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COMMENT - ETHICAL WATCH

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I was intrigued to read an article in the Observer a couple of weeks ago. Apparently a large number local authoriti...
I was intrigued to read an article in the Observer a couple of weeks ago. Apparently a large number local authorities of varying political persuasions, some unions and even the Labour Party, have pension funds which hold shares in companies such as GKN and BAE Systems.

Investing in shares is actually the sort of thing pension funds do. So should they have invested in these particular companies, which make defence equipment?

Yes, provided they did so for investment reasons rather than to make some ideological point. Presumably that was the case. It is also the case that both GKN and BAE make many other products that have vital civilian uses.

What is the arms trade? At one end of the spectrum any company that sells food to armed forces would be included, as armies march on their stomachs. By the same logic so would steel, telecoms and oil companies. Where should the line be drawn?

In a previous life Marconi made a great deal of defence equipment, but it sold most of those interests some time ago. Did that make Marconi a 'good' investment? I leave it to your judgement.

In an ideal world there would be no need for anyone to make or sell defence equipment. As it is not, many countries feel the need to be armed, so they manufacture or buy.

Would it be logical if GKN or BAE were a large employer within a local authority's boundaries for that authority to welcome its contribution to the local economy, but award its shares pariah status? Equally, the local presence of a company is not in itself a reason to buy its shares.

Surely the real issue should be none of these. The decision to invest should be based on objective criteria, taking into account such legitimate concerns as reputational risk and the risk of not being in a significant sector of the market.

No doubt the trustees and/or fund managers had this in mind. Local authorities have to state the extent to which (if at all) they take SRI principles into account in their investment activities. Restricting investments to those no pressure group disapproves of is not yet compulsory.

Maybe we are seeing an outbreak of pragmatism.

John Pulsford

Treasurer, Isle of Wight Council

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