united kingdomen
SI Dilemmas: The unexpected debate about weapons

SI Dilemmas: The unexpected debate about weapons

21-04-2022 | SI Dilemmas

Sustainable investing has never been static. It has evolved over the decades to include a wider range of asset classes and approaches. A certain set of beliefs has tended to underpin all approaches though, tied to the concept of environmental protection and inter-generational equity, and aligned with identification of the most important topics. The arrival of the Sustainable Development Goals (SDGs) in 2015 further helped to provide a common, albeit imperfect, reference framework for sustainable investors.

  • Rachel  Whittaker
    Rachel
    Whittaker
    Head of SI Research

Speed read

  • War in Ukraine raises question of weapons used to protect peace
  • Weapons avoidance has been a long-standing core element in SI
  • Changing perceptions takes time, but challenging beliefs is necessary

But now, one of the longest-standing tenets of sustainable investing has been challenged – the exclusion of weapons from sustainable portfolios. Weapons exclusion has never been a simple binary issue, since investors have always had to make decisions, such as should all weapons be excluded, or just those sold to the military? And should just the manufacturers of weapons be excluded, or also the retailers? And do we put firearms for sports in the same category as cluster bombs?

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Definitions matter

Most sustainable investors generally agree on the basic principles though, and the practice of avoiding the most controversial types of weapons is not limited to ethical or sustainable investing. In Switzerland, the Federal Act on War Material prevents all Swiss banks and pension funds from investing in equipment that has been specifically designed for military combat. This is a relatively narrow range of activities though, and consequently the industry body Swiss Sustainable Finance does not include funds with only the minimal legally required weapons exclusions in its estimate of sustainably managed assets.

The war in Ukraine has triggered a debate over weapons exclusions, with some investors and commentators calling for reconsideration of the near-universal exclusion of weapons from sustainable portfolios. The catalyst for the discussion is whether weapons are in fact a necessary tool to protect peace and democracy; could weapons actually contribute to, or even be necessary to achieve, SDG16: Peace, justice and strong institutions?

EU Taxonomy

The debate is further fuelled by the proposal in February for an EU Sustainable Finance Social Taxonomy that only explicitly deems highly controversial weapons to be fundamentally opposed to social objectives. This is a similarly narrow definition to that in the Swiss regulation, raising the possibility that non-military firearms could play a role in helping to achieve other social aims, such as protecting human rights.

Thus far, the strength of feeling about weapons seems too deep to meaningfully shift sustainable portfolios in the short term. More weapons are not a guarantee for safer and more peaceful societies; in fact, it’s probably the opposite, given the close link between high rates of gun violence and weak gun control laws. Investors in public companies have no guarantee that weapons sold by investee companies would only be used for ‘good’, nor can they control where they end up. And while the goals of SDG 16 may be difficult to achieve, its first target cannot be ignored: “Reduce all forms of violence and related death rates everywhere”.

Emerging with a new outlook

This discussion will no doubt re-emerge in future, as many topics do that involve a trade off between possible positive and negative outcomes. These challenges to generally accepted views are valuable, even if we disagree, or think that we do.

Considering different points of view forces us to pay attention to changes in the world and to reassess whether our decisions are still valid and evidence based. We emerge either with greater conviction, or with a new outlook that is more relevant.

Subjects related to this article are:
Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree