Round-up of investor action on the arms trade
The arms trade has long been an issue in responsible investing; arms companies were one of the primary sectors excluded from the first ethical funds. The current focus in investment campaigning is on cluster munitions in the run-up to the Dublin conference on 19th May 2008, when an international agreement on banning cluster munitions will be signed by 46 countries. Many funds have been under pressure to reassess their investment in arms companies.
More about the Oslo Process on the official website here: http://www.clusterprocess.org/
Photo September 5, 2006 by Julien Harneis. Abandoned house in Lebanon after a cluster bomb strike
Cluster munitions are bombs which scatter many tiny bomblets over a wide area when detonated. These can remain unexploded in the environment for years after a conflict has ended, and clearance operations are difficult and expensive. They have a devastating impact on civilians for years after they are deployed, with children particularly affected as the shiny bomblets resemble toys. Since they have a disproportionately high impact on civilians, an international agreement is being negotiated to ban them, just as landmines were in the 1997 Convention on the Prohibition of the Use, Stockpiling, Production and Transfer or Anti-Personnel Mines and on Their Destruction
Worldwide public pressure has led to several high-profile state pension funds disinvesting (or making moves towards disinvestment) from companies making cluster munitions. On March 18th of last year, a documentary on cluster bombs sparked controversy in Holland. The current affairs programme Zembla revealed how many Dutch national pension funds had investments in companies which manufactured land mines and cluster bombs, despite some of these funds having detailed corporate responsibility policies. Following negative press coverage and the matter being taken up by Dutch MPs, several of the major pension funds brought forward plans to make the details of their investments and record on engagement fully transparent. Two of the funds featured in the documentary have announced they will divest from landmine manufacturers, and one will also stop investing in cluster bomb makers. Whilst investment in cluster bomb manufacturers was the main focus of the programme, it also raised public awareness of the wider issue of responsible investment by pension funds.
Arms trade campaigning in the UK
Due to the legal situation in the UK (see the box to the right), pension funds are unable to disinvest from arms companies unless there is a solid business case for doing so. There are campaigns going on throughout the UK, though, that are using both moral and financial arguments to push for responsible investment of pension funds in relation to arms manufacturers. 3 out of 5 councils in the Merseyside pension fund recently voted to disinvest from arms companies and there are campaigns in the London boroughs of Lewisham, Lambeth and Islington to pressure their pension schemes to take similar action. The Merseyside fund rejected the motion to disinvest (arguing it would be illegal), but anti-arms campaigners and the Stop the War coalition, backed by the TUC, are now threatening to take the fund to court. This could provide a test case for the idea that pension funds are restricted in what they can disinvest from.
Other pension funds around the world have announced they will divest from cluster bomb manufacture:
- One of the first to do so was the Norwegian government pension fund, renowned for its strict SRI policy, which excluded many arms manufacturers in 2005 at the recommendation of its ethics council because of their connection to cluster bombs.
- The Belgian bank KBC and AXA insurance have also dropped cluster bomb manufacturers from their portfolios.
- Most recently, national pension funds in Ireland and New Zealand also announced they would pull out of cluster bomb investments in anticipation of their governments signing the treaty to ban cluster bombs.
The national AP funds in Sweden, however, have stated that they will not be divesting from these companies until a clear agreement has become part of international law. They prefer to engage with companies to improve their practices and do not generally divest from them. This is in line with the responsible investment approach which FairPensions advocates. Pension funds should engage with the companies they invest in to address ethical issues before they become financial ones, actively protecting their investments.