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Conflict in Ukraine

Published: 4 March 2022

Last updated: 18 March 2022

18 March 2022

Information added about considering disinvestment from Russian assets.

13 March 2022

Information added about investing in Russian assets.

The current uncertainty, and the associated sanctions against Russia and Russian individuals, has led to volatility in investment markets.

How those events might develop, the scale of those developments and the wider impacts are hard to predict, though a period of heightened uncertainty seems inevitable.

We are aware that a number of pension schemes and investment companies have written down any Russian assets held by the scheme to zero, while others have announced that they are intending to divest themselves of such assets when it is practical to do so.

When considering disinvestment from Russian assets, you will need to prioritise your fiduciary duties, although you can also take account of other factors such as member views on ethical and social governance. Your decisions should also reflect your scheme’s investment policy as set out in the statement of investment principles.

Given the fall in value of Russian assets, and the need to monitor and comply with sanctions and governance requirements, you may decide that divestment is in line with your fiduciary duties. However, there are likely to be practical challenges to disposing of those assets and achieving settlement in the short term.

As and when it is possible to sell such investments, you should have regard to guidance from the Financial Conduct Authority around ensuring your scheme meets requirements on entities that are subject to sanctions, or connected to sanctioned entities.

As a minimum for all schemes, we expect you to be vigilant and talk to your advisers about any action which you may need to take, depending on your scheme’s investment, risk management or employer covenant exposures.

While we recognise that this is a rapidly-evolving situation, areas that we expect you to consider include:

  • for defined benefit (DB) schemes, the short-term liquidity needs and how those needs might be affected by margin calls and the need to meet short-term member benefit payments
  • whether the employer or sponsor of the scheme has been affected, which for DB schemes may have consequences for the employer covenant: for example through any direct impacts to employer operations, through wider trading links where suppliers or customers are impacted, or through broader macroeconomic factors such as increased inflation, rising fuel prices or foreign exchange risks
  • the likely impact of these events on your scheme’s investments including short/medium-term risks
  • in light of the potential heightened risk of cyber-attacks in the current environment, whether your cyber safety procedures remain adequate or need further consideration
  • the potential for heightened risk of financial crime, including scams, and whether related processes and procedures should be reviewed
  • whether investments remain aligned with the policies and principles set out in your statement of investment principles, including environmental, social and governance considerations

Pensions are long-term investments and schemes invest in a wide and diverse range of sectors and markets. While volatility can be concerning for schemes and savers, markets go up and down and it is important that both trustees and savers have the longer term in mind.

Aside from any short-term actions in relation to Russian investments due to divestment, sanctions, or change in appetite in relation to holding these investments, this means not making hasty, uninformed decisions about your overall portfolio.

You may see an increase in concerns, or requests for information, from scheme members, and so should prepare for this and be vigilant to the potential for scam activity.

You should also consider whether to communicate with your members to let them know the steps you are taking to manage risks to the scheme. You can help them by urging them not to rush decisions and providing them with clear, relevant and timely information so they can make informed decisions.

We would like to hear from you

We would like to know more about any significant issues or challenges that you or your sponsoring employer are facing as a result of the ongoing conflict. This will help us build a clearer picture of the impact on pension schemes.

This could be:

  • direct or indirect exposure to investments which are subject to sanctions
  • financial hardship or losses as a result
  • employer covenant impacts, business disruptions, supply chain impacts

Please email, stating your scheme or employer name.