LGPS Advisory Board publishes QC opinion on tobacco investment

An administering authority for Local Government Pension Scheme (LGPS) funds may choose to take into account the public health implications of tobacco investment but only if the result of such consideration is the replacement of these investments with assets producing a similar return, the LGPS Advisory Board has suggested.

The Advisory Board, which expressed its views this month after receiving an opinion from 11KBW’s Nigel Giffin QC, said that alternatively an administering authority may take account of social housing needs “but only if an investment in such stands up as an investment in its own right and can demonstrate that it is not preferring its own interests over other scheme employers in making the investment”.

It added: “Furthermore, in our view, in making such decisions the administering authority cannot impose its view (on this or any other issue) on scheme employers nor can scheme employers impose their view on the administering authority if either resulted in a material risk to the return to and/or a suitable balance of assets in the fund.”

The Local Government Association had – on behalf of the Advisory Board – sought Giffin’s advice on whether:

• An LGPS administering authority owes a fiduciary duty and if so to whom it is owed;
• How the wider functions, aims or objectives of the administering authority should influence the discharge of its LGPS investment duties.

The Advisory Board highlighted the following conclusions from the QC’s advice:

1. “In managing an LGPS fund, the administering authority has both fiduciary duties and public law duties (which are in practice likely to come to much the same thing). This conclusion was clarified in the body of the opinion in paragraph 6 as follows: ‘In my view the administering authority does owe fiduciary duties, both to the scheme employers, and to the scheme members.’
2. The administering authority’s power of investment must be exercised for investment purposes, and not for any wider purposes. Investment decisions must therefore be directed towards achieving a wide variety of suitable investments, and to what is best for the financial position of the fund (balancing risk and return in the normal way).
3. However, so long as that remains true, the precise choice of investment may be influenced by wider social, ethical or environmental considerations, so long as that does not risk material financial detriment to the fund. In taking account of any such considerations, the administering authority may not prefer its own particular interests to those of other scheme employers, and should not seek to impose its particular views where those would not be widely shared by scheme employers and members (nor may other scheme employers impose their views upon the administering authority).”

A copy of Giffin’s opinion can be viewed here.