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March 07, 2012

Study Identifies Financial Institutions Investing in Nuclear Weapons
    by Robert Kropp

The International Campaign to Abolish Nuclear Weapons names 322 financial institutions from 30 countries with substantial investments in the $100 billion-a-year nuclear weapons industry.

SocialFunds.com -- As far back as the early 1970s, sustainable investors have been excluding nuclear power and military defense contractors from their portfolios, and since then the avoidance of manufacturers of nuclear weapons—companies like GenCorp, Lockheed Martin, and Northrop Grumman, all based in the US—is most likely an ironclad rule among those investors for environmental, social, and corporate governance (ESG) considerations are paramount.

But where do companies engaged in the manufacture of nuclear weapons—20 of which are identified in an important new report from the International Campaign to Abolish Nuclear Weapons (ICAN), including a total of ten headquartered in the US—get funding for what Nobel Peace Prize recipient Desmond Tutu calls "an obscenity. They are the very antithesis of humanity, of goodness in this world"?

With financial research provided by Profundo, ICAN's report, entitled Don't Bank on the Bomb identifies more than 300 financial institutions in 30 countries—about half of which are based in the US—whose investments in nuclear arms producers are substantial.

In his foreword to the report, Tutu wrote, "Banks and other financial institutions should be called upon to do the right thing and assist, rather than impede, efforts to eliminate the threat of radioactive incineration by divesting from the immoral nuclear arms industry."

Tim Wright of ICAN, a co-author of the report, said, "Any use of nuclear weapons would violate international law and have catastrophic humanitarian consequences. By investing in nuclear weapons producers, financial institutions are in effect facilitating the build-up of nuclear forces. This undermines efforts to achieve a nuclear-weapon-free world and heightens the risk that one day these ultimate weapons of mass destruction will be used again."

"A coordinated global campaign for nuclear weapons divestment is urgently needed," the report states. "It can help put a halt to modernization programs, strengthen the international norm against nuclear weapons, and build momentum towards negotiations on a universal nuclear weapons ban."

Despite the fact that three-quarters of citizens in the US support a ban on nuclear weapons, "Annual expenditure by the United States on nuclear weapons exceeds that of all other nuclear-armed nations put together," according to the report. "Under the Obama presidency, spending on nuclear arms has risen, and major outlays are projected for the coming decade," while funding for warhead dismantlement has declined.

In the US, banks with the greatest exposure to the investment risks associated with nuclear weapons include Bank of America, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. All of these financial institutions own or manage at least 0.5% of a nuclear weapons producer's shares and/or bonds, and have participated in at least one bank loan to a nuclear weapons producer since 2008.

Large mutual funds such as Fidelity, State Street, and Vanguard have considerable exposure in their portfolios as well. But what may be most surprising to practitioners of sustainable investment is the presence in the report of a number of signatories to the United Nations' Principles of Responsible Investment (PRI).

CalPERS, the largest public pension fund in the US, owns or manages at least 0.5% of GenCorp, which develops and produces land- and sea-based nuclear ballistic missile systems. TIAA-CREF has substantial investments in 11 nuclear weapons producers. And the investments of BlackRock, the world's largest asset manager, are identified by ICAN as being among the most extensive of all US financial institutions. All three institutions are PRI signatories.

In examining the policies of 14 financial institutions on investment in nuclear weapons, the authors found that "the policies are generally not very strict and leave room to invest in producers of nuclear weapons if, for example, the investment is not targeted at the production of nuclear weapons, or only a small part of the company's turnover is generated by nuclear weapons work."

For instance, the policy of the Netherlands-based ING—whose investment management arm is a PRI signatory—"has a defense policy that excludes the financing of companies that produce, maintain or trade controversial weapons," according to the report. Yet ING is involved in financing Boeing, EADS, Honeywell International and Safran.

And the Canada-based TD Bank—whose asset management arm is also a PRI signatory—states in its corporate social responsibility (CSR) policies, "We do not lend money for transactions that are directly related to the trade in or manufacturing of material for nuclear, chemical or biological weapons or for landmines or cluster bombs." TD Bank is involved in financing BAE Systems, EADS, General Dynamics and Rolls‑Royce.

So what is to be done? ICAN's report unequivocally calls upon the financial institutions identified in its report to join a global campaign for nuclear weapons divestment. "Some financial institutions, including government funds, have already opted to exclude nuclear weapons companies from their investment portfolios," the report states. "Others must now follow suit."

One institution that has excluded nuclear weapons is the Norwegian Government Pension Fund (SPU). In 2002, when it was determined that SPU had holdings in Lockheed Martin and Honeywell, "It became politically impossible for the government not to divest," said Pia Gaardner of the Norwegian chapter of the Future in Our Hands. On the subject of a global campaign, Gaardner said, "For private actors it is probably not only a question of reputation, but also a question of market shares. If they offer people a fund portfolio that, for ethical reasons, people are reluctant to buy, they will lose out to other financial institutions."

The report also highlights successful campaigns associated with disarmament, including the boycott to end French nuclear testing and the campaign to divest from manufacturers of cluster bombs.

While this important report may have arrived too late for shareowner action by sustainable investors in the 2012 proxy season, the opportunity to play an influential role in a global campaign for divestment is considerable. A glance at the 2012 Proxy Resolutions and Voting Guide of the Interfaith Center on Corporate Responsibility (ICCR) reveals that its members hold shares in many of the financial institutions identified by ICAN.

"Divestment was vital in the campaign to end apartheid in South Africa," Tutu wrote in the foreword. "Today, the same tactic can – and must – be employed to challenge man's most evil creation: the nuclear bomb. No one should be profiting from this terrible industry of death, which threatens us all."

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