Why USS has sold Israeli assets [updated]

The £74.8bn Universities Superannuation Scheme (USS) began selling the assets in March, according to the Financial Times. USS has declined to confirm the figure, which was reported by several newspapers.

The Universities and Colleges Union (UCU), which represents USS members, had previously raised concerns with the pension fund about investments in companies on the United Nations’ watchlist or those in breach of international law.

However, the pension scheme has denied that the sales were in response to member pressure, saying instead that the decision relates solely to financial risk management.

Legal duty

In its latest annual report, published last month, USS said it had a “legal duty to invest in the best financial interests of members and beneficiaries” and that it had reduced its exposure to the Middle East “in response to the financial risks that became apparent”.

The report stated: “We are grateful for the engagement we have had with our stakeholders on broader responsible investment matters throughout the year. This has importantly touched on the horrific events that have unfolded in the Middle East, both on 7 October and subsequently. We appreciate the diversity of views that these events have precipitated among those who share an ambition to see peace in the region.

“We are however mindful of our legal duty to invest in the best financial interests of our members and beneficiaries, rather than any wider basis.

“We have actively monitored the implications of ongoing events on our investment outlook. We continue to keep our portfolio and broader positions under regular review; in response to the financial risks that became apparent, we have reduced our exposure to the region.”

Israel ‘not excluded’

A subsequent statement from USS clarified that Israeli holdings have not been excluded from the investment portfolio, and the sale decision was not politically motivated.

The scheme said it could only make investment decisions on the grounds of “financial best interest”.

“Our in-house investment team at USS Investment Management make value-based decisions every day, across financial markets, in seeking to achieve the investment returns the scheme needs to pay members’ benefits,” the statement said. “The decisions that have been reported on [by national newspapers] were made on that basis, and that basis alone.”

However, in a letter to UCU official Dooley Harte in February, Dame Kate Barker, chair of the trustee board at USS, acknowledged that the International Court of Justice’s (ICJ) ruling on the Israel-Palestine conflict “forms part of the evidence” used by the pension scheme to make its decisions.

The ICJ issued a order in January requiring Israel to take all steps possible to prevent a genocide in the region.

Other schemes act on Israel

The move by USS follows other major retirement funds releasing statements clarifying their exposure to Israeli assets.

In June, the West Midlands Pension Fund released a statement saying it “takes a proactive approach to responsible investment and notes the concerns raised [about] the ongoing conflict in Israel”.

It said it has “engaged with several companies on matters relating to humanitarian and human rights impacts in global conflict zones”.

Railpen said it had limited exposure to Israel and therefore this was not a concern it had raised with, or that had been raised by, its members.

Nest, meanwhile, said it had received a handful of email queries relating to investments in Israel. The £29.6bn master trust said responded to these queries by explaining to members its investment approach and their fund options.

Other pension funds in Norway and Denmark have divested from assets linked to Israel in response to the Israeli government’s actions.

Tensions in the region have been ongoing for decades, but the latest war began last October when Hamas carried out a cross-border raid that Israeli authorities said killed 1,200 people inside Israel.

Since then, Israel’s ensuing attacks in Gaza have killed almost 40,000 people, according to Gaza’s Ministry of Health.

Additional reporting by Nick Reeve.

This article, including the headline, was updated on 15 August 2024 to clarify that USS's actions were not a full divestment of all Israeli assets.