It’s not only the Church of England with a moral dilemma

First the Archbishop of Canterbury was embarrassed by the Church’s Wonga investment, now local authority funds will have to defend their shares in controversial stocks.

Council pension funds have been left exposed to charges of hypocrisy after new data shows they have millions invested in tobacco and alcohol companies.

smoking

The question of whether pension funds trustees – both in the public and private sector – should use ethical discretion is not a new one. But the coalition’s Health and Social Care Act has reignited the debate.

Under the new laws, which took effect in April, local authorities are now responsible for co-ordinating health services in their areas, including anti-smoking campaigns.

One person’s saint is another person’s sinner

However, data taken from Freedom of Information requests seen by Pensions Insight shows the pension funds of many councils are shareholders in companies often described as unethical.

The request asked 101 funds for a breakdown of their investments in a sample of well-known listed companies. Of the 37 that have responded so far, £266m was found to be invested in British American Tobacco, £80m in Imperial Tobacco, £125m in Diageo, £124m in BAE Systems and £13m in Ladbrokes.

In July, Justin Welby, Archbishop of Canterbury and a former oil executive, publicly criticised payday lender Wonga, only to have the Financial Times reveal the Church of England’s own fund invested in a backer of the firm.

“One person’s saint is another person’s sinner”, commented Professor David Blake, a director of the Pensions Institute.

“It’s not obvious how to resolve this, given that trust law requires trustees to act in the best interests of beneficiaries and that usually means their best financial interests.”

The pension fund’s investment managers have seen tobacco companies as a relatively steady source of returns, with good cashflow, in uncertain times

The 1985 case Scargill v Cowan, in which the National Union of Mineworkers’ leader tried to stop the union’s fund from investing in companies competing in coal, is still the precedent used.

Hampshire County Council leader Roy Perry put his fund’s situation into perspective: “Hampshire Pension Fund’s investment in tobacco holdings is 2.1% of the overall fund… the pension fund’s investment managers have seen tobacco companies as a relatively steady source of returns, with good cashflow, in uncertain times when global economies have been struggling”.

Many people would be comfortable with investing in a global airline, but some might be less so if they realised that the airline makes large profits from the sale of duty-free alcohol

“Like beauty, defining something as ‘unethical’ is in the eye of the beholder”, agreed Kevin Le Grand, head of pensions policy at Buck Consultants.

“For example, many people would be comfortable with investing in a global airline, but some might be less so if they realised that the airline makes large profits from the sale of duty-free alcohol and tobacco products”.

The Law Commission is due to publish a report clarifying the boundaries of fiduciary responsibilities in investments in the autumn. With a growing number of cases exposing ethical conflicts, the Commission must ensure it moves the debate on from 1985. If it does not, it will have failed.