Agenda item

This paper proposes an addendum to the Pension Fund’s Responsible Investment statement to set out the Fund’s approach to conflict linked investments, clarify expectations for investment managers, and establish a transparent framework for decision-making.

The Chair invited speakers from the Hammersmith and Fulham Unison branch to speak to the Committee about concerns they had regarding certain investments in the Hammersmith and Fulham Pension Fund.

Rana Aria (Unison Branch Chair) spoke to the committee and thanked them for the opportunity to speak at the meeting. A call for divestment had been raised the previous year. The response received at the time was disappointing, particularly as the justification given was financial return, which was considered an unacceptable reason. While there was not necessarily agreement with the overall investment figure, there were specific concerns that required attention, including investment in Elbit Systems and allegations of genocide within the Middle East conflict zone under international law. It was acknowledged that the Pension Fund Committee had a fiduciary duty to its beneficiaries, but also a responsibility to comply with international law and uphold human rights. UNISON’s position was that profiting from genocide was unacceptable. Reference was made to previous divestments, including from climate-related investments, demonstrating precedent.

The Palestine Solidarity Campaign had written to all Councils requesting divestment. Appreciation was expressed for the fact that LCIV would be taking over management from April 2026. There was a desire to work more closely with the Council, and concern was expressed that the committee had not fully investigated the matter. Councillor Melton had issued an apology and committed to reviewing the investment policy to include considerations of international law.

Simon Norbury (Unison Steward) raised concerns that the pension fund to which members had contributed was being used to support unethical investments. Specific reference was made to the use of armed drones and white phosphorus, deployed against children in Gaza. He expressed shame at having unknowingly contributed to such a pension scheme with these investments. A question was raised regarding the ethical scrutiny applied to housing schemes, and why similar ethical considerations had not been applied to investments involving military technologies. The steward called for divestment, citing the International Criminal Court’s position that there is a duty to divest under international law. It was noted with surprise that such a discussion was still necessary, given the seriousness of the concerns raised.

Phil Triggs confirmed that the investment strategy had been revisited, and a revised version was included in the agenda. As part of the update, consideration had been given to enhancing the section on conflict and human rights. The revised approach aimed to disclose any material conflicts where there was exposure to ongoing events.

A new framework had been introduced, categorising investments into three tiers:

• Tier 1 Green: No grounds for divestment
• Tier 2 Amber: Requires further debate
• Tier 3 Red: Grounds for divestment

Under section 4.6 of the report, one investment had been classified as Tier 3 (red), amounting to £1,500 out of a total fund value of £1.5 billion. It was noted that this investment formed part of a global tracker index, and as such, the fund could not dictate the terms of the stock’s inclusion. The only options available were to divest from the entire index or remain fully invested. In relation to BAE Systems, it was confirmed that there was no direct exposure.

The Chair outlined a three-stage approach to the discussion: a review of the investment portfolio, consideration of the strategy, and the issue of divestment.

Councillor Adam Peter Lang thanked UNISON for their contribution and reflected on the importance of rights and ethics in a rapidly changing geopolitical landscape. He noted that the matter had been discussed in November 2024 and that all members present were committed to upholding responsible investment standards. He acknowledged that discussions had taken place and that the Chair had met with various stakeholders. He welcomed the introduction of the three-tier classification framework as a constructive way forward and stressed the importance of keeping all matters under review. He expressed his concern at recent news reports but emphasised that this did not diminish the committee’s responsibility to residents and officers. He also noted discrepancies between the figures presented by Unison and those he had seen.

Councillor Lydia Paynter raised concerns regarding Elbit Systems and asked how other London Councils, which were part of LCIV, had committed to divestment. She queried how the committee could engage with LCIV to apply the new responsible investment framework. The Chair responded that from 1^st April 2026, investment pooling would commence, reducing the Council’s direct influence as one of 32 London Boroughs within the pool. He emphasised the importance of reflecting the values of the local community and stated that the Council should take the opportunity, while it retained more control, to set a precedent and take meaningful action. Phil Triggs confirmed that the handover to LCIV was scheduled for 1 April 2026. He reported that LCIV had been engaged and was under considerable pressure from stakeholders regarding the investment in question. He expressed hope that LCIV would approve an investment policy that clearly set out expectations and confirmed that engagement with index compilers was ongoing to assess the inclusion of specific firms. He stated that the Council would continue to engage with LCIV.

Sam Gervaise-Jones viewed the situation as an opportunity to shape future policy and prompt LCIV to adopt a more proactive approach. He stressed the importance of having a framework in place to address emerging issues.

Peter Parkin (Co-Optee) asked about the complications that might arise between now and the LCIV takeover, and how the Council could influence divestment within the available timeframe. Phil Triggs explained that the main challenge was identifying a suitable portfolio with no links to the stocks in question. He noted that switching to a bespoke portfolio and appointing a dedicated segregated manager would be costly. He added that while some adjustments could be made within six months, divesting from specific parts of investments would require closing the investment fully.

The Chair expressed satisfaction with the traffic light classification system.

Councillor Rowan Ree (Cabinet Member for Finance and Reform) commented that while everyone was appalled by the current situation, the £54 million figure included companies such as Airbnb, Sony and McDonald’s, which were not directly involved in the conflict. He asserted that no decision made by the committee had contributed to conflict. He argued that the defence sector should not be excluded on ethical grounds, noting that governments across Europe were investing in defence equipment in response to the war in Ukraine. He cited a European Union report recommending investment in the defence sector and cautioned against any action that might hinder defence capabilities.

The Chair explained that the updated policy aimed to distinguish between responsible investments in the defence sector and those of concern. He acknowledged that divestment mechanisms were complex and required careful consideration. He outlined the choice between maintaining the current investment approach or establishing a bespoke managed fund, which would be both costly and time-intensive. However, he noted that creating such a fund could set a precedent and lead to future committees divesting from stocks that the current committee felt were ethical. He expressed support for the committee requesting officers to revisit the issue, explore lessons learned, engage with LCIV, and consider alternative approaches.

Councillor Lydia Paynter cautioned against industry-wide divestment, noting the serious challenges it posed. She highlighted the risk of conflating defence with conflict and warned against setting a precedent that could lead to divestment from entire industries. She cited the pharmaceutical sector as an example, where companies had been criticised for unethical practices but also produced life-saving drugs. She drew a parallel with Ukraine’s need for UK defence support and urged the committee to focus specifically on conflict-related investments rather than the broader defence sector.

The Chair concluded by stating that the strategy should be about setting the correct precedent.

RESOLVED:

1. That the Pension Fund Committee agreed to an addendum to the Pension Fund’s Responsible Investment statement to set out the Fund’s approach to conflict linked investments, clarify expectations for investment managers, and establish a transparent framework for decision-making, as highlighted in Appendix 1.
2. That officers looked at suitable options for divesting, without setting an unwanted precedent, for the companies that were given a red rating in the three-tier system.