Agenda item

The Head of Pensions introduced the report to the Committee and highlighted the following points.

·  The Committee are being asked to confirm or reconsider its previous decision in-principle to remain invested in Aerospace & Defence (A&D) companies.

·  Since the in-principle decision made in March 2025 there have been three developments which now inform the Committee’s final decision on A&D investments:

o  The Fund has undertaken a representative survey of its members’ views, led by an independent research provider.

o  The Fund has received expert legal opinion.

o  The UK government has published its Fit for the Future proposals, which shift key investment accountabilities from LGPS funds to their pools.

Brent Wright, Osborne Clarke, addressed the Committee to outline the legal advice provided.

·  Legal advice has been taken from external solicitors and counsel (Nigel Giffin KC), to ensure that whatever decisions are taken by the Pension Committee are in accordance with its legal obligations and duties towards the Fund and its employers and members.

·  The Pension Committee is considering a proposal to exclude from the Fund’s investments all aerospace and defence companies, on grounds which are social or ethical rather than financial.

·  The legal position is that the Authority (i.e, Bath & North East Somerset Council acting as the administering authority of the Fund, and here acting through its pension fund committee) may only base investment decisions upon non-financial factors if two conditions are satisfied:

o  That to do so would not involve significant risk of financial detriment to the Fund (“the financial condition”); and

o  There is good reason to think that scheme members would support the decision (“the member support condition”).

·  Both these conditions must be individually satisfied. If either condition is not met, it would be unlawful to proceed on these non-financial grounds.

·  In relation to the financial criterion, the essential point is that the Authority, acting as a prudent custodian of the Fund, ought not to pursue a policy which, for non-financial reasons, creates a realistic possibility of the Fund suffering financial detriment which is material in the context of the Fund’s size and nature. This requires consideration both of the likelihood of financial detriment arising, and the anticipated or potential scale of such detriment if it did arise.

·  In relation to the member support criterion, this probably requires something effectively equivalent to consent given by the body of members as a whole. That is likely to mean both that a high proportion of those members with a view would support the proposed policy (not necessarily near-unanimous, but not just a bare majority either), and that there is substantial positive support for that policy (as opposed e.g. to an overwhelming indifference amongst the membership).

·  There may be a variety of ways, formal or informal, in which the Authority could legitimately assess the extent of member support for a particular policy, but some rational positive basis is required for determining that the member support criterion is met. Where, as here, an organised survey of member opinion has been carried out, that is likely to represent the best evidence of member views, and some specific reason would be required for departing from what the survey shows.

Jackie Peel asked if, when the advice was sought, they were given any indication of a desired outcome.

Brent Wright replied that there was not and said that the legal advice was provided in an open manner.

Jackie Peel asked if there were any legal concerns as a result of the evidence gathered from the member survey.

Brent Wright replied that there were no concerns.

Councillor Fi Hance asked for confirmation that a clear majority of responses must be seen from the member survey to enable any potential change in investment decisions.

Brent Wright replied that this was correct.

Edmund Cannon commented that the Fund should not incur a financial detriment as a result of this decision and said that in times of warfare the profits of weapons companies were likely to increase.

The Head of Pensions said that with regard to future returns they would not be able to say whether there would be a financial benefit or detriment to the Fund should a decision to divest be made. He emphasised that Future returns from A&D companies could be higher or lower than the equity market overall.

Shona Jemphrey asked for clarification of any potential legal consequence should the Committee make a decision to divest from investments in A&D.

Brent Wright replied that any such decision could result in a Judicial Review being raised as the survey results show that a status quo is the preferred option from the majority of members.

Councillor Joanna Wright asked, given the close figures from the survey response (42% of members support A&D divestment, while 47% prefer continued A&D investment), what the legal opinion was for a decision the Committee could take.

Brent Wright replied that a clear majority would be required to enable the Committee to make a decision to divest. He added that the current figures do not reach the member support condition to enable change.

Trevor Wilkinson, Prevision addressed the Committee to explain the process and results of the member survey.

Survey process

·  Prevision set up an online survey - The survey was designed and tested in the summer of 2025

·  Of the Fund’s 100,000 unique members, 31,000 had previously given permission for APF to approach via email

·  APF emailed a link to the survey to a sample of members (26,360)

·  The survey was live 4^th – 22^nd September

·  Prevision received 2,500 anonymous responses

·  A sample of 2,500 yields findings with a margin of error of +/- 1.5%.

Jackie Peel asked why all 31,000 members with an email address were not sent the survey.

Trevor Wilkinson replied that the 26,360 sample of members represented the whole Fund membership and that increasing the sample size yields diminishing returns in terms of a smaller margin of error.

Councillor Fi Hance asked if permission could have been sought by other employers to contact members on behalf of the Fund so that they could receive the survey.

Trevor Wilkinson replied that if other bodies had become involved in the survey it would add complexity and lessen the confidence in the results.

Councillor John Leach asked if any attempt to contact members outside of the online survey had been made.

Trevor Wilkinson replied that a postal survey had been considered but said that they were satisfied that the profile of those emailed represented the whole of the Fund membership.

Benefits and features of an online survey

Benefits:

·  Tried and tested methodology: the default method for consumer surveys

·  Representative: there is a close match between the profile of those members for whom APF holds email addresses and the profile of the total membership

·  Appropriate: 90% of UK adults have internet access (source: Office for National Statistics).

Features:

·  Transparent objectives: explained to respondents in the covering email and within the questionnaire.

·  Clear and unambiguous: clear terminology, questions not leading, response scales balanced.

·  Easy to complete and short: no more than five minutes.

Jackie Peel asked who produced the initial draft of questions and then what the process was once the Committee members had given their feedback on them.

Trevor Wilkinson replied that an initial discussion had been held with APF officers and that Prevision then drafted a set of questions for internal comment before being shared with Committee members. He added that following their feedback some amendments were made before the survey was distributed. He stated that at no time had there been any pressure to generate a specific result and that to do so would be contrary to the research industry code of conduct.

Sample

A survey of a sample of members yields findings that are statistically robust and representative of the membership.

Increasing the sample size yields diminishing returns in terms of a smaller margin of error, in addition to increasing the cost of conducting the survey.

Weighting

Prevision weighted the findings to ensure that the demographic profile of responses matches the overall member profile. All figures given in the findings section are weighted.

Summary of research findings

·  How much do members agree with statements relating to Avon Pension Fund investing in the Aerospace & Defence sector?

o  I am concerned that products made by A&D companies may be used to harm civilians: 52% agree strongly, 22% agree somewhat

o  I am concerned that A&D companies can harm the environment: 37% agree strongly, 32% agree somewhat

o  For me, an important consideration is that A&D companies play a key role in the defence of the UK and its allies: 40% agree strongly, 29% agree somewhat

o  For me, an important consideration is that A&D companies employ many people across the Bristol and Bath region: 28% agree strongly, 37% agree somewhat

o  For me, an important consideration is the financial returns from investing in the A&D sector: 28% agree strongly, 26% agree somewhat, 26% disagree strongly

·  Overall, should investment in A&D sector continue or cease?

o  Continue: 47.1% / Cease: 42.3%

Demographic analysis of whether investment in A&D sector should continue or cease

• Percentage agreeing that the Fund should continue investing in A&D sector was 47% including a high proportion of males and members over the age of 55.

• Percentage agreeing that the Fund should cease investing in A&D sector: 42% including a high proportion of females and members under the age of 45.

Summary

·  Members expressed concern about the harm caused to civilians and the environmental impact of the Aerospace & Defence sector.

·  At the same time, members acknowledged that the sector contributes to UK defence and local employment.

·  Members also took into account the financial returns of investment in the sector.

·  Weighing up these issues, members expressed a preference for the Fund continuing to invest in the A&D sector, although 42% preferred that the Fund ceased investing in the sector.

The Head of Pensions drew the attention of the Committee to the following regulatory points.

·  The Committee should note the UK government’s Fit for the Future proposals for the LGPS. Under the proposals, individual LGPS funds will retain the right to set their investment strategy, with asset allocation limited to choices across 9 asset classes which the investment pool decides how to implement.

·  Beyond the 9 asset classes, Fit for the Future proposals allow Avon Pension Fund to define ‘investment preferences’ – e.g. responsible investment aims, exclusions including A&D. However, the decision on whether and how to implement such preferences will rest with the pool.

·  Specifically, the proposals state that “to enable the pool to invest at scale, it is important that pools are not expected to create bespoke arrangements for each Administering Authority (AA) …. The government does not intend to prescribe a single solution but does not expect to see bespoke arrangements for each AA.”

·  Therefore, the Committee should be aware that any decision to exclude A&D companies may not be implemented in practice, e.g. if LPPI decides that such exclusions are incompatible with wider UK government policy or lack sufficient demand across its whole body of 9 LGPS funds.

Councillor John Leach asked why moral issues were not included in the survey.

The Chair replied that the survey did contain a number of explanatory paragraphs.

Councillor Fi Hance commented that she was disappointed by the survey results and personally did not support investment in Aerospace & Defence. However, she could not set aside the legal parameters for which the Committee could make a decision and would therefore be voting for the status quo to remain invested.

Shona Jemphrey said that she felt that more influence should have been given to the views of younger respondents as they will have longer to live with the possible consequences of the decision made.

Councillor Robert Payne said that no clear desire to divest has been shown despite 74% of respondents being concerned that products made by A&D companies may be used to harm civilians. He added that these views should be shared with the new pool.

Councillor Joanna Wright suggested whether a further recommendation could be considered which would address future pool investment.

Councillor John Leach stated that he had no confidence in the results of the survey and would vote against any proposal to confirm the decision made by the Committee in March.

Pauline Gordon said that the views of younger people were more in their support for divestment, and so, with an aging population, she would support a further recommendation and that the matter should be looked at again in future years.

The Chair proposed the following wording for an additional recommendation.  

The Committee notes the strength of the views expressed and agrees to communicate them to the new LPPI pool to inform their investment policies.

Councillor Joanna Wright seconded the recommendation proposed by the Chair.

The Head of Pensions commented that he would expect to poll Fund members on topics of concern at least every two or three years, to inform the Fund’s investment strategies.

Jackie Peel stated that she had confidence in the integrity of the Committee, the process and results of the survey and the legal advice received. She said she would support confirmation of the previous decision and the additional recommendation proposed by the Chair.

The Chair proposed that the Committee:

i) Note the expert legal opinion, projected financial costs, survey results, and upcoming regulatory changes.

ii) Having regard to the above factors and other relevant information, confirm its previous decision, in principle, to remain invested in A&D companies and to continue to apply the Fund’s policies on responsible investment and exclusions.

iii) Notes the strength of the views expressed and agrees to communicate them to the new LPPI pool to inform their investment policies.

Councillor Wright seconded the motion.

The Committee voted: 8 for the recommendations proposed, 2 against, 0 abstentions.