UK Lawyers for Israel (UKLFI) has written to Waltham Forest Council’s Pensions Committee, warning it that a blanket policy of divestment from all companies involved in the arms trade would be illegal.

The Committee agreed on 22 July 2024 to seek to update the Council’s ethical policy to divest from all companies involved in the arms trade.  This followed a presentation by Waltham Forest for a Free Palestine (WF4FP), an anti-Israel political campaign group, which sought divestment from companies operating in Israel.

The agenda for the Committee’s meeting on 17 September 2024 includes a discussion of progress in implementing the decision of 22 July.

UKLFI’s letter warns the Committee that a blanket policy of divestment from all companies involved in the arms trade would be contrary to the fiduciary obligations of Members of the Pension Committee to beneficiaries and other stakeholders of the Local Government Pension Scheme (“LGPS”).

However, a policy of divestment from companies making particularly problematic weapons could be compliant with applicable legal obligations if there is a consensus that these weapons should not be used in any circumstances and the divestment would not involve a risk of significant financial detriment to the fund.

UKLFI’s letter reminded Waltham Forest Council of the fiduciary duties of pension fund trustees and managers to maximise the return on investments consistently with prudence. The 2014 Law Commission Report, which has been endorsed by the UK Supreme Court on this issue, states:

“In general, non-financial factors may only be taken into account if two tests are met:

(1) trustees should have good reason to think that scheme members would share the concern; and

(2) the decision should not involve a risk of significant financial detriment to the fund”.

The Report adds that

“in cases where the issue is clearly controversial, the courts may well expect trustees to focus on financial factors rather than becoming embroiled in disagreements between the members.”

Jonathan Turner, UKLFI’s Chief Executive, commented:

“This is an extremely politicised and controversial political topic. It is hard to see how the sacrifice of financial returns can be justified by the pursuit of a controversial policy advocated by one particular political group, opposed by others, and not immediately related in any way to the basic purposes of Waltham Forest Council and its Pension Committee.”