When nest eggs go bad: Council pension funds urged to take £2bn out of firms accused over human rights, the arms trade and global warming

THE pension funds of Scotland’s public service workers have invested almost £2bn into firms accused over the arms trade, human rights abuses and polluting the planet, we can reveal.

Hundreds of millions of pounds have been invested in arms firms while £1.8bn has been put into fossil fuels blamed for global warming on behalf of staff working in councils, charities, universities and other organisations.

Critics yesterday urged fund managers to scrutinise where their money was going while financial advisers said people should protest if they are unhappy with specific investments.

Companies benefiting include US arms giant Raytheon which has been linked to alleged war crimes in Yemen where the population is suffering a humanitarian catastrophe.

We can also reveal the two largest funds have investments in companies allegedly blacklisted by the United Nations for business practices in Israeli settlements in the West Bank and East Jerusalem.

Critics argue the funds should exclude controversial companies from their portfolios and abide by ethical principles, while councils say they are legally bound to get the best returns for investors.

Around £420 million is invested in arms companies by 11 pension funds.

Andrew Smith, of Campaign Against Arms Trade, said local authorities were meant to work for the social good and “that should be reflected in the investments they make and the money they spend”.

“By investing public money in companies that have profited from atrocities, these councils are enabling them to continue ignoring the human rights abuses taking place in the occupied territories,” said Mr Smith.

Lothian Pension Fund and Strathclyde Pension Fund, the second largest in the UK, together have investments worth £341m in the arms industry.

They have £11.6m invested jointly in Raytheon, which has a factory in Glenrothes, Fife, making laser-guided systems for Paveway IV smart bombs used in Yemen.

The bombs are sold to Saudi Arabia which is leading a coalition of Arab nations, backed by the UK, which is fighting Houthi rebels in Yemen.

The war has left more than 10,000 people dead including thousands of civilians, hundreds of whom died in coalition air strikes.

Other arms firms backed by pension funds include Northrop Grumman which trains the Saudi military, and Lockheed Martin which sells arms to Bahrain and Egypt, regimes accused of gross human rights abuses.

The Falkirk Pension Fund has invested £5m in BAE Systems and £4.5m in Qinetiq, a defence specialist with a facility at Kyle of Lochalsh.

Lothian Pension Fund and Strathclyde Pension Fund also invest in companies operating in the West Bank and East Jerusalem where Israel has built settlements.

Last month the UN sent letters to 150 firms warning they would be added to a database of companies doing business in these settlements. The UN’s blacklist details firms acting in violation of “internal law and UN decisions” and Israeli media named 25 of them including HPE, RE/MAX and Bank Hapoalim.

Strathclyde Pension Fund invests in HP and RE/MAX indirectly while Lothian Pension Fund invests in Bank Hapoalim.

Sofiah MacLeod, Scottish Palestine Solidarity Campaign chair, welcomed the UN’s move to “bring some accountability to corporations that facilitate and profit from war crimes and human rights abuses”.

Investment in fossil fuels has also been condemned. Friends of the Earth Scotland revealed recently that fund managers invested £1.8 billion in industries blamed for climate change.

Ric Lander, of Friends of the Earth Scotland, said councils were “ignoring the realities of climate change” with investments that “fly in the face of Scotland’s wider efforts to phase out fossil fuel cars and ban fracking”.

According to Lothian Pension Fund’s annual report, it had 75,913 members as of March 31, 2017. It is not just council employees who are members and other participating employers include Audit Scotland and Napier University.Strathclyde Pension Fund had 222,860 members and its investment assets were worth £19.7bn. The SPF’s 183 participating employers included Creative Scotland, Glasgow School of Art and Glasgow Film Theatre.

The funds have defended their investments and argued divestment could be ineffective.

Lothian Pension Fund said it takes its responsibilities as a shareholder seriously and that it has a duty in law to “invest for the best returns to ensure pensions are paid when due”.

A spokesperson added: “We believe that engagement to alter a company’s long-term behaviour is more productive than a policy of divestment, which results in a loss of influence.”

Strathclyde Pension Fund said it was a signatory to the Principles for Responsible Investment and had appointed independent monitors to ensure investment managers adhere to guidelines.

A spokesperson added: “It (the fund) takes its social responsibilities seriously and is recognised as a fund that is showing leadership both nationally and internationally in actively engaging with the companies in which it invests; to challenge them to address risks and improve performance.”

Fergus Moffat, head of public policy at UK Sustainable Investment and Finance Association, said: “Members concerned about controversial investments should write to the people involved in the running of their scheme.”

RE/MAX and Bank Hapoalim did not reply to our request for a comment. HPE said it was “strongly committed to socially responsible business practices and has been throughout its history”.

A spokesperson added: “Our work in Israel is consistent with our values and standards.”