During one of our Digital Deli events, Jeff Houston and I virtually met some LGPS clients to share insights on the Boycotts, Divestments and Sanctions Bill.
Inevitably, discussions were also had on the Ukraine crisis and the late amendment to the Public Service Pensions and Judicial Offices Bill (now the 2022 Act). Here is a summary of those discussions.
The Ukraine crisis
Before getting into the details of the Government’s proposed Bill, we discussed the Russia/Ukraine crisis. We were reminded that sanctions introduced by the UK government apply to new activities from 1 March 2022 but that more could be added. Most funds have only a small direct exposure to Russian assets, and where they could not be sold due to closure of markets, currency issues or a lack of ready buyers, funds have already written these assets down to zero. However, this is not expected to have a material impact on funding levels nor contribution rates, with about 0.5% reduction in funding level being the consensus. The bigger issue is how global markets are being affected and the impact of the crisis on higher inflation, with lots of uncertainty still likely.
What is it and what did it do?
The late amendment to the Public Service Pensions and Judicial Offices Bill (now the 2022 Act) by Robert Jenrick was accepted and now forms part of the 2022 Act. It amends the existing power to make guidance or directions in the Public Sector Pensions Scheme Act 2013 to include reference to decisions which according to the Secretary of State are not "proper for the scheme manager to make in light of UK foreign and defence policy".
What do funds need to do?
At the moment nothing has changed as guidance/directions has not been issued as yet and existing relationships and investments are not covered by the amendment. Further, it is expected that SoS will not make any guidance/direction before the proposed Boycotts Divestment and Sanctions Bill which was once again tabled in the latest Queen’s Speech on 10 May 2022.
Any political pressures?
We discussed whether there had been any pressure from elected members to consider investments held and divest but they have other priorities at the moment. There has been some correspondence from UK Lawyers for Israel (UKLFI) requesting funds divest from any companies on the 'red list'. The chair of the Scheme Advisory Board (SAB) responding to UKLFI, and this letter is to be published following the next SAB meeting on 6 June. However, funds should take their own view on the law, the regulations and consider their own policies.
The Boycotts, Divestments and Sanctions Bill
What does it cover?
It is expected the Bill will cover all public bodies and be wide ranging, covering everything related to expenditure, procurement, investment and treasury management. Given the range of employers in the LGPS, this could cause some issues around what is a public body, for example, would colleges be considered a public body? Also, other council departments should also be aware of the potential impact, for example, should EU rules be replaced by UK specific rules in the Procurement Bill (also announced in the Queen’s Speech).
What’s the purpose?
The Bill is intended to ensure that decisions made by a public body are in accordance with UK and foreign policy. By placing the restrictions on the face of the Bill it is also intended to address the issue raised by the Supreme Court that government should not seek to direct the decisions of local authorities in guidance.
The exact wording of the Bill will be very important. If the government gets the wording right, then this may be welcomed by LGPS funds under pressure to make investment decisions on purely political grounds.
However, if the Bill gets the wording wrong, this could get quite messy with some unintended consequences particularly in respect of the potential overlap between prudent ESG decisions and a clash with UK foreign and defence policy.
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