More than 430 public bodies in Scotland are investing more than £1.4 billion in pollution.
An investigation by the Sunday Herald found that public-sector pension funds are supporting more than 100 big corporations blamed for damaging the climate, causing cancer and profiting from conflict.
Among the groups backing major climate polluters is the Government's Scottish Environment Protection Agency (Sepa). Among those funding big tobacco are health groups, cancer hospices, schools and universities. Two public pension schemes are putting millions of pounds into an electronics company that makes controls for US military drones accused of illegally killing more than 400 civilians in Pakistan, Yemen and Somalia.
The revelations have shocked trades unionists, pension holders and campaigners, who are now calling for a major overhaul of public investments.
"Many people work in the public sector because they want the world to be a better place," said Dr Richard Dixon, director of Friends of the Earth Scotland. "They will be appalled to find out the scale on which their money is being used to fund climate change, big tobacco and arms companies … in many cases funding these companies directly conflicts with the aims of the organisations offering these pensions."
Dave Watson, Scottish organiser for the trade union Unison, which has 90,000 members in its pension schemes, maintained that it was "perfectly possible" to avoid unethical investments.
He added: "It is simply absurd to invest huge sums of public and workers' money in companies whose aims are incompatible with public policy objectives."
Many of Scotland's public-sector pensions are administered by five local authorities in Glasgow, Edinburgh, Aberdeen, Dundee and Falkirk. Together they invest £23bn on behalf of more than 400,000 individual members from 435 public bodies, including universities, government agencies and voluntary groups.
Until now the companies in which they invest have been hidden, so that pension-holders didn't know where their money went. Now, however, using Freedom of Information law, the Sunday Herald has uncovered where the money goes.
In 2013, the five pension schemes were investing £1.11bn in fossil fuel companies, £204 million in tobacco and £113m in arms. The biggest beneficiaries, netting more than £100m each, were British American Tobacco, coal and metal miner Rio Tinto, and oil multinational, Royal Dutch Shell.
Other fossil-fuel corporations given multi-million-pound backing included BP, Exxon Mobil, Chevron, EOG Resources (formerly Enron) and the world's largest coal mining company, China Shenhua Energy Company. Also in the top 20 recipients were the cigarette makers Imperial Tobacco and Philip Morris, and the arms manufacturers Rolls-Royce Holdings and Lockheed Martin (see tables). Almost £15m went to UK defence company BAE Systems, despite its record of selling weapons to countries with poor human rights records - it sold 200 armoured vehicles to Saudia Arabia, which used them to help suppress pro-democracy protests in Bahrain in March 2011.
The biggest pension fund, covering Strathclyde and run by Glasgow City Council, invested £545m in 71 fossil fuel companies, three tobacco firms and three arms manufacturers. It involves 215 public bodies including councils, colleges, the Loch Lomond and The Trossachs National Park Authority and Greenspace Scotland.
Lothian Pension Fund, run by the City of Edinburgh Council, invests £345m in 53 fossil-fuel firms, six arms manufacturers and five tobacco companies. Its 101 public bodies include Heriot-Watt University, the august Royal Society of Edinburgh, community groups and a care home for cancer patients, St Columba's Hospice.
The North East Scotland Pension Fund, involving a sports trust and health groups, put £229m into fossil fuel, tobacco and arms companies, including £3m with Ultra Electronics, a UK firm which made components for US drones. Included in the £197m invested by the Tayside pension scheme is another £3m for Ultra Electronics.
The Falkirk pension fund, which covers Sepa and Strathcarron Hospice, had investments of £87m in 14 fossil fuel companies in November 2013 - one-third more than in November 2012. In 2013, it also put £23m into tobacco firms and £5m to BAE Systems.
Tobacco and arms have long been avoided by some major investors, and now a growing international movement has persuaded a Norwegian pension fund, Storebrand, and the Dutch bank Rabobank, to withdraw from fossil fuel firms. Edinburgh University and the Church of Scotland are reviewing their investments, and look likely to steer away from fossil fuels.
the United Nations climate chief, Christiana Figueres, speaking in New York last week, told big investors they should pull out of fossil fuels. Scientists say that up to three-quarters of the planet's remaining coal, oil and gas must stay in the ground if the world is to avoid climate chaos.
The American writer and environmentalist, Bill McKibben, who helped launch the "fossil-free" investment campaign across Europe, including in Edinburgh last October, argued that fossil-fuel investments would become worthless when the "carbon bubble" burst. He said: "There's no way to escape the conclusion that this industry is now an outlaw industry. Not outlaw against the laws of the state … but outlaw against the laws of physics."
News of Scotland's public-sector pension investments saddened McKibben. "It's such a tragedy to see this level of shortsightedness," he told the Sunday Herald. "It just doesn't make sense to pay for one's pension by investing in companies that make sure we won't have a planet to retire on."
The environmental group WWF has launched a global campaign under the banner "Seize Your Power", urging financial institutions and governments to switch investments from fossil fuels to renewables. WWF Scotland director Lang Banks said: "Many staff in these organisations will be shocked to learn that their pensions could be helping to fuel climate change and damage the environment - some of the very things they are working to prevent."
The oil industry stressed that it contributed £6.5bn to UK tax revenues last year, and that the UK accounted for only 2% of climate pollution worldwide.
A spokeswoman for industry body Oil & Gas UK said: "Climate change policy should focus on moving progressively from high-carbon coal to lower-carbon natural gas, not only on the increased use of renewables."
Sepa pointed out that it has successfully reduced its carbon emissions and played a major role in helping the Scottish Government do the same.
But Dr Janet Moxley, a former senior climate change scientist with Sepa, expressed disappointed that the agency had failed to shift its pension investments to businesses that benefit the environment, unlike its sister agency in England and Wales, the Environment Agency.
She added: "Most Sepa staff are passionate about the protecting the environment, and many try to make sure that their own savings are invested ethically, but all this is undermined if the pensions scheme is invested in activities which damage the environment."
Sepa said staff could opt out of the pension scheme if they wanted to. A spokesman added: "Sepa is keen that the scheme takes account of environmental considerations in its investments, and as a member we have made representation to the scheme to encourage that approach."
Chief executive of ASH Scotland, Sheila Duffy, said: "Councils, the police, the fire service and others are all tasked with looking after people's wellbeing. This doesn't sit easily with investments in tobacco companies, who sell an addictive product that kills half of its long-term users."
She argued that because the number of smokers was declining, withdrawing tobacco investments could make sense financially as well as ethically.
The Tobacco Manufacturers' Association, which represents UK companies, insisted that tobacco was a "legitimate industry" in which people could invest. "Fund managers should be free to make the best financial decisions for their investors," said an association spokesman.
The Campaign Against Arms Trade branded the £113m support for weapons manufacturers as "alarming". Spokesman Andrew Smith commented: "The arms trade is not a legitimate industry and should not be treated like one. It is a business whose main purpose is to profit from oppression, global insecurity and conflict."
Aerospace Defence Security, the body representing arms companies, did not respond to requests for comment last week.
Local authority pension fund mangers insisted that they took their social responsibilities very seriously. But they said fund managers had a "fiduciary duty" to obtain the best return on investments. They also said that they were influencing companies by actively engaging with them, rather than by withdrawing investments.
Clare Scott, who manages the Lothian Pension Fund, said she appreciated people's concerns, but warned that excluding particular companies could limit funds' income. She hoped that a current UK review of institutional investment would clarify how ethical investments could be made.
A spokesman for the Strathclyde Pension Fund pointed out that its investments in the low carbon economy were growing, with £82m committed last month to "major public infrastructure developments".