A number of local government pension schemes have come under fire over their investments in a troubled Israeli bank, according to research seen by Pensions Expert.
Tel Aviv-based Bank Hapoalim was investigated as part of the US Department of Justice’s probe into offshore tax evasion, and admitted it conspired to hide more than $7.6bn (£6.2bn) from the Internal Revenue Service.
It has agreed to pay more than $874m to the US Treasury, the Federal Reserve, and the New York State Department of Financial Services in exchange for deferred prosecution, according to court documents unsealed last month.
The bank faces an additional $30m fine for its role in the Fifa bribery scandal of 2015; and, in 2019, was placed on a blacklist published by the UN Human Rights Council due to its alleged operations in West Bank settlements.
It’s not what pressure groups want, it’s not what trustees would want if it was their own money, it’s what their members want
Claire Jones, LCP
It has now emerged that a number of local government pension schemes retain investment in Bank Hapoalim, raising concerns among campaign groups that pension funds are failing in their ethical obligations.
Following a story, originally reported in Scottish newspaper The National, that the Lothian Pension Fund has shares worth more than £6m in Bank Hapoalim, research shared with Pensions Expert by the Palestine Solidarity Campaign suggests that a number of other schemes, including Northern LGPS Pool, Brunel Pension Partnership and Cheshire LGPS, retain holdings in the bank.
A Brunel spokesperson said the fund “does not operate thematic exclusions across its portfolios”.
The spokesperson said they were aware of the recent legal action against Bank Hapoalim, and its blacklisting by UNHRC, and that the fund is “currently planning engagements with several of the companies identified in the UN report as we believe this is more effective in achieving change than immediately exiting companies”.
Engagement with Bank Hapoalim was undertaken in 2019 in relation to “operating in occupied territories”, the spokesperson said, and that the scheme “will review opportunities relating to its tax practices in light of recent events”.
Northern LGPS Pool and Cheshire LGPS did not respond to a request for comment by the time this story went to press.
Pressure groups’ outcry
The controversy leaves open questions about the implications of investing in companies accused of financial misdeeds, or of facilitating human rights abuses via the lens of environmental, social and governance risk.
Meanwhile, the political implications of investment in Israeli companies have come under particular focus following a recent Supreme Court decision, which overturned a government ban on LGPS divestment from the nation.
Ben Jamal, PSC president, said: “In the aftermath of PSC’s victory in the Supreme Court, there is now no legal barrier to local government pension funds living up to their ethical responsibilities and ensuring that they are not invested in companies that are complicit in Israel’s grave violations of international law and Palestinian human rights.
“PSC is in the process of writing to the chairs of all such funds urging them to take this action,” he added.
The merits – and morality – of divestment are disputed, however, with many companies preferring a policy of engagement as opposed to a boycott.
Funds shy away from politics
In a statement about its investment in Bank Hapoalim, Lothian Pension Fund said that it does not have a “policy of exclusion”.
“Its policy is to engage with the companies in which it owns shares, with a view to improving corporate behaviour to the benefit of shareholders,” the statement continued.
“By doing this, the fund aims to satisfy its most important social responsibility, which is to its members and employers by providing pensions, and it believes that this approach will also provide wider societal benefits.”
In addition, Falkirk Pension Fund, which recently sold its own investment in Bank Hapoalim, stressed that the decision was made by an external investment manager and did not reflect any political decision by the fund.
In its own statement, Falkirk Pension Fund said: “The fund does not have a policy of divestment from companies. The fund does not invest to further ethical or political aims, but in order to meet its fiduciary responsibilities to scheme members and sponsoring employers.”
Some critics of divestment, especially those that form part of the much-publicised Boycott, Divestment and Sanctions movement, go further, alleging that campaigners pressuring pension funds into divesting from Israeli companies intimidate the Jewish community.
Speaking to Pensions Expert about the Supreme Court decision last month, a spokesperson for the Campaign Against Antisemitism said: “Our ‘antisemitism barometer’ research shows that 76 per cent of British Jews feel intimidated by tactics used to boycott Israel.
“Regardless of whether it is lawful to do so, we would urge pension funds, local authorities and other institutional investors to think twice before enacting investment policies that risk intimidating minorities and dividing communities.”
Law clear on ethical investment
While the Supreme Court decision does potentially allow pension schemes to look again at divestment policies, in practice there are still stringent tests trustee boards must meet should they wish to implement them.
Claire Jones, partner at LCP, said that “the law allows trustees to bring ethical factors into the equation”, but she added that the Law Commission lays out two tests trustees must meet before deciding on a particular course of action.
“The first test is that they need to have good reason to think that’s the way their scheme members would want to invest,” she said. “It’s not what pressure groups want, it’s not what trustees would want if it was their own money, it’s what their members want.”
Supreme Court lifts ban on political investments by local council pensions
Local council pension schemes can now invest against the government’s foreign policy, after the Supreme Court ruled a ban on politically motivated boycotts was unlawful.
The guidance stipulates that trustees need not survey all of their members before deciding on a position, Ms Jones said, “but they can’t just look to the court of public opinion. They do need to have good evidence to back up their reasoning.”
The second test concerns the financial implications of a particular ethical decision, she added: “If you wanted to have a wholesale divestment policy, you’d need to weigh up the potential financial consequences of that before going ahead with that policy.”
