Response to Mo Hemsley, the Acting Chief Finance Officer for East Sussex County Council

30th Set 2013

Dear Mo Hemsley, (cc: Cllrs Stogdon, Carstairs, Tutt, Wealls, Rufus, Redman)

Many thanks for your email (which I am attaching to this email), however I was disappointed you did not actively engage with many of the points raised on the website I sent to the ESCC Pension Fund Panel members. I hope that you will respond to them this time. In particular, I would like you to look at and comment on the pages I have written analysing ESCC Pension Fund investments as well as proposals for how they can change:


I will go over some of the arguments made on the website again in this email. In your letter you stated that the panel has adopted an “‘active shareholder approach’ to encourage companies to adopt best ethical and environmental principles without jeopardizing the investment performance of the Fund.” You also state that: “Investments are monitored on a regular basis by the Investment Panel.”

However, I have to ask, how can “monitoring investments” or an “active shareholder approach” change the activities of a corporation like British American Tobacco, whose purpose is to manufacture, sell and promote cigarettes? As of August 2012, the ESCC Pension Fund had shares of British American Tobacco worth £3,774,010.68.

The health impacts of tobacco are absolutely devastating, and it is hypocritical and unethical for the ESCC Pension Fund to invest in tobacco companies while councils and the NHS advocate for people to reduce or stop smoking.

Both Conservatives and Liberal Democrats alike realize that this is an issue, as this recent exchange in Parliament demonstrates (1):

“Simon Hughes (Bermondsey and Old Southwark, Liberal Democrat)

“In my borough of Southwark we have higher than average smoking rates, and the Cabinet member responsible for health has said that hundreds of people are dying early because they smoke. Can Ministers help me to persuade our Labour council that it is inconsistent to say “Don’t smoke” on the one hand and invest £2.6 million of pension funds in British American Tobacco on the other?

“Anna Soubry (Broxtowe, Conservative)

“That is a good point, but I have to say that I am not convinced that it is just a Labour-run council that might have chosen to invest their staff pensions in this way; I strongly suspect that all political parties are guilty of this. While this is, of course, a matter for local authorities, it is also the sort of great campaigning work that MPs can do with their local councillors. It is even more important that they do that, given that they now have this great responsibility for public health.”

Given that there is much cross-party support on this issue, could you not seriously look at drawing up some divestment criteria for the ESCC Pension Fund? Many Pension Funds around the world already do this, so it would be relatively easy to draw on work already done in this area.

You may be concerned that such an action would compromise performance targets, however many Socially Responsible Investment (SRI) funds with positive and negative screening criteria, contrary to popular belief, have as good returns – or sometimes better – than non SRI funds.

As reported in Forbes in 2011: (2)

“In fact, the majority of SRI funds in each class outperformed their respective benchmarks, with the exception of the U.S. mid cap and international equity-EAFE class. Of course, not all SRI funds are going to outperform their indexes every year, but the myth of socially responsible funds being lackluster performers is simply that – a myth. Investors are realizing they can get solid returns while also investing in line with their values.”

There are many academic reports which compare the returns from SRI-funds and non-SRI funds. As the 2012 Responsible Investment for Pension Funds report by EIRIS points out (3):

“There have been many studies on what the financial implications of responsible investing are. It is important to note that most of the studies have been carried out on restricted universes (e.g. an index “ex an issue” – especially for “sins” or social issues – such as FTSE 100 excluding alcohol) or for specific approaches so more general or uniform assumptions should not be made from their findings.”

“A couple of interesting meta-studies have been carried out in recent years, which pull together results from many of the individual studies. These meta-studies provide robust arguments that sound integration of ESG factors does not compromise investment performance, and in many cases even enhances returns. Shedding Light on Responsible Investment: Approaches, Returns and Impacts (4) was published by Mercer in November 2009 and analyses 16 academic studies; ten of which showed a positive relationship between ESG factors and companies’ financial performance, four showed neutral association and two showed negative-neutral relationship. It follows on from Demystifying Responsible Investment Performance, (5) published by UNEP FI and Mercer in October 2007, which reviews the results of 20 other academic studies on the relationship between ESG factors and portfolio performance. This report found evidence of a positive relationship in half of the studies, with 7 showing neutral effects and 3 showing negative association, concluding that there does not appear to be a performance penalty from taking ESG factors into account in the investment management process.”

I would appreciate it if you actively engaged with the literature on this subject when considering drawing up investment criteria for the ESCC Pension Fund.

Also, in your letter, you state:

“The Panel ensures a balance between different kinds of investments. This reflects the Panel’s views on the appropriate balance between maximising the long-term return on investments and minimising short-term volatility and investment risk.”

I do not just want to focus on divestment in this email, but also the possibilities for positive investment of the Pension Funds’ assets. The Pension Fund could draw up positive investment criteria for its investments.

There are definite risks associated with damaging and unsustainable investment. If current investment practices continue, they will further contribute to climate change, species extinction, deforestation and finite resource depletion. Pension Funds will find themselves in a much more riskier investment climate with many more liabilities. There is a very strong case for investing responsibly to ensure a safer and more risk-free future.

It can also be in the Pension Fund’s interest to have a diversified investment portfolio. By not just focusing on short-term returns, but diversifying into SRI funds which are also concerned about long-term environmental and social returns, the Pension Fund could reduce some of its long-term risk.

There are some alternatives to just investing in corporations and SRI funds. Co-operatives, small businesses and community projects, because they are not legally obliged to profit maximise on behalf of their shareholders at almost any cost, often have more ethical policies and practices, and can give good returns on investment.

One good example of this is Lancashire county council’s pension fund investing £12m in the UK’s first community-owned solar development in South Oxfordshire. County Councillor David Westley, Chair of the Lancashire County Council Pension Fund, said of the investment:

“There’s been a lot of discussion about local authority pension funds investing in community infrastructure. I’m pleased that Lancashire has been able to put this into practice with this £12m investment. Our first responsibility is to secure the best returns for the people in our pension fund, but I think many will be interested to know that their pension investments are helping fund worthwhile and sustainable schemes such as this one.” (6) (7)

Clearly there is room for the ESCC Pension Fund to invest in similar projects.

Investing in very different asset classes, such as co-operatives and building housing – even if headline returns are lower – can also be justified if the returns are uncorrelated with major indices, which they probably are. These investments would provide portfolio diversification to minimise risk – especially in bad economic times – and potentially provide more steady, long-term returns.

Instead of writing more about this here, I want to direct you again to the page I have compiled on proposals for change to the ESCC Pension Fund Investments, where I have much more detail about all of this:

Again, I am happy to discuss this matter further with any of the Councillors on the ESCC Pension Fund Panel.


Ed Jones


(1) Exchange in Parliament

(2) Green Investing: Putting Your Money Where Your Values Are Pays Off

(3) Responsible Investment for Pension Funds

(4) Shedding Light on Responsible Investment: Approaches, Returns and Impacts

(5) Demystifying Responsible Investment Performance

(6) News : Lancashire County Pension fund invests £12m in the world’s largest community-owned solar power station.

(7) Westmill solar co-op gets £12m backing from Lancashire council pension fund

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One Response to Response to Mo Hemsley, the Acting Chief Finance Officer for East Sussex County Council

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