The Local Government Pension Scheme's (LGPS) Scheme Advisory Board (SAB) has shared legal advice for LGPS funds, after being made aware of concerns that LGPS funds could be investing in “companies in violation of international law”.

The board sought legal advice on behalf of LGPS funds after it was made aware that a number of administering authorities had received letters alleging that they are acting unlawfully by holding, and failing to divest from, investments in companies which have been linked to the ongoing situation in the Middle East.

Specifically, the LGPS SAB asked counsel for an opinion on the allegation that funds might face future criminal action by the International Court of Justice or have liability in domestic law under the Terrorism Act 2000 or the International Criminal Court Act 2001, as a result of holding such investments.

However, the legal opinion found that the suggestion that it would be unlawful for administering authorities to invest, or continue to invest, LGPS funds in undertakings engaged in certain activities with a bearing upon Israel’s conduct in and in relation to Gaza or the other Palestinian territories, is incorrect.

The counsel's opinion stated: "It may be that actions by Israel are in breach of international law in certain respects (indeed, the International Court of Justice has so held in its advisory opinion), and there may be international law obligations which rest upon states as to how they should respond to such breaches, although the precise nature and extent of any such obligations is no doubt highly debateable.

"But what matters for the purposes of this opinion is that it is in my view clear that local authorities, in their capacity as administering 30 authorities, are not subject to obligations imposed directly by international law.

"Nor, in my opinion, is there any public law obligation to have regard to such matters."

However, the SAB said that whilst it hopes that this advice will help funds respond to savers' concerns, funds should still seek their own legal advice in relation to their specific circumstances and investments.

It also pointed out that this advice was limited to the question of whether any specific criminal liability attaches to the holding of these investments, and not whether it is appropriate for funds to choose to divest.

Broader advice is expected in future though, as the group confirmed that it is currently working with counsel on more general advice concerning the nature and extent of the duties of administering authorities in relation to the investment of funds, and what are referred to as non-financial factors in the taking of investment decisions.

That advice will address questions such as the dividing line between financial and non-financial, and what authorities may, may not, or might in future be compelled to do by way of consideration of such questions, pursuant to their ordinary public law and fiduciary duties.

It will also consider these issues in a wider context - including problems of climate change, government policy ambitions for the investment of pension funds, and boycott and disinvestment campaigns of various kinds.

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