East Sussex Pension Fund (ESPF) has denied that its exit from an Israeli military technology company was due to a campaign by local activists, and said it was instead due to a portfolio shift towards impact equity and ESG-tilted index funds.

Palestine Solidary Campaign (PSC) last week claimed victory in a long-running lobbying campaign by scheme members and Palestinian human rights campaigners.

An Israel-based company listed on the Tel Aviv Stock Exchange and Nasdaq, Elbit Systems describes itself an international high technology company engaged in a wide range of programmes, primarily in defense and homeland security. PSC alleges the firm’s products, such as drones, are used to oppress the civilian Palestinian population.

Elbit reports annual revenue of around $4.6bn (€3.8bn) and has a current market cap of around $6.1bn. The firm is a constituent of a variety of global developed market indices.

According to county council minutes, in mid-September ESPF had £16,000 in exposure to Elbit Systems. According to S&P Capital IQ, the pension fund divested its stake to an unknown buyer on 12 February this year. This filing suggests the pension fund held a significantly larger stake and divested it over time.

Responding to an inquiry from IPE, a spokesperson at the £3.9bn (€4.5bn) Brighton-based ESPF said the divestment claim was false specifically because the pension fund did not invest in companies directly in its portfolio, instead investing via actively managed and index funds.

ESPF has previously had exposure to Elbit Systems and no longer does, but according to the pension fund this is for reasons unrelated to PSC’s campaign.

“The pension fund has recently been seeking to reconcile government guidance which encourages the use of index funds with its own responsible investment principles, particularly but not exclusively in the context of climate change, that it must demonstrate consideration around the risks and opportunities presented to its portfolio by ESG factors,” a spokesperson for the pension fund said.

“As a consequence of this review, a number of generic index funds were exited, and active funds focused on impact equity and indices offering ESG tilts and filters were acquired. Our holding in Elbit Systems and a number of other companies fell out of the portfolio as a consequence of those moves.”

The spokesperson said the campaign had not been discussed at committee level and “played no part in the decision”.

As part of its move away from generic equity index funds, ESPF made a £400m allocation to a Storebrand climate-tilted fund last year. Elbit Systems is on the manager’s exclusion list.

The spokesperson also said that ESPF was supportive of the Local Authority Pension Fund Forum position on the Palestinian occupied territories, “which seeks to encourage companies operating in that jurisdiction to review and have regard for the human rights of all individuals with whom they interact in the conduct of their operations”.

“The fund explicitly favours engagement over divestment on ESG issues.”

Campaigners pleased

At PSC, campaign officer Lewis Backon said that in claiming the campaign had not been discussed at committee level, ESPF was “being very economical with the truth”.

PSC points out that since May, campaigners had been lobbying East Sussex council, and been engaged in extensive correspondence with the full council and the chair of the pension committee, with divestment from Elbit Systems one of their main asks.

“I can’t say I know exactly what role this campaigning had in their decision-making processes,” said Backon. “It would seem clear to me that it had some due to the answers given at October’s full council, which suggested that ESPF were looking to act on the issue.

“What I do know is that the decision followed campaigning asking them to exclude/divest from Elbit, and that they contacted campaigners to let them know they had divested/no longer held exposure to Elbit.”

Backon added: “Moreover, they quoted ‘international law and human rights’ as to why Elbit is on the exclusion list of Storebrand – so, we’re incredibly glad they see Palestinian human rights as a legitimate reason to exclude a company from their portfolio. We therefore do see this as a key step in a right direction.”

East Sussex County Council is the administering authority for the East Sussex Pension Fund, but the pension fund is neither owned nor controlled by ESCC.

In April last year PSC won a Supreme Court case against the UK government, with the ruling overturning legal restrictions on local authority pension funds’ ability to divest from companies on ethical grounds. 

At the time, a spokesperson for the government said it was committed “to ensuring public bodies take a consistent approach to investments and to stop local boycotts”, and that the government would bring back new legislation addressing the technical points raised by the Supreme Court.

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