Trustee investment responses to Russia / Ukraine events

The global response to Russia’s invasion of Ukraine continues to escalate, with new sanctions against Russian state interests and those connected with its leadership.

Many pension trustees will be considering how and if they should respond, as well as what the impact might be on the pension schemes they are responsible for.

In most cases, UK pension schemes will have extremely low exposure to investments in Russia. However, we know that some trustees are considering whether any action is nonetheless appropriate, perhaps even including an outright scheme-wide prohibition on their managers investing in certain Russian entities.

Trustees should always seek both legal and investment advice before formulating and implementing any exclusions policy. This is because the law is generally restrictive on trustees’ ability to lawfully act on “non-financial” factors. However, a legal route to divestment is possible where financially motivated and, in practice, many of the current issues will have both financial and non-financial implications.

Trustees may wish to consider the following:

• Check that managers/custodians have effective measures in place to comply with sanctions, although we would usually expect this to be the case.
• Speak with the scheme’s investment consultants and managers to understand any direct exposure to broader Russian investments. Trustees should start by understanding their scheme’s exposure in practice. Trustees may also wish to get a handle on any indirect exposures, although this will likely be more complex to navigate.
• Where trustees do have direct Russian exposure within their investment portfolio and their managers are not already proposing action, trustees may be considering introducing their own scheme-based and targeted divestment policy.
• More broadly, trustees may wish to engage with their investment consultants and managers to see what is being done from an engagement/stewardship perspective.
• Trustees may wish to make a statement to their scheme members about any actions being taken. Care will be needed to articulate any rationale for investment decisions in a way that does not suggest the trustees have relied on factors which the law does not allow them to take into account.

Please speak to Stuart O’Brien or your usual Sackers contact for further help.