Pension scheme trustees will naturally be considering what, if any, steps they may wish to take as the economic effects of Russia's invasion of Ukraine have begun to be felt worldwide, and as further economic sanctions and restrictions have been imposed on Russia and Belarus.

There are two issues for trustees to consider:

  1. whether any of their investments are now subject to sanctions; and
  2. whether, in the light of sanctions and the economic and political consequences arising from the Russian invasion of Ukraine, they wish to look again at their investment strategy.

In relation to the first issue, we would recommend that trustees ask their investment managers to confirm to them that none of their funds/portfolios are invested directly or indirectly in entities which are subject to UK, US or EU sanctions. The sanctions net has been drawn widely and it is possible that investments which at first glance seem innocuous have been caught.  If an investment has been sanctioned, we would strongly suggest taking specialist advice from our pensions and sanctions teams. This is a complicated and fast-moving area, where getting it wrong could amount to a criminal offence.

In relation to the second issue, we would suggest that trustees take investment advice on whether their portfolio is still appropriate in the light of the new political and economic risks created by the Russian invasion and the global reaction to it, or whether it needs rebalancing and/or disinvestments need to be made.

Examples of these more general investment considerations for trustees are:

  • Discuss with their investment consultant (or fiduciary manager, if applicable) what exposures (direct and indirect) the scheme has to Russia and Belarus, and in particular whether it is exposed to an entity subject to sanctions. For example, it may be that the scheme has invested directly in a Russian company, or in a non-Russian company that has a significant stake in a Russian company, or in a non-Russian fund that has invested in a Russian infrastructure project.
  • Following the above, discuss with their investment consultant (or fiduciary manager) whether the portfolio remains appropriate and if not what steps they intend to take. If they are not planning to take any action, the trustees may consider instructing their managers to disinvest (subject to advice).
  • Consider asking their key advisers/appointments (e.g., investment consultants, investment/fiduciary managers, custodian) what steps they are taking to ensure that the scheme does not breach the various international sanctions and measures that are being implemented – it seems likely this exercise will need to be repeated as sanctions are being widened regularly.