Fiduciary Duty, Governments and Gaza: The Trustee Dilemma
September 5, 2025
By Anastasiia Semenova and Nabil Subroto
The Local Government Pension Scheme (LGPS) advisory board is considering whether to seek legal clarification from government after a new position paper by Doughty Street Chambers, commissioned by the Palestine Solidarity Campaign (PSC), alleged that council-run pension funds may be complicit in breaches of international law through investments in firms linked to the conflict in Gaza.
The LGPS advisory board noted that the issues raised in the PSC’s paper are ‘clearly more in the competence of central than local government.’ The statement follows PSC research from February 2025, which found that LGPS funds had invested more than £12 billion (U$16.3 billion) in companies alleged to be enabling Israel’s military actions, including major players in the British defence sector such as BAE Systems.
This is not the first time LGPS has turned to legal experts over questions of international law and investment. In October 2024, the Local Government Association commissioned senior barrister Nigel Giffin KC to respond to similar allegations. His opinion concluded that local authorities were not directly bound by international humanitarian law and faced no criminal liability for continuing to hold such investments. He also emphasised that councils were poorly placed to determine whether Israel’s actions amounted to war crimes. At the same time, Giffin clarified that pension funds could take account of non-financial or ESG factors in their decisions, provided this was consistent with fiduciary duties and member interests – but they were under no obligation to divest on the basis of international law alone.
The new position by Doughty Street Chamber for PSC takes a broader stance, arguing that both the Secretary of State and administering authorities are ‘organs of state’, and that their actions are attributable to the UK under international law. On this basis, it contends that LGPS funds are legally required to avoid new investments in companies tied to Israel’s military operations or settlement activity, and to take reasonable steps towards divestment. The opinion grounds this duty in the UK’s obligations of prevention and non-assistance, including the duty to prevent genocide.
The gulf between the two opinions can hardly be greater: one frames divestment as an optional matter of fiduciary judgment, the other as a binding legal duty flowing from international law. The Supreme Court’s 2020 ruling adds a further dimension, holding that LGPS funds cannot be used as instruments of government foreign or defence policy. While councils remain public bodies, the Court stressed that the assets are members’ money, not government funds – raising a question over whether LGPS authorities should really be treated as ‘organs of the state’ in the sense envisaged by international law. Taken together, the different perspectives underline that while the legal rationale may vary, the capacity to divest is clear. The unresolved question is why many funds remain hesitant to act without central direction.
One part of the answer lies in the current structure of the LGPS. Very few administering authorities make direct investment decisions, and most assets are now held through pooled vehicles, where exclusions are harder to achieve without broad client consensus. Pool-level responsible investment policies also mean that any Israel-linked positions still held have already been judged to fall within existing ESG frameworks, making later challenges look inconsistent or politically motivated. Combined with limited in-house resources for evidence and defence of high-stakes ethical exclusions, these factors highlight some of the reasons why, in practice, action often appears slower than the legal framework might suggest.
Yet in response to Russia’s offensive of Ukraine in 2022, UK funds moved rapidly due to sanctions imposed that made continued investment unlawful. Ministers and the Financial Conduct Authority reinforced this by signalling that firms were expected to act quickly; many schemes announced exits within days. The Israel/Gaza context lacks a comparable sanctions architecture, which increases the perception of legal and political risk for LGPS – though the 2020 Supreme Court judgement makes it clear that, absent a legal instrument, ministers cannot force funds to align with government foreign policy.
While the Russia case shows how quickly funds can act when government signal and sanctions are clear, the UK’s stance on Palestine has been far more cautious. Until recently, the government had not recognised Palestine as an independent state, and that ambiguity may have encouraged LGPS authorities to hold back. In July however, the UK has announced its willingness to support the recognition as part of efforts to increase pressure on Israel. The question is expected to feature at the UN General Assembly on September 16, 2025. France, a fellow permanent member of the UN Security Council has already indicated it will recognise Palestine this month, alongside other close UK allies such as Belgium and Spain. With recognition now on the table, the rationale for continued delay is harder to defend.
Across Europe, pension investment strategies are shifting in response to the conflict whether or not their government have formally recognised Palestine. In Norway and Sweden, both of which recognised Palestinian statehood years ago, large funds have already acted. Norway’s Norges Bank Investment Management has excluded companies linked to the conflict, leading to divestments worth around NOK 4 million by June 2025, while Swedish schemes AP and Alecta of Sweden avoid companies that has direct or indirect ties to Israel.
The Norwegian comparison comes with a caveat: the Government Pension Fund Global is a sovereign wealth fund – public money managed on behalf of all citizens – and its ethical exclusions are mandated by Parliament. By contrast, Sweden’s AP funds are buffer funds for national pension system, and by law must integrate sustainability alongside financial returns, while occupational schemes such as Alecta apply their own exclusions. Unlike Norway’s sovereign fund, LGPS assets are contributions held in trust for members, and, as Supreme Court has stressed, are ‘not public money’. The governance obligations might differ, but the Norwegian and Swedish cases illustrate how both public and occupational pension funds can embed human-rights considerations directly into their investment mandates.
Similar decisions are also emerging in countries that have not recognised Palestine. In Denmark, where the government has stopped short of recognition but considered sanctions, the Danish teacher’s pension fund PBU, divested from Booking.com, Expedia, and Airbnb, citing parliamentary discouragement of activities that improve the economic opportunities for illegal settlements. The fund argued that continuing to hold these companies posed a risk of contributing to human-rights violations and conflicted with its responsible investment guidelines. PBU remains an outlier, however, as large pension funds such as AP Pension, ATP, PFA, and PKA still hold substantial Israel-linked positions. Even so, the Danish case demonstrated how political and legal signals can translate into material risks for fiduciary investors – even in the absence of formal recognition or sanctions.
Although International Humanitarian Law binds States, it does not bind occupational pension schemes. The United Kingdom is a “dualist system” and so, unless Parliament incorporates international treaties and norms into domestic law, they cannot be enforced against citizens or their pension funds. The UK Parliament has legislated on specific, narrow fields: grave breaches under the Geneva Conventions Act, international crimes under the International Criminal Court Act, prohibitions on mines and cluster munitions, and sanctions regulations. But none of these provisions place investment duties on the LGPS or any other pension fund.
So, while the assertions of a legal obligation raised by the Doughty Street Chambers for the PSC initiative will, in all probability, not stand up to detailed scrutiny, they do raise wider investment governance questions.
As geopolitics continues to disrupt markets, investors will need to grapple with ever more complex and nuanced debates. How can investors be effective stewards of their funds? At what point should officers be raising stewardship or ethical concerns with their managers? Is the advice they receive from their advisors sufficiently expert on complex human rights or ethical issues? Have investors given sufficient consideration to what they deem to be material issues?
The PSC campaign shines a light on a real tension: the industry is currently arguing robustly that the government’s proposed reserve powers to mandate investment will constrain their discretion and create significant risks, yet it often defers to the central government to resolve challenging investment problems. Regardless of legislation, investors have agency. They have full authority and capacity to act – provided they can demonstrate a transparent process, take proper advice, and act within their investment strategy.
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Last Updated: 5 September 2025