The $89 billion Universities Superannuation Scheme (USS), the UK’s largest private pension plan, unveiled plans to exclude and possibly divest from companies in sectors that it deems “financially unsuitable” for the pension plan over the long term.
The fund is initially targeting tobacco manufacturing, thermal coal mining, and companies that may have ties to industries that manufacture cluster munitions, white phosphorus, and landmines. The decision comes after a detailed review of the long-term financial factors associated with investing in those sectors.
The announcement is the first time USS Investment Management has officially stated its position on exclusions. The fund said it decided that the traditional financial models used by the market as a whole to predict the future performance in the targeted sectors had not taken specific risks into account. Those risks include changing political and regulatory attitudes and increased regulation that USS Investment Management said would damage the prospects of businesses involved in these sectors.
“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,” USS Investment Management Chief Executive Simon Pilcher said in a statement.
Pilcher said the exclusions will be kept under review and may be added to in the future. He also said that because approximately 75% of USS’ assets 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.”
USS Investment Management said it will now begin the process of fully divesting from companies in the targeted sectors within two years, if not earlier. The fund said this is to allow new processes to be introduced to change the way that USS’ money is invested. It said that most sectors, particularly the ones where USS does not have any existing interest, will be formally excluded much earlier than the two-year window. And the exclusions will apply to both the defined benefit section and within the default funds of the defined contribution section of the USS.
In March, USS, along with Japan’s Government Pension Investment Fund (GPIF) and the California State Teachers’ Retirement System (CalSTRS) announced a partnership for sustainable investing to pressure companies and asset managers to integrate environmental, social, and governance (ESG) factors throughout their entire investment process.
The heads of the three pension funds released a statement directed at the world’s companies and asset managers letting them know that if they don’t incorporate sustainable investing into their corporate strategy, the funds won’t invest in them. They said companies that fail to heed their call “are not attractive investment targets for us,” and asset managers that also fail to do so “are not attractive partners for us.”