3A.1 Divestment versus “engagement”

Most local authority pension funds say that they address environmental, social and governance (ESG) issues through “engagement”, which usually takes the form of correspondence or meetings with representatives of the companies that they invest in. They may also exert pressure through the exercise of voting rights at annual general meetings and by working with other shareholders on particular issues.

We have, so far, found no evidence that Scottish local authority pension funds have engaged with companies regarding their involvement with nuclear weapons.

Attempts to change company behaviour through engagement tend to be limited in scope and are unlikely to be effective if the company gets a significant part of its revenue from the activity in question. The example of cluster munitions discussed in section 1.5.2 of this guide suggests that divestment is a far more effective way to curb the production of indiscriminate weapons.

From an ethical point of view, the preference for “engagement” over divestment means that local authority pension funds can continue invest in harmful industries. In the case of nuclear weapons, this means that fund members are benefiting from the production and maintenance of weapons of mass destruction which are capable of killing hundreds of thousands of innocent civilians.