The UK university pension scheme is to end investments in tobacco, coal and controversial weapons manufacturers after bowing to pressure for policy changes from its membership of academics and higher education staff.
The £75bn Universities Superannuation Scheme, the UK’s largest private pension fund by assets, will divest its holdings in tobacco companies and exclude future investments in thermal coal producers along with businesses with ties to cluster munitions, white phosphorus and landmines.
Simon Pilcher, chief executive of USS Investment Management, said issues that would affect these businesses, such as shifts in political attitudes and increased regulation, had not fully been taken into account by traditional financial models used by City analysts to predict performance.
“These exclusions will balance keeping the financial promises made to hundreds of thousands of members in the higher education sector with investing in a responsible way over the long term,” said Mr Pilcher, who joined USS last year after more than two decades in senior leadership roles at M&G Prudential, the asset manager.
USS will sell its £190m holding of tobacco stocks within two years. It does not own any publicly traded companies in the other excluded sectors. Any holdings in third-party private equity funds that breached the new policy could take longer to exit as USS does not directly control these positions, Mr Pilcher said.
USS, which oversees the retirement savings of more than 400,000 academics, has faced calls to adopt more responsible investment policies from parts of its membership for more than two decades.
Ethics for USS, a coalition of academics, welcomed the changes, which were announced on Monday.
“The overwhelming majority of USS members will support this decision as they do not want their pension contributions invested in sectors which accelerate climate change, kill people or cause harm,” said Paul Kinnersley, chair of the school of medicine at Cardiff University.
Catherine Howarth, chief executive of ShareAction, a responsible investment group, said USS appeared to be listening after many years of closing its ears to members’ views. “This will greatly help to restore trust in USS at a time when it is badly damaged,” said Ms Howarth.
Both ShareAction and Ethics for USS want the pension scheme to consult more frequently with its membership and to take rapid steps to divest from other fossil fuel companies that are contributing to climate change.
“It is high time that USS acknowledged that divestment on ethical grounds by a pension fund is perfectly legal. We will continue to make USS aware of members’ views on the need for further rapid divestment, particularly from carbon intensive industries,” said Prof Kinnersley.
USS is a founder member of the UN-backed Principles for Responsible Investment and a participant in Climate Action 100+, a coalition of investors committed to promoting alignment with the Paris climate change goals.
It has already invested £750m in alternative energy projects but does not aspire to become a fully carbon-neutral fund.
“We don’t inhabit a carbon-neutral world,” said Mr Pilcher.