Exploring the human rights risks of weapons financing
The case for defence, ESG Investor, 13 March 2024
Conflict is a global market supported by large companies across many sectors, from selling surveillance technologies to repressive regimes in Egypt and Libya, to financing the military junta in Myanmar.
From the perspective of ESG-focused investors, funding weapons, conflict and surveillance is a highly complicated topic. While investing in weapons may boost portfolio performance, such investments also come with big human rights-related risks attached – not to mention environmental implications.
It is also difficult to measure – and therefore manage – portfolio exposures to these, due to the opacity of weapons supply chains.
Given the extensive risks associated with lethal weapons, any responsible investor has to be uncompromising and unstinting in their application of heightened human rights due diligence.Phil Bloomer, ED, BHRRC
...Some investors have drawn a line in the sand. Norway-based asset manager Storebrand recently excluded First International Bank of Israel for its involvement in the Occupied Palestinian Territory, while a number of major European banks and pension funds divested from Israeli weapons manufacturer Elbit.
Many investors also have weapons-focused exclusions enshrined in their investment policies.
Investors need to know who is selling what throughout the value chain. There should be absolutely no investments in any weapons or intelligence systems that are outside of international humanitarian laws, such as cluster bombs, landmines and nuclear weapons.Phil Bloomer, ED, BHRRC
However, for some investors, the line appears to be blurred on what passes as ‘acceptable’ weapons funding...
Index providers MSCI, FTSE Russell and S&P Dow Jones Indices recently refuted claims that they had allowed ESG-labelled investments contributing to Myanmar’s military regime.
More recently, a report published by the Global Alliance for Banking on Values (GABV) outlined the extent to which the global financial sector has been financing conflict. It found that at least US$1 trillion was invested in the arms industry between 2020 and 2022 – nearly half of which came from the US finance sector and US$79 billion from Europe’s top-ten investors...
The extent to which private investors invest in domestic and regional defence has become a growing point of contention between governments and the private sector globally.
In November 2022, Dutch pension funds resisted a call to increase investments in weapons manufacturers...Europe’s defence industry has also lobbied hard to persuade officials to consider weapons investment as a sustainable economic activity...
Responsible investors can also consider applying international human rights laws to their investment strategies, such as the UN Global Compact, the UN Guiding Principles on Business and Human Rights, and the Arms Trade Treaty, as well as any relevant sanctions...
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