The UK Government has reaffirmed that its position on divestment by Local Government Pension Schemes (LGPS) and fiduciary duties remains unchanged from the existing guidance adopted in 2016 and amended in 2017.
This follows concerns raised by Baroness Altmann in the House of Lords about draft investment guidance circulated to administering authorities in December 2025. Baroness Taylor, Under Secretary of State in the Ministry of Housing, Communities and Local Government (MHCLG), emphasised that the government wished the guidance to be crystal-clear and said that she was willing to meet Baroness Altmann.
Baroness Altmann had asked: “what changes there will be in the new local government pension fund guidance in relation to (1) boycott or divestment activity, and (2) interaction with funds’ fiduciary duties”.
Baroness Taylor replied: “the Government’s position on these matters remains unchanged from the 2016 guidance, which was amended in 2017. Decisions on boycotts and divestment are matters of UK foreign policy and are for central government, not local authorities. It is not appropriate for local authorities to adopt investment policies that differ from UK government sanctions or foreign policy. Funds’ fiduciary duties are unchanged: they remain responsible for setting high-level investment strategies, the key driver of investment returns.”
Baroness Altmann continued: “will the Government consider changing the potentially contradictory wording in the draft guidance … on taking non-financial factors into account in their responsible investment, in case it could be exploited to drive divestment? Will she meet me and other people interested in this matter?”
Baroness Taylor responded, with characteristic courtesy, “I listened very carefully to the noble Baroness’s contributions on the pensions Bill. If she came to meet me, I would treat it as a teach-in on pensions, so I have no problems with having a meeting. The Government are finalising the investment strategy statement guidance in the light of comments received on the draft …. We are carefully considering all feedback received before publishing the final guidance. We absolutely do not want this to be contradictory. We want to make sure that the guidance is crystal-clear because our position remains unchanged: it is not appropriate for local authorities to adopt investment policies that go beyond, or differ from, UK government sanctions or foreign policy positions. We want to make that clear and we will endeavour to do so in the guidance.”
Lord Pannick asked: “can the Minister confirm that any new guidance in this context will approve the principles stated by the Law Commission in 2014 and upheld by the Supreme Court in 2020? Those principles assert that local government investment decisions ‘must not involve a risk of significant financial detriment to the fund’”.
Baroness Taylor said that she would respond in writing regarding the Law Commission principles.
Lord Massey noted that the draft guidance “includes a paragraph 5.6, which allows schemes, in effect, to accept a lower rate of return for ‘ESG-related goals’”. He asked whether the Minister agreed “that there is a real danger that this could be used for political purposes … as a mechanism to boycott and divest to the detriment of pensioners, despite the Government’s best intentions in this regard?”
Baroness Taylor hoped she had “made it very clear … that the Government’s position is crystal-clear on this: that the issues around sanctions are for the UK Government to determine, and pension funds should not deviate from that. However, it is important that, outside of that, we give as wide a remit as possible to local authorities to work with their pension funds to make the decisions that are right for their local areas.”
These interventions come after UK Lawyers for Israel (UKLFI) submitted detailed representations to Ministers warning that aspects of the draft guidance could unintentionally allow and encourage politically motivated divestment targeting Israel and companies connected with Israel.
In its letter to MHCLG, the Treasury and the Department for Work and Pensions, UKLFI argued that the draft wording risked undermining established fiduciary principles governing LGPS investments. The letter warned that ambiguous references to the “impact” of investments could be interpreted by campaign groups as permitting non-financial divestment policies beyond existing legal limits.
UKLFI also highlighted concerns that the draft guidance appeared to weaken the long-established two-limb test derived from Law Commission guidance, under which non-financial considerations may only be taken into account where:
- there is no risk of significant financial detriment to the fund; and
- trustees have good reason to believe scheme members support the decision.
The organisation proposed amendments to restore clarity, including explicit wording that administering authorities “may only take non-financial considerations into account if two tests are met”, referring to the above criteria.
The UKLFI submission further warned that politically motivated exclusions could expose LGPS funds to significant financial losses by excluding high-performing sectors and companies, including defence, AI and technology firms. The letter cited analysis suggesting that long-term exclusion of companies targeted by BDS campaigns could materially reduce investment returns.
In addition, UKLFI argued that anti-Israel divestment campaigns contribute to hostility towards British Jews and damage social cohesion.
Jonathan Turner, Chief Executive of UKLFI, said: “We welcome the government’s confirmation that its position regarding divestment remains unchanged from the existing guidance and that they wish the new guidance to be ‘crystal-clear’ in this regard.
This intention is impeccable, but we fear that it is not fully reflected in the draft of the new guidance, which could be misinterpreted by activists and councillors as allowing and encouraging divestment that does not comply with the Law Commission’s tests.
We hope Ministers will read our correspondence and be assisted by Baroness Altmann’s ‘teach-in’, as the potential consequences of the ambiguities and contradictions in the draft guidance could be very damaging indeed.”