Following the dissolution of parliament on 30 May 2024, the Economic Activities of Public Bodies (Overseas Matters) Bill – also known as the EAPB (OM) Bill – has ‘fallen’ and would have to be started again from scratch by a new government. The information below relates to the fallen bill and we will update this page further once the intentions of a new government become clear.
This note focuses only on LGPS investment decisions and what the Bill could mean for LGPS funds.
The Bill could have significant implications for public authorities that are also LGPS scheme managers. The Bill covers both procurement and investment decisions of public authorities. Any LGPS investment decisions made by those public authorities will therefore need to be made taking the Bill into consideration.
The Bill:
The Bill is designed to prevent public authorities making decisions or statements of intent about investment which results from political or moral disapproval of the actions of a foreign state which has an overseas impact.
The stated purpose of the Bill is to catch both open participation in boycotts or divestment campaigns, and more subtle ways of singling out countries or territories that could produce similar results. For example, expressing support for engaging in boycotts and divestment campaigns.
The Bill will not prevent public authorities from complying with formal UK Government legal sanctions, embargoes and restrictions.
The Bill will prohibit a public authority, when making an investment decision, having regard to a territorial consideration in a way that would cause a reasonable observer to conclude that the decision was influenced by moral or political disapproval of a country or territory’s foreign state conduct.
It seeks to do this in the wording of Section 1 of the Bill:
(2) The decision-maker must not have regard to a territorial consideration in a way that would cause a reasonable observer of the decision-making process to conclude that the decision was influenced by political or moral disapproval of foreign state conduct.
The Bill will also prohibit public authorities having any regard to a third-party’s moral or political disapproval of a country or territory’s foreign state conduct if that third party is trying to persuade the decision maker to act. This applies even when the decision is not influenced by the authority’s own political or moral disapproval of foreign state conduct.
As also set out in Section 1 of the Bill:
(7) The disapproval referred to in subsection (2) is disapproval on the part of—
(a) the decision-maker, or
(b) any person seeking to persuade the decision-maker to act in a certain way;
and those references to the decision-maker include, in a case where the decision-maker is not an individual, the individuals who in fact make the decision for the decision-maker.
The public authority will also be prohibited from publishing a statement indicating that they would have made such a decision if it were lawful to do so. It is worth noting that the prohibition on statements will apply to the authority, not to individuals - for example, an individual councillor will be able to express support for a boycott without fear of personal liability under the legislation.
This is set out in Section 4 of the Bill:
(1) A person who is subject to section 1 must not publish a statement indicating (in whatever terms)— (a) that the person intends to act in a way that would contravene section 1, or (b) that the person would intend to act in such a way were it lawful to do so.
Yes, Schedule 2 to the Bill lists those considerations which may be taken into account when making an investment decision without breaching the prohibitions. These exemptions are:
At first glance these exemptions may appear pretty broad and/or straightforward but on closer reading, not so much, as they are in the main reliant on the action of the foreign state being illegal in the UK or in some exemptions anywhere else in the world.
For example, the environmental misconduct exemption in Schedule 2 paragraph 10 includes conduct which:
(3)(b) ..caused, or has the potential to cause, significant harm to the environment, including the life and health of plants and animals, so far so wide.
However, the exemption only applies where such conduct is also:
(3)(a) ..an offence under the law of the United Kingdom or another country or territory.
Therefore, an investment decision based solely on considerations of actions which have a significant environmental impact, but is not an offence in the UK or elsewhere in the world, would be caught by the prohibitions of the Bill.
Similarly the labour-related misconduct exemption only applies to consideration of actions which would be an offence or result in a misconduct order in the UK.
The Bill provides for two routes of enforcement - firstly through legal proceedings and secondly via an enforcement authority.
Legal proceedings may take the form of a Judicial Review, where appropriate, or by application to the High Court. The High Court may permit an application by a person it considers has ‘sufficient interest’. It may, if satisfied that the legislation has been or is likely to be contravened, make any order that the court thinks appropriate by way of relief and/or any order appropriate to preventing such a contravention.
TPR will be the enforcement authority in relation to public authorities which are LGPS scheme managers and may make use of existing enforcement powers in pensions legislation. This includes:
Given the resource demands and expertise required for TPR to enforce the Bill together with the fact that very few - if any - LGPS authorities actually make decisions which would contravene the provisions of the Bill, it is not anticipated that the major impact on LGPS authorities would come from the direction of TPR.
It is far more likely that third parties with a wide variety of political and moral agendas will seek to commence legal proceedings against a fund in respect of an investment decision, to either take an action they disagree with or not to take an action they are in favour of.
For example, a number of pressure groups may be pushing for an LGPS fund to either divest from or retain its holdings in companies associated with and/or invested in the state of Israel in the light of its actions in Gaza.
The LGPS Fund could decide, rightly based on the financial and practical exemption in Schedule 2 paragraph 4 of the Bill:
Section 1 does not prevent regard to a consideration so far as the decision-maker reasonably considers it relevant to the financial value .... of—
(a) the ... asset in question
That in its view the actions either:
However, there may have been statements made in the past by members of the authority and/or the pension committee expressing their political or moral view of those same actions. This could lead a ‘reasonable observer’ to believe that the decision was made on those grounds not on financial considerations, thereby opening the door to a potential legal challenge.
Should such a challenge be successful in reaching court then, regardless of the outcome, the time and resources required to defend a fund’s position could be significant and may also result in adverse publicity for the authority.
While it is not anticipated that many, if any funds would be found in breach of the provisions of the Bill, the risk of costly and time-consuming legal actions will need to be carefully considered.
It may, therefore, be prudent for funds to review their governance arrangements in respect of investment decisions to mitigate the possibility for, and impact of, such legal proceedings.
For example:
BW is happy to assist Funds in such reviews, so please contact us if you would find this helpful: jeff.houston@barnett-waddingham.co.uk or publicsector@barnett-waddingham.co.uk
Further information, including a copy of the latest version of the Bill and its progress through parliament, can be found here.
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