UK Lawyers for Israel (UKLFI) has warned the Wandsworth and Richmond Joint Pensions Committee, ahead of its meeting on 8 June, that a report on the impact of potential investment exclusions is based on incorrect assumptions.
In a letter to the Committee’s newly appointed Chair, Councillor Melanie Hampton MBE, UKLFI has challenged conclusions in a report prepared by investment consultants, Mercer, regarding the impact of exclusions put forward by the London Collective Investment Vehicle (London CIV).
London CIV manages investments of the pooled pension funds of mainly London Councils. It has put forward three possible “Pillars” for exclusion of companies on “responsible investment” grounds.
Pillar 3 comprises the exclusions in Pillars 1 and 2 plus companies engaged in weapons and companies identified on the “database” produced by the Office of the UN’s High Commissioner for Human Rights (OHCHR) of companies carrying certain activities in the West Bank.
UN Database Misrepresented
UKLFI’s letter points out that inclusion in the OHCHR “database” does not constitute any legal or other finding that a company has violated human rights.
The OHCHR has itself stated that the list “does not purport to constitute a judicial or quasi-judicial process of any kind, nor does it provide any legal characterization of the listed activities or business enterprises’ involvement therein.”
Rather, the database identifies companies alleged to be involved in certain categories of activity in the West Bank which the UN Human Rights Council (UNHRC) thought might violate human rights. These categories include the provision of transport services, utilities, and the use of land and water.
UKLFI observes that these cover activities that do not necessarily involve any human rights violations, such as the provision of sanitary services for Palestinian staff gainfully employed in these businesses.
Legal Implications
The letter warns that singling out companies operating in the West Bank is incompatible with legal and regulatory requirements to apply similar criteria in relation to businesses operating other territories, such as Western Sahara and Northern Cyprus, where the occupying powers (Morocco and Turkey) have transferred large numbers of their own populations.
UKLFI notes that many major multinational companies operate in these territories and would also have to be excluded from investment if the companies on the OHCHR list are excluded. This would be likely to result in a much greater impact than foreseen by Mercer.
UKLFI adds that the OHCHR database may expand over time, increasing the number of excluded companies.
Questions Raised Over Defence Sector Exclusions
UKLFI further questions Mercer’s conclusion that excluding conventional weapons manufacturers would have little effect on investment returns.
UKLFI points to the strong long-term performance of the aerospace and defence sector, noting that the MSCI World Aerospace and Defense Index has significantly outperformed the broader MSCI World Index over the past decade.
The letter invites the Committee to probe this conclusion in Mercer’s report.
Concerns About Member Consultation
The letter additionally raises some concerns about a proposed survey of members of the Pension Fund intended to gauge views on responsible investment.
Members are asked to choose between several answers provided for each question. UKLFI argues that in a question about avoiding investment in companies which “organisations such as the United Nations have identified as being linked to human rights violations” the possible answers provided to consultees are unbalanced. In particular, the answer “No, the Pension Fund’s investment decisions should be based solely on financial considerations” is not offered. As a result, consultees are led towards a particular point of view and may be prevented from giving the view they would wish to express.
UKLFI also criticises vagueness and ambiguities in this and some of the other questions.
The organisation adds that the survey should better explain the cumulative impact of lower investment returns over time and the consequences of lower returns, namely higher contributions by the Councils, resulting higher Council taxes and/or reduced Council services.
Jonathan Turner, Chief Executive of UK Lawyers for Israel, commented:
“The report before the Committee fails to take into account the risk that the exclusion in Pillar 3 would have to be applied to companies operating in Western Sahara and Northern Cyprus. It also appears that London CIV has been misinformed regarding the OHCHR database and may have repeated that misinformation to Councils. It is particularly unfortunate that London CIV has not set out its plans for public scrutiny which might have enabled incorrect information to be corrected earlier. The Committee will need to be very careful to ensure that it relies on accurate information and complies fully with its fiduciary duties.”