Nuclear alert for investors

mei 2017

By Michel Riemersma

Amid increased nuclear weapons budgets and serious nuclear tension between the US and North Korea, 7 July 2017 could surprisingly become a landmark date in global nuclear disarmament. From 15 June until 7 July, the General Assembly of the United Nations holds its second ‘Conference to Negotiate a Legally Binding Instrument to Prohibit Nuclear Weapons, Leading Towards their Total Elimination’. Depending on the results of the conference, investors might have to make some tough decisions on the exclusion of nuclear weapons producers from their portfolios.

During the first conference in March 2017, 132 countries attended the negotiations. Dutch peace organisation PAX concludes that “it is already clear that there is extensive support for a comprehensive prohibition of these weapons of mass destruction”. Essential for financial institutions is the possibility that the financing of nuclear weapons developers and producers might be forbidden by such a new instrument. The Draft Treaty, released on 22 May, prohibits State Parties to “Assist, encourage, or induce, in any way, anyone to engage in any activity prohibited to a State Party under this Convention”. The implementation of the Convention on Cluster Munitions by multiple states shows that ‘assistance’ can be interpreted to prohibit financing and investment of controversial weapons. The nuclear Treaty is likely to be interpreted in the same way. For example, the Austrian delegation expressed that “the prohibition on assistance would also apply to financing” nuclear weapons.

PAX’s annual ‘Don’t Bank on the Bomb’ study shows that financial institutions often rely on guidance from national governments and international regulations for drafting responsible investment policies. These financial institutions should be aware of the potential impact the UN Conference can have on their portfolios. The 2016 ‘Don’t Bank on the Bomb’ study found that “390 banks, insurance companies, pension funds and asset managers from 26 countries were found that invest significantly in the nuclear weapon industry”. PAX argues that “financial institutions provide crucial and necessary support to companies, so that they are able to carry out their projects. Most nuclear armed states rely on private companies for the production, maintenance and modernization of their nuclear weapons”. Similar to the stigmatising effect of the 2008 Convention on Cluster Munitions, PAX states that a ban on nuclear weapons will “limit the flow of financing to the companies involved in nuclear arsenals and thereby have a concrete impact beyond the countries that initially accede to the treaty”. Therefore, even though the five states recognised as having nuclear weapons by the Non-Proliferation Treaty - US, Russia, China, France and the UK - are not participating in the conference, the UN treaty might impact their nuclear arsenals.

Financial institutions should closely monitor the UN negotiations this summer and be prepared to dismantle their nuclear weapons portfolios.

For more information or research opportunities on this topic, please contact Michel Riemersma

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