Council halts divestment plan after review throws up legal risks

Islington Town Hall. Photograph: Islington Citizen

Islington Council has walked back on its plans to ethically divest millions from its pension fund – despite previously predicting there would be no “major” legal obstacles.

Earlier this year, the Town Hall began work on withdrawing the £2.6 million that its pension fund holds in indirect shares of companies listed by the UN as “compliant in human rights abuses”.

Following demands from pro-Palestine campaigners, pensions committee chair Cllr Paul Convery said there was a “strong moral imperative” to divest from 10 firms with ties to criminal activity in the Occupied Palestinian Territories.

Convery said he did not foresee any “major legal block” to the move.

But the council has now suspended any work on divestment in light of further advice and changes to the Local Government Pension Scheme (LGPS).

Local authorities have a legal responsibility or ‘fiduciary duty’ to ensure that pension funds generate enough profit to sustain the benefit for retired workers.

To get around this, the committee was proposing to restructure Islington’s fund by “consolidating the two passive equity pooled funds” into one single, customisable option. It was hoped this would enable it to exclude certain firms from its investments.

Following the most recent meeting on the issue, Cllr Convery said that “additional external legal advice on the proposals” confirmed to the Town Hall  that divestment would open the local authority up to “costly and disruptive” legal action.

He added that the government’s recent decision to pool local authority pension funds into LGPS “megafunds” meant the borough would likely lose its ability to make individual investment decisions.

“In light of those factors, the committee decided not to proceed with further work on divestment at this time, and to keep its position under review,” Cllr Convery said.

The decision has been delayed twice before.

In September, the council announced that it needed to carry out more impact assessments before moving forward with divestment.

Council officers had estimated that pulling the funds on ethical grounds would cost £27,000 a year, alongside a a one-off transition cost of around £539,000.

Convery added that the committee’s decision to combine existing portfolios into a ‘Paris Aligned Fund’, setting investment in line with the goals of the 2015 Paris Agreement, would bring “environmental benefits and reduce exposure to industries such as arms manufacturing and mining”.

For many months, members of the Palestine Solidarity Campaign (PSC) and other groups have demanded the Town Hall divests from companies linked to Israel’s human rights violations in the West Bank and its ongoing war against Hamas in Gaza.

After the pensions committee “expressed desire” to exclude business from its fund in July, Esme Waterfield from the Islington branch of the PSC welcomed the “wonderful commitment”, while noting that the UN’s list of complicit firms was “only a starting point”.

Islington PSC was contacted for comment in light of the council’s most recent decision, but at the time of writing had not responded.

The Citizen understands the PSC is organising a demo outside the Town Hall this coming Thursday, when the council is due to meet in full.

In August, Islington’s neighbouring council Waltham Forest committed to divest from all arms companies — piling pressure on other local authorities.

The same month saw the UK’s biggest private-sector pension fund, University Superannuation Scheme (USS), sell off £80 million in Israeli assets in the face of public campaigning.

Cllr Convery told the Citizen in September that Islington was “committed to ensuring the pension fund achieves maximum growth from its investments, while also abiding by our environmental and societal responsibilities”.