The University and College Union discussed ethical investment with the Universities Superannuation Scheme last month, including the scheme’s exposure to fossil fuels, water companies and defence firms. 

At a meeting on 4 December, the union met with representatives from USS Investment Management. According to UCU, “they discussed their approach to investing in companies driving the climate crisis like BP, Shell, those with poor environmental records like Thames Water, and in companies such as Raytheon and BAE Systems who profit from war through the manufacturing of arms”. 

The union stressed to USSIM that its members want the pension scheme to invest ethically. Its policies mean it is in favour of divesting from fossil fuels and companies in the arms trade. USS has already put in place policies to divest from tobacco manufacturing, thermal coal mining where this makes up more than 25% of revenues and companies that “may have ties to” weapons like cluster munitions, white phosphorus and landmines. 

A UCU spokesperson said: "We had the first of a series of meetings with USSIM to discuss its investment strategy. We acknowledged that USS has taken action on both climate and the arms trade, but we believe it can do much more. We discussed USSIM's fiduciary duty and where we believe more discretion could be applied.” 

UCU said it will be seeking to carry out “a further member survey for mid-late 2024” to engage scheme members on the USS responsible investment strategy.  

“We have asked USS to do more to support renewables and to withdraw from fossil fuels; and we have asked USS to consider divesting from companies supporting the ongoing devastating assault on Gaza and Israel's illegal occupation of West Bank,” the spokesperson said. 

“We recognise that there will be difficult conversations with USSIM ahead as we seek to change their approach to investing, but this meeting is the start of that process, and while no decisions have been reached, both sides have committed to meet again shortly.” 

USS said it welcomes engagement with its stakeholders, including on its investment approach.  

 

“The discussion between USSIM and UCU was one part of this and provided a helpful opportunity to answer a range of questions,” it added. 

 

In a blog the scheme published on responsible investing in November, it said its 500,000 members "hold a diverse range of views on different issues”. In March 2023, the scheme asked 1,183 USS members how much they thought their pension fund should invest in a sustainable way, even if this potentially lowered the pension they would get in retirement. On a scale where 1 is ‘not at all’ and 7 means ‘to the full extent’, 17% of members chose 1-2, more than half (53%) chose 3-5, and 30% chose 6-7. 

 

The scheme said that fossil fuels have a role to play in the near term but that “they won’t have a role in the long term, so we must encourage the assets and markets we invest in to make the transition to a low-carbon future”. 

Arms divestment is however less likely, with the scheme pointing to Russia’s invasion of Ukraine. This, it said, has “reinforced the role the defence industry sadly has to play in protecting freedoms and supporting geopolitical stability. It is a sector that might not align with some of our members’ views, but... it is part of the investible universe”. 

USS’s investment in Thames Water was also part of the discussion. Thames Water, which has come into financial difficulties, received a £750m cash injection from investors including USS, which is one of its largest shareholders, last March, but the firm lost nearly two-thirds of its value last year. USS said it has not received any dividends or interest since it first invested in 2017. Despite the uncertain future of the water company, USS views it as a long-term investment and is willing to commit more funds in future. 

“While the value we place on our Thames investment may go up or down as part of our regular revaluations, we continue to view this as a long-term investment, in line with the long-term needs of the scheme,” it said. 

 

“We remain of the view that, with an appropriate regulatory environment, the long-term objective of repairing important UK infrastructure and paying pensions to our members are in strong alignment.” 

 

The EDHEC Infrastructure & Private Assets Research Institute said on Tuesday that there were red flags investors could have spotted before Thames Water’s problems. Its directors wrote an open letter to water services regulator Ofwat in December expressing concern about the regulator's role in what they consider the mispricing of Thames Water's cost of capital.
   

   

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