Scotland’s two largest local government pension funds have nearly half a billion pounds invested in firms which are still doing business in Russia.
Analysis by The Ferret has found that Lothian (LPF) and Strathclyde (SPF) pension funds have a combined £448m invested in companies which have continued to do business as usual in Russia since its invasion of Ukraine.
Companies that are still operating in the country have been accused of “undermining” the sanctions placed on Vladimir Putin’s regime by international governments. These were designed to put economic pressure on Russia in the hope of ending the war.
SPF said that it would be pressing the firms “for answers, and more importantly, action” on their activities in Russia, while LPF pointed out that the firms “do not solely operate in Russia” and make up “0.2 per cent of the fund’s assets”.
But politicians said that the revelations were “worrying” and called on the two funds to “break these ties and divest immediately”. They claimed that by operating in the Russian market, companies were “supporting Putin’s war machine”.
The last three months have seen a corporate exodus from Russia as part of the global response to the invasion. Nearly 1,000 companies have now pulled out of the country since February. Among them are major multinationals like McDonalds, Starbucks and Uber.
According to Yale University, 245 global firms have made no changes to their operations in Russia, however. These include tech firms, financial giants, and construction companies.
Our analysis examined LPF and SPF’s most recently published portfolios for holdings in any of these businesses. LPF and SPF invest the pensions of local government employees in Edinburgh and the Lothians, and Glasgow and its surrounding areas, respectively.
LPF had investments worth £238m in 17 of the companies listed, while SPF held stakes in 13, valued at £210m.
The majority of these investments are in firms hailing from either China, the US or Japan.
LPF’s single biggest holding in one of the firms — valued at nearly £73m — is in the Chinese e-commerce company, Alibaba, viewed as China’s answer to Amazon.
China is one of the few countries not to have condemned Russia’s invasion, and only a handful of Chinese companies have suspended business there.
Meanwhile, SPF had £47m invested in Vinci, a French construction company which has been involved in major infrastructure projects in Russia including the building of a motorway between Moscow and St Petersburg.
A number of other Scottish investors have come under fire since Putin decided to attack Ukraine.
The Ferret revealed in late February that the Scottish Parliament’s pension fund had holdings worth nearly £300,000 in Sberbank.
Baillie Gifford — the investment firm which manages the Scottish Parliamentary Pension Scheme — subsequently divested the stakes following an outcry from MSPs.
Edinburgh University also had shares worth over £1m in Sberbank, as well as £6.5m invested in a Dutch firm which has links to Putin. The university announced a review of its assets in the wake of pressure from students after the story broke.
The Scottish Greens finance spokesperson, Ross Greer, said that it has “never been so important for public pension funds to adopt ethical investment policies”.
“Scotland’s public pension funds should be making investments that benefit the common good, certainly not supporting Putin’s war machine,” Greer added.
Scottish Labour’s external affairs spokesperson, Sarah Boyack, argued that to “stand firmly with Ukraine” the “influence of Russian finance in the UK” needs to be stamped out.
Boyack said: “These worrying revelations call for an urgent response. These funds need to break ties and divest funds immediately.”
‘Pumping funds into Russian budget’
Companies still operating in Russia are facing intense international pressure to leave. Senior Ukrainian officials have also called on firms to sever ties with Russia.
In his address to the US Congress in March, Ukrainian President, Volodymyr Zelenskyy, called on all US companies to leave the Russian market “immediately, because it is flooded with our blood”.
The country’s minister of digital transformation, Mykhailo Fedorov, also urged tech companies to pull out of Russia in a speech last week.
“When a company is working in the Russian market, it pumps funds into the Russian budget from which money gets to the Russian army. This enables killing Ukrainians,” Fedorov said.
However, some of the businesses still operating in Russia have argued that by withdrawing they would be doing harm to innocent civilians, either through loss of livelihoods or by denying them access to essential goods like healthcare and agricultural products.
The chair of SPF, Glasgow councillor, Ricky Bell, said its members would “quite rightly” ask why some companies “either can’t or won’t” cut ties with Russia.
Bell said: “The fund and many of the investment managers it works with have been very active on this subject over recent months. It is no coincidence that, out of around 1,000 individual investments that Strathclyde owns, we are now talking about such small figures.
“I’ve asked officers to press these firms – and the managers that buy them on our behalf – for answers and, more importantly, action.”
A spokesperson for LPF said: “We do not comment directly on stock trades. To put [it] in context, these stocks do not solely operate in Russia and exposure is <0.2 per cent of the fund’s assets.
“In the broader scheme of the fund and daily market movements, this financial exposure can be considered immaterial. We continue to monitor and review.
“Sanctions and stakeholder pressure have driven a re-evaluation of geographic exposure by many companies and our engagement provider, EOS, continues to work with and challenge the management of companies with material connections to Russia including mapping of supply chains.”
The Scottish Government said that the “business community has a moral responsibility to take action by reviewing operations for links and connections to Russia — and severing them where it is possible to do so”.
“The Scottish Government has no involvement in local authorities’ pension funds,” a spokesperson added. “This is a matter for councils and their pensions committees.”
This story was co-published with The Herald.
Photo Credit: iStock/Ja’Crispy