Scotland’s second largest council pension fund has refused to divest from a Russian bank which was sanctioned after Russia’s invasion of Ukraine.
Despite some Scots businesses and institutions cutting ties with Russia in response to calls for sanctions, Lothian Pension Fund (LPF) has not dropped its investment in a state-owned Russian bank called Sberbank.
The Ferret revealed last month that LPF had 95,213 shares in Sberbank which were worth £1,325,845.
Critics of LPF’s position include politicians, a union and the Scottish Government which said there is “little justification” for pension funds to continue to hold shares in Russian companies.
Sberbank is Russia’s biggest financial institution. Since Russia’s invasion of Ukraine, the bank has been sanctioned by the UK, US and EU. As a result of the situation, Sberbank announced it was pulling out of Europe this month, citing “big cash outflows and threats to its staff and property”.
The pension fund for MSPs divested from Sberbank after The Ferret revealed it had holdings worth £299,571 in the bank, and Edinburgh University said it would review its investments linked to Russia which were worth around £7.5m. Whisky firm Lindores Distilling said its Russian directors were resigning.
LPF – which administers the Local Government Pension Scheme in Edinburgh and the Lothians – has 84,000 members and £8bn of assets. It told The Ferret its portfolio has “minimal exposure” to Russian firms and that its holdings are “worthless at this point in time”.
The fund claims to take human rights and environmental issues into consideration with its investments, but the fund has previously been condemned for investing in nuclear weapons, fossil fuels, and arms firms profiting from Yemen’s war.
Earlier this month The Ferret revealed LPF had shares worth £847,000 in a firm that made cladding panels found to be the main cause of the Grenfell Tower fire that killed 72 people.
We also reported in 2018 that LPF was indirectly bankrolling Donald Trump’s controversial private immigration detention sector, when he was US president, to the tune of £52m.
However, the fund has previously defended its investments, pointing out its policy on responsible investment is “informed by a fiduciary duty owed to members and employers”, set out in law, to invest for the best returns and to ensure pension benefits can be paid when they fall due.
LPF also argues it has a “transparent approach” and publishes all investments on its website along with information on how it invests. This includes information on how its investment team integrates environmental, social and governance into its decision-making to “ensure that both the financial and non-financial factors are taken into account”.
Regarding its Sberbank investment, LPF said it owns a “diversified portfolio of assets” with “minimal exposure to Russian/Ukrainian securities”.
A spokesperson for the fund said that prior to the Russian invasion of Ukraine, it held two Russian securities – Sberbank and VK – which were “valued at c0.01 per cent of the fund’s assets”, adding that the fund had “reviewed these post invasion and assume that they are worthless at this point in time”.
“LFP’s thoughts are with the millions of people affected by this tragic turn of events that will inevitably have a large human cost,” the spokesperson added. “In these difficult times our members expect us to remain level-headed and keep focused on making the best investment decisions we can, while continuing to assess the geopolitical risks, changing market implications and the potential impact on portfolios as the situation unfolds.”
However, critics have called on LPF to divest from Sberbank.
Simon Watson, UNISON Scotland pension lead, said workers in public services “care deeply” about how their pensions are invested while claiming that pension funds “simply won’t have a conversation with members” about ethical investment.
He added: “Investments with high political or regulatory risks such as those related to climate change or where they invest in companies involved in illegal practices, or in the illegal settlements in Palestine, need to be kept constantly under review with the option of divestment being used to influence better practice being considered.
“The current crisis in the Ukraine raises major ethical issues and financial risks, and pension funds should urgently review any related investments. The Russian financial system is literally funding the war against the Ukrainian people. Our members in the Lothian Pension Scheme, and all other schemes, will expect nothing less than a full review of any investments in this sector.”
A Scottish Government spokesperson pointed out it has no involvement in the LPF and that its Russian investments were a matter for the council and its pensions committee.
However, the spokesperson added that First Minister Nicola Sturgeon has “been clear that we all have a moral duty to limit the damage to Ukraine by using all available and safe levers”. They added: “There is little justification for any business based in Scotland – including public and private pension funds – to continue to hold shares in Russian companies, many of which are now subject to international sanctions.
Scottish Greens finance spokesperson Ross Greer MSP said LPF must follow the lead of the Scottish Parliament’s pension fund and “immediately divest” from Sberbank.
He continued: “This is Russia’s largest financial institution and its majority-owned by the Russian state, so it cannot be separated from the brutality of their invasion of Ukraine. Divestment would be a quick and effective sanction but it would also protect the pensions of those invested in the Lothian fund, given that Sberbank’s value is now in freefall.
“Ethical investments are the most financially sound, whereas these dubious portfolios come with exactly the kind of risk we’re now seeing.”
The Lib-Dems economy spokesperson, Willie Rennie MSP, said it was time for every Scottish fund to pull out of their Sberbank investment. He added: “Scotland needs to play its part in putting the squeeze on Vladimir Putin and his regime and that means using the financial leverage we have. It is important to send a message that Putin’s behaviour in Ukraine will not be tolerated or supported.”
Sberbank – which has been asked to comment – claimed in a statement this week that “Sberbank is operating as usual.”
Announcing it was pulling out of the European market earlier this month, Sberbank said its European subsidiaries had faced “abnormal cash outflows”, meaning it could no longer supply them with liquidity.
Sberbank said its Swiss subsidiary was not affected by the decision as it was not part of its European arm. “The bank in Switzerland continues to work as normal, there have been no changes to the bank’s operations. Sberbank (Switzerland) AG has sufficient capital and assets in order to continue operations,” said a spokesperson.
Photo thanks to iStock and AlphaVictor