The Universities Superannuation Scheme (USS) will divest from some controversial industries, explaining its decision was a “responsible” decision which would protect members’ financial interests.
The USS has announced today that it will remove its investments from tobacco companies, some weapons manufacturers and thermal coal producers. Its decision was motivated by a desire to move away from “financially unstable” markets, the scheme explained.
USS has assets valued at £75bn, making it the largest private sector pension fund in the UK. The scheme oversees the pension funds of more than 400,000 members, most of whom are university-employed academics.
Simon Pilcher, chief executive of USS Investment Management, said: “These exclusions will balance keeping the financial promises made to hundreds of thousands of members in the higher education sector with investing in a responsible way over the long term.
“The exclusions we have announced today (1 June) will be kept under review and may be added to over time.”
The new exclusions include tobacco manufacturers; thermal coal mining, specifically where this makes up more than 25% of revenues; and any companies with ties to cluster munitions, white phosphorus, or landmines.
The announcement follows a review which concluded that traditional financial models used in the City to predict the long-term returns of certain industries did not sufficiently consider changing political and regulatory attitudes towards controversial industries. The exclusion will apply to all USS pensions – including the defined benefit and defined contribution schemes.
Mr Pilcher said some investments would be easier to rid than others. USS will sell its £190m holdings in tobacco stocks by 2022, but holdings in third-party private equity funds which breached its new rules could take longer.
“As the majority of USS’s assets (around 75%) are invested directly by USS Investment Management, we will have a great deal more control over this process than other pension schemes, and where we work with external managers, we will work diligently with them to implement our conclusions via their products,” Mr Pilcher explained.
Ethics for USS, a group of academics welcomed the announcement.
“The overwhelming majority of USS members will support this decision as they do not want their pension contributions invested in sectors which accelerate climate change, kill people or cause harm,” said Paul Kinnersley, chair of the school of medicine at Cardiff University and a member of Ethics for USS.
“It is high time that USS acknowledged that divestment on ethical grounds by a pension fund is perfectly legal. We will continue to make USS aware of members’ views on the need for further rapid divestment, particularly from carbon intensive industries,” he added.
Ethical investment group ShareAction said the change followed “years of demand” for change by USS scheme members.
ShareAction chief executive Catherine Howarth, said: “After many years of USS closing its ears to members’ views on the scheme’s investments, it seems new leadership at USS is once again listening.
“This will greatly help to restore trust in USS at a time when it is badly damaged.
“There is much further to go with this process, and we hope USS will look now to follow other large UK schemes in establishing a robust new approach to regularly ascertain the views of members on investments held for their benefit, building members’ preferences into the scheme’s stewardship policy as well as taking further, bold steps to halt investment in fossil fuels.”
Jeremy Harris, pensions lawyer at Fieldfisher, said: “While there is generally a drive for all pensions funds to enforce ESG policies, the distinguishing feature of USS on this, as compared with other pension schemes, is USS members’ views. USS members have been particularly vocal on disinvesting from particular investments.”
In February this year, a coalition comprising the University of Bristol, Bristol UCU and Bristol Students’ Union called on USS to divest from fossil fuel companies, however the pension firm does not intend to be a net-zero carbon investor.
David Russell, head of responsible investment for USS, explained why the scheme could not introduce a blanket divest policy in a piece from 2018 on the USS website.
“The trustee’s primary legal duty under trust law, is to invest in the best financial interests of its beneficiaries, with the objective of ensuring there are enough funds available to pay members’ benefits as they fall due.
“In practice, this rules out a blanket divestment policy – screening out particular companies, countries or sectors for non-financial or ethical reasons alone – and, as the largest private pension fund in the UK when measured by assets (31 March 2018: £63.6bn), USS’s size and scale means it is obliged to hold a diverse range of investments.”