Liverpool City Council votes to disinvest in arms trade

Report by Mark Holt, Merseyside Stop the War Coalition
Published: 21/10/07

In an historic decision, Liverpool City Council voted unanimously on Wednesday 17th October to disinvest from the arms trade. Please see E-mail below. This follows months of campaiging and lobbying by Merseyside Stop the War coalition. This is an initial victory in what will be a long campaign. The pension fund can refuse to alter its statement of principles and if so we will have to lobby all Merseyside borough councils. At this moment in time I am e-mailing every councilor in Knowsley, Wirral, St Helens and Sefton with this news and we are getting sympathetic responses in certain areas which we will work on to get a similar resolution through those boroughs. This is something I think we can win and comrades need to be ready to help us lobby those councils.


Yes it was agreed (unanimously) and the wording was:-

Council welcomes Merseyside Pension Fund’s existing commitment to responsible investment by means of:-

  • promoting and encouraging good corporate governance within the companies in which it invests
  • receiving advice and recommendations from Investment Research Consultants Ltd to help it deliver corporate social responsibility in the companies in which it invests
  • playing an active role in the Institutional Investors Group on Climate Change Council considers that investment in the arms trade is not compatible with good corporate, social and ethical governance which it would wish to promote.

Council therefore considers that the occupational pension scheme operated on behalf of its employees and Councillors should, at the very least, allow members to avoid investing in the arms industry.

Council notes that the Merseyside Pension Fund Management Committee has a responsibility “to consider any views expressed by employing organisations”.

Council therefore requests the Chief Executive to write on its behalf to the Chair of the Merseyside Pension Fund Management Committee to request that the Fund’s Statement of Investment Principles be amended to include an ethical dimension, leading to divestment of shares in companies with significant involvement in the arms industry.

Council further requests the Leader of the Council to inform the other 4 Merseyside Council Leaders of this Council’s position and request them to write in similar vein to the Chair of the Merseyside Pension Fund Management Committee.

which also describes what will happen next. If we get a reply from MPF and/or the other districts I’ll let you know what they say

As far as I know it didn’t receive any media coverage but as you have observed previously this is just the start of the journey so plenty of time yet.



Dear Liverpool Councilor,

It has come to our attention, after reading an article in The Guardian dated 8th May 2006 and a subsequent article in the Daily Post, that a large number of Britain’s city councils invest their pension fund monies in the arms trade. As an anti-war organisation we are infuriated that councils across the country place employees pension funds into instruments of war and ultimately killing people.

After reading the article, I visited which is the Campaign Against the Arms Trade’s website. This confirmed our fears, that the Merseyside Pension Fund does indeed invest its money into British and American arms companies, in total 14, 704, 343 in 205 was invested in companies such as Halliburton and BAE Systems.

The Campaign Against the Arms Trade estimates that there are some 650 million guns circulating the globe claiming 1, 000 lives each and every day. That is one person every minute. Some of these guns no doubt end up on the streets of Merseyside.

We are urging you to cut the ties with these companies and to invest the money, instead, into ethical companies.

We would like to know what your view is on this issue. We have been informed by the Chair of the Merseyside Pensions Fund that they would be duty bound to look at this matter if instructed to by any of the Merseyside Councils.

We would be grateful if you would look at a copy of your Statement of Investment Principles (9A of the Local Government Pension Scheme Regulations 1998) as it should by Law consider the ethical dimension of these investments. We look forward to hearing from you.

Yours Sincerely,

Mark Holt Chair Merseyside Stop the War Coalition


2007 Investments
Merseyside Pension Fund
Wirral Metropolitan Borough Council
PO Box 120
Castle Chambers, 4/6 Cook Street
L69 2NW

Known shareholdings in identified arms companies:

1. Lockheed Martin
2. Boeing 1, 815, 701
3. Northrop Grumman
4. BAE Systems 4, 257, 500
5. Raytheon
6. General Dynamics
8. L3 Communications
9. Thales
10. Halliburton
11. Finmeccanica
17. Rolls-Royce 3, 788, 986
27. Qineti
q40. VT 1, 901, 000
55. Cobham
66. Meggitt 1, 860, 000
79. Ultra Electronics

TOTAL 13, 623, 187
Total assets: 4, 200 million
Total arms company holdings as % of assets: 0. 3
Shareholding figures provided by the local authority:
No pooled shareholdings provided

2005 Investments

The shareholding information below has been provided by the relevant pension fund. It should be read in conjunction with the notes on the campaign’s webpage (

Merseyside Pension Fund (478) Wirral Metropolitan Borough Council PO Box 120, Castle Chambers, 4/6 Cook Street, Liverpool L69 2NW Shareholdings provided: Some Shareholdings are in and refer to 31 December 2005

UK arms company shareholdings

BAE Systems 3, 435, 750
Rolls Royce 3, 584, 002
Smiths 1, 046, 000
VT Group 1, 697, 000
Cobham 0
Total 9, 762, 752
Other European arms company shareholdings
Thales 0
Finmeccanica 0
Total 0
US arms company shareholdings
Lockheed Martin 0
Boeing 2, 753, 547
Northrop Grumman 0
Raytheon 0
General Dynamics 0
Honeywell 0
Halliburton 2, 188, 044

Total 4, 941, 591


The aim of this briefing is to provide accurate information for Councilors that, if you wish to do so, will enable you to challenge the status quo and initiate a constructive discussion based on the current statutory investment environment.

Background Information

Constituents, employees and pensioners who want to see an ethically managed pension fund will probably refer to the powerful moral and political reasons for believing that the UK should not be exporting arms. They may be less well informed about the economic case against the arms trade and, most relevant to Councilors, the exact nature of the legal constraints under which trustees are operating.

Is an ethical investment policy legally possible?

Yes. Provided you go about it in the right way. The local Government Pension Scheme Regulations 1998 are the Statutory Instruments regulating all aspects of the management and investment of pensions. In 1999 they were amended to bring local authorities in line with the bulk of other pension funds. A new regulation 9A came into force in July 2000. It states: “Statement of Investment Principles

1. An administering authority must, after consultation with such persons as they consider appropriate, prepare, maintain and publish a written statement of the principles governing their decisions about investments.

2. The statement must cover their policy on -

a) The types of investment to be held,

b) The balance between different types of investments

c) Risk

d) The expected return on investments

e) The realisation of investments

f) The extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments, [emphasis added] and

g) The exercise of the rights (including voting rights) attaching to investments, if they have any such policy.

3. The first such statement must be published on or before 3rd July 2000 The written statement must be revised by the administering authority in accordance with any material change in their policy in the matters referred to in paragraph (2) and published. ”

The courts have always interpreted the duties of local authority councilors by reference to Trust law, largely based on case law which is why Councilors are often said to be in a position comparable to trustees.

Recent case law relevant to pension fund investment includes: -2 Cowan v Scargill (1984) - Only excludes ethical investment decisions based on the ‘personal interests and views’ of the trustees, which can ‘not be justified on broad economic grounds. ‘ It does not exclude ethical investment decisions based on sound financial judgments.

Furthermore, the judgment emphasizes the importance of yielding the best return ‘judged in relation to the risks of investments being considered’.

In a ‘tie break’ situation where there is a choice of two investments, which are equally attractive financially, ethical considerations may then determine the choice.

Martin v City of Edinburgh District Council (1989). This case shows the importance of the manner in which decisions are made, and the need to ensure that financial implications are fully examined and decisions supported by proper advice.

Does an Ethical Investment Policy make financial sense?

Yes. And here are some reasons why.

Why invest in a declining sector shored up by hefty Government subsidies??

The UK arms industry has been in decline since the end of the Cold War in spite of significant UK Government support. Jobs dependent on arms exports have fallen from around 150, 000 in the early-mid 1990s to 65, 000 in 2002, and CAAT estimates that Government subsidies for arms exports amount to over 10, 000 for each of these jobs per year. If subsidies were withdrawn and the military sector competed on equal terms with the civil sector, it is likely that military share values would drop substantially.

Even disregarding any change that might result from ending subsidies, the six major arms companies we focus on account for only 1. 19% of the FTSE all-share index (figures taken at the end of 2003).

It can be consistent with the need to spread investment risk across the Market Sectors

One means by which a spread of investment risk is achieved is by means of “Indextracking”.

This seeks to mirror very closely the performance of a stock market index, usually the FTSE All Share Index. Though this would seem to leave little scope for excluding arms exporters, there are different techniques which can achieve this, one being “optimisation”. “Optimization” economises on dealing costs by using a computer to generate a shorter list of shares which can be expected to achieve a very close approximation to the full index. It is possible in this case to create a list which omits [some if not all] arms companies.

A more fundamental question is whether the All-Share Index is itself any longer a prudently diversified collection of shares. Half the Index is accounted for by only 13 shares. This might suggest that funds seeking to spread investment risk will move away from the use of conventional indices as a means of measuring diversification and performance. This would make it easier to support the omission of unsustainable sectors of the market.

When considering these issues it is important to bear in mind the relatively small stock market value of the arms exporting companies. A portfolio that avoided investment in BAE Systems would be less than 0. 4% short on an FTSE Index weighting and, as mentioned above, a portfolio that excluded all six companies would still be only 1. 19% short on the FTSE Index.

This relative lack of financial importance is underlined by the a number of local authority pension funds that have had, at times, no arms company investments. The investment decisions were based on financial considerations alone and clearly indicate that arms companies are not a ‘must have’ investment.

Is an investment policy of long-term sustainability legally and financially viable?

Yes - trustees of the UNISON pension fund are doing just that. The Finance Officer of UNISON has said that he thought it had been important not to get side-tracked into discussion about which were the ‘’nastiest’’ companies as everyone has their pet hate but to have a clear policy on which companies offered the sustainable returns that pension schemes need. The policy they have in place does exclude major arms and tobacco companies as well as a number of other companies felt by the trustees not to fit into their policy on sustainability.

If you already have a Socially Responsible Investment policy where fund managers actively ‘engage’ on SRI matters with the companies in which they invest:

Socially responsible investment is a woolly term that can be defined in a number of ways. It can include - Positive screening - where companies are selected because they fulfill certain criteria, often environmental, defined by the trustees Negative screening - where companies or sectors of the market are avoided because they are felt to be unacceptable in some way

Engagement where fund managers may engage with management to identify problem areas within the company. Having reached agreement as to the problems to be resolved, they then monitor progress.

The process of ‘engagement’ has always been an integral part of any ethically managed portfolio that would also include positive or negative screening. But it has recently begun to be promoted by some fund managers as a Socially Responsible Investment policy in its own right.

They say that it will produce improved financial returns for the investor the argument being that improvement in a company’s practice will enhance its financial performance. What may not be made clear to councilors is that it does not include the possibility of disinvesting from companies who fail to comply with agreed commitments.

Nor does it address the problem of investment in arms and tobacco companies where it is the impact of the product itself that is the problem rather than the way it is being produced. An investment policy of ‘engagement’ on its own, does not lead to the exclusion of any company. As a councilor you would need to consider the inappropriateness of including a company like BAE Systems in what is being presented as a socially responsible portfolio.

Which companies are significant arms exporters?

The companies on which CAAT is focusing are all quoted on the UK stock exchange and rank in the top 100 of the world’s arms producers. They are all major exporters of arms.

The companies are BAE Systems, Rolls-Royce, Smiths Group, GKN, VT Group (formerly Vosper Thornycroft) and Cobham. Of these, BAE Systems is the best known/most notorious. It is the world’s fourth largest arms producer with over three quarters of its sales being military. Less than twenty percent of its output is sold to the UK - the rest is distributed around the world with a focus on the US Department of Defense (to which it sells more than to the MoD) and, after that, the Middle East. Its Hawk jets alone have been sold to Brunei, India, Indonesia, Kenya, Kuwait, Malaysia, Oman, Saudi Arabia, South Africa, South Korea, UAE and Zimbabwe. BAE Systems now owns armoured vehicle and tank producer Alvis.

The companies in their own words:

BAE Systems - “The company designs, manufactures, and supports military aircraft, surface ships, submarines, radar, avionics, communications, electronics, and guided weapon systems... BAE Systems has major operations across five continents and customers in some 130 countries. The company employs more than 90, 000 people and generates annual sales of more than 12 billion through its wholly owned and joint-venture operations. ” (

Rolls-Royce “Rolls-Royce has a broad customer base comprising more than 500 airlines, 4, 000 corporate and utility aircraft and helicopter operators, 160 armed forces and more than 2, 000 marine customers, including 50 navies. ” ( )

Smiths Group - “Smiths Aerospace is the leading transatlantic aerospace equipment company, with more than 9, 000 staff and $1. 6 billion revenue split between Europe and North America. Smiths Aerospace holds key positions in the supply chains on all major military and civil aircraft and engine manufacturers supplying integrated solutions. ” (

GKN - “Approximately 70% of the revenues of GKN Aerospace are derived from the defence sector where the business is a supplier of structures and components to a wide range of US military aircraft including the F/A - 18E/F, F/A-22, C-17, F-15 and F-35 as well as European aircraft such as the Eurofighter. It also supplies major structural assemblies for the EH 101, Lynx, NH90, UH-64 and Comanche helicopters.” (

VT Group - “VT Shipbuilding’s renowned experience combined with leading edge technology has ensured that a wide range of our naval vessels have been selected by Navies of the World for over a century. Indeed in the last thirty years alone, we have designed and built nearly three hundred ships for over thirty navies, including the Royal Navy. ” ( In addition, its Support services business includes “technical services, logistics and training for all three armed services in the UK and for armed forces around the world”. (VT Group Annual Report and Accounts 2004)

Cobham - “The Cobham group provides one of the most comprehensive portfolios of defence products and services in the aerospace sector. ” ( March 2005

15 April 2002
AGENDA NO. 10. 2

Report by Chief Executive

1. The County Council on 18 September 2001 referred the following motion to the Pension Fund Investment Advisory Panel for consideration. The motion was proposed by Ms T E Williams, seconded by N C Walker :-

This Council believes that investment in the arms industry and in companies involved directly or indirectly in arms manufacture, including land mines and depleted uranium shells, is unethical and unacceptable. It is contrary to the principle and intent of Cornwall County Council’s commitment to the development of a Green Peninsula and, accordingly, steps must be taken towards ending it.

We therefore propose :-

(i) that Cornwall County Council legal officers prepare a briefing on the legal responsibilities of pension fund administrators and managers, and on areas which may be open to the Council’s discretion; and

(ii) that Cornwall County Council commission an assessment by our financial advisers of ethical investments solely in respect of the manufacture of arms. This would advise on relevant companies producing as acceptable a return as BAe, GKN and any other currently invested companies which manufacture arms, and that there be a report back to full Council.

2. The Pension Fund Investment Advisory Panel met on 3 December 2001 and Ms Williams and N C Walker had the opportunity of addressing the Panel with their concerns. In addition the Panel had the benefit of advice from the fund advisers, fund managers, County Treasurer and County Solicitor. The County Treasurer reported that the implementation of the motion would have significant cost implications for the pension fund and would limit the discretion of the fund managers to make investment decisions and optimise risk/return. The legal position relating to pension fund investment was discussed at length and the Members were advised that were it not for the 1999 amendment to the Regulations the County Solicitor would have no hesitation in advising that the fund had little legal option but to take investment decisions based solely on the financial grounds. All the case law supported this view. However, the requirement for the fund to produce a policy statement setting out the extent to which social, environmental or ethical considerations were taken into account in making investment decisions could possibly be interpreted as permitting some form of ethical investment policy. The full deliberations of the Panel are set out in Appendix 1. Whilst there was sympathy for the motion from some Members, concern was expressed that the purpose of the fund was clearly to confer a financial benefit upon the beneficiaries. In order to clarify the effect on investment decisions of the requirement to producing a statement of investment principles the County Solicitor was requested to seek Counsel’s Opinion. The formal resolution of that meeting was :-

“that the County Solicitor is instructed to obtain Counsel’s Opinion as to whether the Council may legally dis-invest pensions funds from businesses which may be deemed morally and ethically unacceptable. ”

3. Following the receipt of Counsel’s Opinion the Panel met again on 7 March 2002 and the minutes of that meeting are attached as Appendix 2. Counsel’s Opinion had been sought on various questions which are detailed in the minutes. Counsel had concluded that when making decisions on pension investments the financial consideration was paramount. It was therefore not possible to adopt a policy of dis-investing in pension funds from businesses which may be deemed morally and ethically unacceptable. Also, an ethical filter could not be introduced. The advice from Counsel was unequivocal in that no implied power was given to take social, environmental or ethical consideration into account in exercising investment powers. Members had the opportunity to discuss Ms Williams’ tabled comments on Counsel’s Opinion and also sought advice from the fund advisers. They and the officers concurred with Mr Kennaway’s conclusion that based on Counsel’s Opinion it was not legal for the County Council to agree to the motion as proposed by Ms Williams.

4. Following consideration of the motion on the arms industry and the receipt of advice from the fund managers, the fund advisers, the County Solicitor, the County Treasurer and Counsel’s Opinion it was the Panel’s views that the motion could not legally be supported and it was recommended that the County Council should be advised accordingly.

5. The County Council should oppose the motion based on legal advice.

Chief Executive
List of Background Papers
k:volume:15. 04. 2002:armsindustry