USS Investment Management Limited, acting on behalf of the Universities Superannuation Scheme (USS), has announced exclusion plans for companies in a number of sectors, deemed “financially unsuitable” for the pension scheme.

The exclusions are tobacco manufacturing; thermal coal mining, specifically where this makes up more than 25 per cent of revenues; and, any companies that have ties with cluster munitions, white phosphorus, or landmines.

This is the first time that USS Investment Management has officially announced its position on exclusions, and follows a “detailed review” of the long-term financial factors associated with investing in certain sectors.

The review found that traditional financial models used by the market to predict future performance had not taken specific risks prevalent in these sectors, such as changing political and regulatory attitudes, into account.

The firm will is expected to begin divesting from companies in these sectors, where they exist and are not controllable, within two years “if not earlier”.

It clarified that this timeline was decided on, in order to allow new processes to be introduced to change the way that USS’s money is invested, adding that most sectors, particularly those where USS does not have an existing interest, will be excluded “much earlier”.

The exclusions will apply across all USS schemes, including the defined benefit section, and the default funds of the defined contribution section.

USS Investment Management chief executive, Simon Pilcher, added: “This is a major development for us and one that will balance both 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.

“The exclusions we have announced today (1 June) will be kept under review and may be added to over time.

“As the majority of USS’s assets (around 75 per cent) are invested directly by USS Investment Management, we will have a great deal more control over this process than other pension schemes, and where we work with external managers, we will work diligently with them to implement our conclusions via their products.’’

However, ShareAction highlighted that the move also follows “years of demand” for action by scheme members, co-ordinated through Ethics for USS, a group of scheme members.

ShareAction chief executive Catherine Howarth, continued: “After many years of USS closing its ears to members’ views on the scheme’s investments, it seems new leadership at USS is once again listening.

"This will greatly help to restore trust in USS at a time when it is badly damaged.

“There is much further to go with this process, and we hope USS will look now to follow other large UK schemes in establishing a robust new approach to regularly ascertain the views of members on investments held for their benefit, building members’ preferences into the scheme’s stewardship policy as well as taking further, bold steps to halt investment in fossil fuels.”

ShareAction added that the scheme has a “long and at times tense history” of member-driven engagement, with the USS having been at the centre of ongoing and ‘unprecedented’ strike action, which was only put on hold as a result of the ongoing pandemic.

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