy.
The guidance stated that while pension schemes for govern- ment workers could divest from harmful products, such as tobacco, they should not pursue policies that are contrary to the UK’s foreign or defence policies. The decision could potentially have far reaching implications for local authority pension pools’ ESG strategies.
The case against the guidance, which was set by the Depart- ment of Housing, Communities & Local Government, was brought by various parties, which included by the Palestine Sol- idarity Campaign (PSC) and local government employee Jac- queline Lewis. The appeal was supported by several other char- ities, including the Quakers, Campaign Against Arms Trade and War on Want. It was also backed by trade unions Unison and GMB.
The plaintiffs argued that the government’s guidance constituted an infringement on democracy and that local gov-
ernment schemes should be able to formulate their ESG poli- cies independently of central government. The Supreme Court ruled against the government by a majority of three to two. In its ruling, it stressed that LGPS’ are not trusts but take on a role as “quasi trustees” of scheme members money. The court also challenged the argument used by the government’s lawyer that local authority pension scheme administrators were part of the “machinery of the state” and that pension scheme contributions were “public money” and “ultimately funded by the taxpayer”. The judges said that since scheme contributions were deducted from employees’ income, they should be considered part of their income and not public money. At the same time, the rul- ing acknowledged that as a funded scheme, there was an ele- ment of public interest in the management of pension scheme assets. Ultimately, the judges decided that the secretary of state had the authority to direct how LGPS administrators made their investment decisions, but that government could not impose what investments they would make. At the time of writing, no local authority pension scheme or pool has announced if they will boycott a country or company following the ruling. In line with 2016’s Local Government Pension Scheme Management Regulations, authorities must ensure that such a decision was in the best interest of its members and that there was “good rea- son to believe scheme members shared the concern”. Several pools have been approached by portfolio institutional following the ruling, but have been unable to comment.
BARCLAYS’ INVESTORS REJECT CLIMATE RESOLUTION IN FAVOUR OF BOARD’S PLAN
Barclays shareholders have voted against a climate change res- olution proposed by a group of institutional investors and instead
backed a watered-down proposal by the bank’s
directors. At the banking giant’s AGM, 76% of votes were cast against a proposal by a group headed by campaigner ShareAction to stop funding fossil fuel companies and utility firms which are not aligned with the goals set by the Paris Accord. This is the first time a European bank has faced a shareholder resolution on climate change. Barclays has come under fire from investors for it being the world’s sixth largest lender to fossil fuel companies. The bank has lent more than £100bn to the fossil fuel industry since the Paris Accord was first signed four years ago, accord- ing to the Rainforest Action Network.
In an indication that times are changing, the shareholder reso- lution had significant institutional backing, being supported by LGPS Central, Brunel Pensions Partnership, the Church of
England, the Jesuits in Britain, M&G Investments, EOS at Fed- erated Hermes, Jupiter Asset Management, Amundi and Nest. Those rejecting the resolution included BlackRock, which owns 2.3% of the bank, making it one of its largest sharehold- ers. ShareAction suggests that this indicates a potential conflict of interest as BlackRock advises the lender on its climate change strategy. While investors rejected the shareholder resolution, they sup- ported a climate change proposal that does not phase out lend- ing to fossil fuel companies but instead commits to a net-zero carbon target by 2050.
This may not be the end of the story for the ShareAction-led resolution. Because more than 20% of shareholders voted for its plan, Barclays has to respond to it. Evidence suggest that the bank’s shareholders are in tune with other investors on climate change. Shareholders tend to sup- port a general commitment to a net-zero emissions target by 2050 but are less likely to back reducing emissions in the short term. One example came at BP’s AGM last year, where inves- tors voted for enhanced carbon disclosures but against a pro- posal on setting emission reduction targets.
Issue 93 | May 2020 | portfolio institutional | 33
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