Excluded for good reason

Union Investment mutual funds are becoming nuclear weapon free

#4 Nuclear weapons

Weapons of war and nuclear energy are classic exclusion criteria for many sustainability-focused investors. These investors are particularly keen to exclude nuclear weapons, but this requires close examination of the production processes.

On 6 August 1945, the US dropped an atomic bomb over the Japanese city of Hiroshima. Three days later it detonated a second bomb over Nagasaki – both with devastating consequences. Hundreds of thousands of people were killed on the spot or died later from the effects of the explosions. Both cities were completely destroyed. More than 70 years on, the horrors of the bombing are still very present there.

Nuclear warfare is a major ethical problem. This applies both to the extent of the immediate damage and to the incalculable risks for the post-war world. As with a nuclear accident (Chernobyl or Fukushima), the use of nuclear weapons contaminates huge swathes of land, rendering it uninhabitable for decades to come. Although nuclear weapons are among the worst weapons of mass destruction, they are tolerated at political level by many states as a form of deterrent. The proliferation of nuclear weapons was supposed to have been halted by the 1970 Nuclear Non-Proliferation Treaty, although the nuclear powers retained the right to keep their own nuclear weapons. This is an anomaly which means that nuclear weapons, unlike landmines, cluster bombs and chemical or biological weapons, do not count as outlawed weapons under international conventions.

Although the number of nuclear warheads has fallen in the 30 or so years since the end of the Cold War, there is increasing investment in the modernisation of nuclear weapons. This is the conclusion of the Stockholm International Peace Research Institute (SIPRI), which has reported in detail on investment in the modernisation of nuclear arsenals. The risk of nuclear conflict has risen again.

New nuclear powers are arming themselves, and old nuclear powers such as the US are taking a critical look at existing arms control agreements. On 1 February 2019, the US terminated the INF treaty signed in 1987 with what was then the Soviet Union, which sought to reduce the number of intermediate range nuclear missile systems in Europe.

Fewer, but no less dangerous

The nuclear powers are modernising their arsenals

Fewer, but no less dangerous
Fewer, but not less dangerous

Growing risk: more and more states now own nuclear weapons

As a responsible investor, Union Investment has taken a clear position against nuclear weapons. “At the recommendation of the ESG committee and as part of  a regular process in which we discuss sustainability issues and ethical questions, we decided in April 2018 to exclude manufacturers of nuclear weapons and companies that are involved in the maintenance of such systems from all mutual funds,” explains Janne Werning, coordinator of the ESG committee and an ESG analyst at Union Investment.

This decision set in train the process of gradually e liminating nuclear weapons from all of Union Investment’s mutual funds. The policy excludes, in particular, companies that are involved in the manufacture of carrier rockets, nuclear warheads and specific components. A ban on buying shares in such companies came into force immediately. “Any existing positions held in the funds are gradually being reduced with the aim of complete elimination by the end of 2019,” explains Janne Werning.

As part of its policy to exclude nuclear weapons, the Union Investment sustainability team has started a dis
cussion with the companies concerned. The aim of its engagement activities is to encourage the companies to cease their involvement in the production of nuclear weapons or at least to spin off the business units concerned.

Companies include private firms that work for the nuclear arms programs of the US, the UK and France, including Airbus, Northrop Grumman and Safran. “We think it is unlikely that the large corporations will make significant changes. The financial dependence of these companies on government orders for weapons systems is simply too great,” explains Janne Werning. “But in the longer term, there is a chance of them spinning off the military business from the civilian.” In addition to reducing its shareholdings, Union Investment’s aim now from a sustainability perspective is to remain in contact with the companies and to send a clear message against weapons of mass destruction.

Stephanie Blenckner

In conversation with Stephanie Blenckner, Communications Director at the Stockholm International Peace Research Institute

Union Investment wants to know more

SIPRI collates data on the inventories of nuclear weapons around the world. Where do you see particular cause for concern?

Our data shows two clear global trends. On the positive side, the number of nuclear warheads in the world is declining. Our latest figures estimate there are 14,465 nuclear weapons held by nine states. That’s still a huge number, but a significant reduction from 60,000 in the early 1990s. What is of concern, however, is that the nuclear arsenal is being extensively modernised. Nuclear weapons seem to have regained their importance as a means of long-term deterrence.

Why is it important for investors not to invest directly or indirectly in nuclear weapons? 

Our institute has found that public opinion around the world is crystallising again on this issue. The nuclear debate has flared up again and it is clear that the public dislikes nuclear weapons and perceives them as threatening. Public awareness of nuclear risk has risen as a result of recent events in North Korea and Iran. For the first time since the end of the Cold War, people feel there is a real risk of nuclear conflict. This is not a scenario that investors would want to be supporting.

How do policymakers and investors respond to your warnings?

SIPRI’s role is simply to put the facts on the table; we don’t issue explicit warnings. However, with regard to nuclear weapons, the figures we present and the current developments around the world speak for themselves. The recent announcement by the US of its intention to withdraw from the INF treaty on land-based intermediate range nuclear weapons is just another link in the chain of a crumbling infrastructure of nuclear disarmament, and evidence of a lack of political will in this area. The power of investors to send clear signals should not be underestimated.


#Stockholm International Peace Research Institute

SIPRI was established in 1966 by the Swedish government. The institute is known for its annual reports on international armaments spending. The SIPRI studies on armaments provided a basis for disarmament talks between East and West with figures that were accepted by all parties involved.

A challenging process

Union Investment categorically does not invest in companies that make weapons which are banned under international law, such as cluster bombs, landmines, and biological or chemical weapons. Serious ethical questions are also asked about investments in companies that play a key role in  the production of nuclear weapons. Like weapons banned under international law, the production of nuclear weapons carries a high reputational risk. The challenge in excluding nuclear weapons, however, lies in understanding the precise production and value-creation chains for this complex technology. Nuclear weapons are not just the atomic warheads, but also comprise a number of individual components such as carrier systems, electronics  and sensors. It is difficult to identify the specific companies concerned. Often, civilian companies involved in aerospace and the tech sector supply parts that have non-military uses but can also be used in the production of nuclear weapons. There are also many companies that are involved indirectly, or to a lesser degree, such as through pro- duction of small parts for the assembly or maintenance of nuclear weapons systems. While the civilian s ector does not present any concerns from an ESG perspective, as a socially responsible asset management company we want to exercise some influence on the military activities of the companies involved, on behalf of our investors.

Janne Werning

Janne Werning

ESG Analyst at Union Investment

Unless otherwise noted, all Information and illustrations are as at 8 May 2019.

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