Statement on Israel and the Occupied Palestinian Territories

London CIV is an investment manager whose primary purpose is to deliver financial returns that enable its Partner Funds to provide pensions to their beneficiaries. Our Partner Funds are the pension schemes of the London Boroughs. We invest on their behalf, via carefully chosen external investment managers.

At London CIV we believe that investing responsibly is crucial, both to managing investment risks and to being a good corporate citizen. As part of our approach to investing responsibly, we set stewardship priorities to inform our research and engagement activities.

Human Rights is a London CIV stewardship priority. Within this we focus on Diversity Equity and Inclusion, and on breaches of international norms. We consider potential Human Rights abuses from the point of view of financial risk and negative social impact risks. We work with our investment managers, our stewardship partner, and with screening tools to identify potential human rights breaches and to engage in an appropriate way.

Conflict zones inherently present human rights issues. Assessing these is complex and difficult. There are many actors involved, undertaking a wide range of functions across various jurisdictions. There is also often a lack of transparency owing to the circumstances. Therefore, the human rights impacts and “legitimacy” of activities are hard to assess.

Third party lists of companies exposed to conflict zones can be misleading. This is because it is often unclear what the function/role of the company is, and because these lists pick up exposure to a whole company (whilst the actual exposure to a conflict-affected area may be much smaller). This means that while lists can provide useful input, they must be used with appropriate context.

In the case of the conflict in Israel/the Occupied Palestinian territories there are allegations of human rights abuses by all parties involved. There are also a large number of local and multinational companies present in the region, undertaking a wide range of functions. Companies may provide a breadth of services including to both military, government and civilians on either side of the conflict. Some companies are focused on this region, while for others the exposure may be a small part of their business.

London CIV has developed an approach to this particular conflict zone, which is outlined under Our Approach, below. In determining our approach, we have been mindful of the needs of our Partner Funds, who have differing views on this matter. London CIV must remain neutral except where led by the UK government, for example in the case of sanctions. We consider ESG related risks on a case-by-case basis, taking into account our overall fiduciary duty.

How we Invest

London CIV invests across asset classes in the public and private markets. We develop our investment programmes in consultation with our Partner Funds. We need to achieve consensus from a critical mass of Partner Funds to launch programmes or to put ESG related exclusions and targets in place.

We invest on behalf of our Partner Funds in both passive and active strategies in public markets. We delegate investment decision making powers to our external investment managers, within the bounds of strategies and parameters that are set at the outset. Our ability to influence investment selection varies according to the investment programme. Careful consideration is given to ESG related parameters and targets, and the appropriate benchmark provision, when funds are constructed.

Our Approach to Israel/Occupied Palestinian Territories

London CIV has taken a number of steps to determine the nature of exposure to Israel/Palestinian territories, and what our stewardship actions should be.

• London CIV is committed to taking a neutral stance, to respecting UK law and the UK’s interpretation of international rulings, and to considering case studies on their own merits.
  
  
• We have taken legal advice on exposure to this region. We also monitor and act upon any UK government sanctions, as we would in any situation. This has included checking that we are not exposed to four companies based in the West Bank, that were sanctioned by the UK government this year.
  
  
• We have monitored exposure to companies active in the Israel/Palestine region since 2021. We use the following lists: United Nations Human Rights Office of the High Commissioner’s A/HRC/37/39 Report, the WhoProfits database, and the AFSC (Investigate) watchlist. We consider that these are the most politically balanced and thorough sources of information that we can access.
  
  
• We communicate exposure to Partner Funds.
  
  
• We engage with our external investment managers to understand their rationale for holding any companies identified, and how they have assessed risks. In doing so we also consider the materiality of the exposure.
  
  
• We work with our stewardship services provider (Federated Hermes EOS) on this topic and the engagements they are undertaking on our behalf. We also participate in their working groups to make sure that our Partner Fund priorities are represented to our stewardship service provider.
  
  
• We exercise voting rights on behalf of our Partner Funds. We may use these, for example, to request greater transparency on human rights related concerns or due diligence.
  
  
• We engage with our peers and benefit from advice/guidance sourced collaboratively, such as through the Local Government Association or Local Authority Pension Fund Forum.
  
  
• As part of our ongoing work to meet Partner Fund needs, at London CIV we are also working on a matrix of investment/responsible investment (RI) options for our Partner Funds. The intention is to enable Partner Funds to identify and deliver their RI priorities, while still benefiting from the positive effects of pooling. The approach is based on sectoral themes rather than regions, because of the evolution of location specific conflicts and issues over time.
  
  

Calls for divestment

We are conscious of calls from some campaign groups for divestment from all companies identified as having exposure to Israel and areas identified as Occupied Palestinian Territories. London CIV has not put in place an exclusion on exposure. This is because:

• London CIV will take a neutral stance (unless prescribed by the UK government, as has been the case in some other examples of conflict zones).
  
  
• There are no overarching UK sanctions against investment in Israeli companies or companies active in Israel or the Occupied Palestinian territories.
  
  
• There are divergent views on the Israel/Palestine situation, conflict zones and the defence sector across London CIV’s client base.
  
  
• The financial implications of divesting from all companies identified across exposure lists can be profound and disproportionate.
  
  
• Engagement with companies can encourage a change of approach, leading to better human rights outcomes. We believe that we are more likely to have an impact as socially conscious investors than by divesting, in many cases.
  
  
• Multinational companies operating in Israel/the Occupied Palestinian territories are serving a number of purposes, including serving civilian populations, and should be considered on their own merits. They may also provide vital services in other unconnected locations.
  
  
• While it is possible that we may request exclusion of specific companies in the future, in general we favour transparency and engagement over blanket exclusion.
  
  

Case Studies

We have provided some case studies from Federated Hermes EOS’s (EOS) engagement on behalf of London CIV, to help to illustrate the approach in action.

As the stewardship service provider for LCIV, EOS regularly reviews its engagement programme companies to identify companies facing material business risks, including those encountering salient adverse human rights impacts.

EOS’s client holdings are scanned for companies which have been identified by authoritative sources to have direct and significant links to a high-risk region, including those identified by the United Nations Human Rights Council as having exposure to the Occupied Palestinian Territories (OPTs).

A number of companies are selected, based on the materiality of their exposure and the extent of holdings, for engagement through meetings and/or correspondence concerning those salient adverse human rights impacts linked to the high-risk region to which they are exposed.

EOS’s approach to companies doing business in high risk regions is to encourage them to carry out actions consistent with the UN Guiding Principles on Business and Human Rights, which include: to conduct enhanced human rights due diligence; to engage with those stakeholders impacted by business operations, including from vulnerable and marginalized populations; and to take appropriate action, considering the leverage it may have to prevent or mitigate adverse impacts on human rights that may be linked to its operations, either directly or via business relationships.

EOS considers companies’ human rights performance in voting recommendations made to LCIV and may recommend votes against directors responsible for oversight of this topic where engagement has not been constructive or concerns persist.

During 2024, EOS engaged with:

“A consumer-facing company, which derives revenue from the Occupied Palestinian Territories. In a meeting with the company, it told us that it is not currently pursuing business expansion in the region and confirmed that it has conducted stakeholder engagement. We encouraged improved disclosures and evidence of the effectiveness of its human rights due diligence.”

“A technology company, which supplies and supports systems, the use of which extends to the Occupied Palestinian Territories. In a meeting with the company it stated that it is no longer involved in a government-related project that had been a source of concern for some investors. The company also informed us that it had worked with a third party to identify and disclose salient human rights issues for the business. While noting these developments, we also encouraged the company to review its practices for responding to government requests for information against the expectations of the Global Network Initiative (GNI) which provide good industry practice guidelines on when and how to comply with such requests.”

“A technology company, which supplies and supports systems, deployed by government agencies in areas that include the Occupied Palestinian Territories. We met with the company to raise concerns about allegations of product misuse in the region contributing to human rights. It explained its consumer due diligence process and said it looks closely at sales in high-risk regions and for products with higher risks of misuse. It said it would not renew any government contract if gross human rights violations were found, and appeared receptive to our request to publish case studies demonstrating positive impacts on human rights. However, because the company still appears to lag some peers in human rights practices and disclosure, EOS recommended a vote against the relevant director at this year’s AGM.”

EOS will continue engaging with these companies in 2025, and London CIV will engage with EOS to agree whether or when escalation could be needed.

Summary

London CIV has identified Human Rights as a stewardship priority and engages with its managers and via EOS to act on potential breaches that are identified. We are aware of human rights allegations related to the situation in Israel and the Occupied Palestinian Territories and have taken steps to reduce our Partner Funds’ risks associated with these allegations. This includes screening for exposure according to reputable lists and undertaking engagement and voting activity. While we would consider the exclusion of specific companies in extreme and clear circumstances, we believe that assessing companies on a case-by-case basis and pursuing engagement is a more effective route than a blanket ban. We will continue to monitor developments in relation to this conflict zone, and to enhance our guidelines relating to human rights issues in all their forms.


For more information, email info@londonciv.org.uk