What’s the harm of cluster munitions?

Proposed legislation in Australia undermines the international Convention on cluster munitions.

Arms in Scottsdale
The use of cluster munitions presents the risk of unacceptable harm to civilians [EPA / Stephane De Greef, LCMM]

Melbourne, Australia – This is the third part of a three-part essay. Here, I examine the problem of institutional investment in cluster munitions producers. Go back and read Part 1 for an introduction to the concept of corporate social irresponsibility or Part 2 for the paradox of a “responsible” arms maker.

A cluster bomb is a weapon with explosive sub-munitions or “bomblets” that disperse over an area the size of several football fields when released. Their trajectory is impossible to control for those deploying them, making it likewise impossible to control who they maim or kill. Their innocuous appearance – some are even designed to look like soft drink cans, hockey pucks or tennis balls – mean that many innocent women and children lose their lives days, weeks, or years later. Handicap International found that as many as 98 per cent of the victims of unexploded cluster munitions in are civilians, a third of which are children.

In December 2008 the Australian Government was among the norm entrepreneurs that signed the international Cluster Munitions Convention, stating that the use of cluster munitions presents the risk of ‘unacceptable harm to civilians’ and must therefore be subject to an internationally binding ban. When the Convention came into effect in August 2010, a chorus of NGOs and governments proclaimed ‘an end for all time’ of the use of cluster munitions.

However, Australia requires all signed treaties to be ratified by domestic legislation that effectively turns its propositions into criminal offences. And the report submitted by the Senate Committee on Foreign Affairs, Defence and Trade on the proposed Cluster Munitions Prohibition Bill contains a number of provisions that differ significantly from the commitment made by the Australian Government to the international community when it signed the Convention in 2008 by leaving a number of important loopholes.

The first loophole undermines the section of the Convention that requires Australia to ‘never under any circumstances’ act contrary to the Convention by explicitly allowing military allies who refrained from signing unfettered access to stockpile, retain and transit cluster munitions within Australia. This, in turn, allows Australian military personnel to actively assist in cluster munitions-related activities during joint military operations with our non-signatory allies – basically to operate to the point where they can do anything, but pull the trigger. This move is unprecedented; no other signatory country in the world has expressly permitted such unfettered free access to its territories.

Moreover, the legislation does not prohibit investment in companies that produce cluster munitions, making it clearly out of line with international standards and expectations. Many countries, like New Zealand, Ireland, Holland, Luxembourg and Belgium, specifically ban investment and provision of other financial services – such as banking, loans and equity – to companies that either develop or produce cluster munitions. Others, including the United Kingdom, Germany, France, Switzerland, Lebanon, Mexico, Norway and Rwanda, have all publicly stated that they interpret the Convention as including a prohibition of direct and indirect investment.

Indications show that the Australian investment community wants this issue addressed. The Australian Council of Super Investors (ACSI) – a body that represents over A$300bn of domestic retirement savings – has been especially vocal in its opposition to the proposed bill, saying that ‘the current drafting will have no practical effect on the financing of cluster bomb production’ and making its position quite clear.

In its 2009 report recommending that the Australian Government ratify the Convention, the Parliamentary Joint Standing Committee on Treaties recommended that any bill prevent ‘investment by Australian entities in the development or production of cluster munitions, either directly, or through the provision of funds to companies that may develop or produce cluster munitions’.

Yet, in research I began to publish in 2009 explained how (here, here and here), in the absence of publicly-available

The fact that Australia has the fourth largest investment market in the world limits the success of the international Convention to how institutional investors address such norms within their day-to-day operations and strategic policies.

exclusion policies, two Australian pension funds and the Australia’s principal sovereign wealth fund were likely to have investments in companies that produce cluster munitions. In addition, a significant number of the hired investment managers are also known to provide bank loans, investment banking, or other financial services to makers of cluster munitions, demonstrating the complexity of some of the financial relationships involved.

The Attorney-General’s department has indicated that the bill ‘does not include an investment offence’ in its provisions adequate enough to prohibit investment in companies involved in the production of cluster munitions as long as it was not provided for the express purposes of developing or producing cluster munitions. The main issue is that none of the six companies known to be involved do so exclusively – they make other civilian and/or military products.

Despite the lack of obligation to do so, Australia’s sovereign wealth fund announced that it had divested from 10 companies association with cluster munitions production, including Alliant Techsystems, General Dynamics, Hanwha, Kaman, L-3 Communications Holdings, Lockheed Martin, Poongsan, Raytheon, Singapore Technologies Engineering and Textron. However, they released no official statements and have no policy statement publicly available on their website.

At the present time, I am unaware of any investor specifically arguing for the bill to permit Australian entities to continue investing in companies involved in the production of cluster munitions overseas. In the absence of legislation dictating for investors what they can and can’t invest in, it will remain difficult for investors to identify and act on emerging norms such as the banning of cluster munitions. The fact that Australia has the fourth largest investment market in the world limits the success of the international Convention to how institutional investors address such norms within their day-to-day operations and strategic policies.


The experience of institutional investors in Australia regarding the makers of cluster munitions show how pension funds are faced with a “dilemma”: accept the Federal Government’s restrictive application of the international Convention within its domestic legislation, or adopt a more expansive reading and cease investing directly and indirectly in cluster munitions over and above its stated obligations.

An analysis of stock holdings of several Australian pension funds and the government’s principal sovereign wealth fund indicates that it is still common for investors to wait for legislative direction before excluding particular stocks and sectors. This is true for investors who adopt either a mainstream or responsible investment approach, and is partly due to difficulties in implementation as well as compatibility with widely-held investment principles.

The concept of corporate social irresponsibility was also offered as both a practically and theoretically compelling solution for investors seeking to reconcile their fiduciary duties and investment objectives as it satisfies the demand to identify and meet emerging social norms. It also capitalises on an intrinsic feature of armaments manufacturing: the existence of certain “negative externalities” that result from standard use of its products and services. In this way, the institutional investor may better resolve what I have termed the “cluster munitions dilemma” with suitable strategies and programmes.

The mechanics of implementation options have been explored more fully elsewhere, but may broadly include both exclusion and engagement strategies. A pre-defined exclusionary policy ensures that identified stocks and sectors are “negatively screened-out” (divested) from the investible universe as well as “blacklisted” from any future investment. So-called “ethical investors” commonly exclude controversial weapons such as cluster munitions, which they view as being intrinsically “indiscriminate” in design as well as “inhumane and cruel”.

The vast proportion of mainstream and responsible investors, however, favours an engagement approach, with no exclusionary mechanism on certain stocks and sectors. Signatory members of the UN Principles for Responsible Investment (UNPRI) – whose asset owners and service providers marshal over A$22tn in assets – instead advocate for “responsible” and “sustainable investment” strategies which take environmental, social and corporate governance (ESG) factors into account as long as they are statistically significant to investment performance. A small number of funds attempt to switch between responsible and ethical investment strategies so that when engagement fails to achieve the desired change in company behaviour, investors have a predefined process for excluding the stocks from the portfolio.

The benefits of the corporate social irresponsibility approach are therefore significant. The investor has the advantage of disposing of a roadmap for managing – though not necessarily predicting – emerging social norms. This is true for ethical, responsible and mainstream investment approaches, although is most readily compatible with investors who have pre-established exclusionary policies as well as effective implementation procedures.

Society also benefits from increasingly powerful economic actors like pension and sovereign wealth funds, which direct their capital in a way that minimises humanitarian and environmental harm. I have touched upon how the use of cluster munitions demonstrates the manner in which corporate activity may impact broader social objectives. And both processes arguably better serve the beneficiaries’ “best interests”, which is, after all, the sole purpose of the institutional investment industry.

NAJ Taylor is a doctoral candidate in the School of Political Science and International Studies at the University of Queensland, and author of This Blog Harms 

Follow NAJ Taylor on Twitter: @najtaylor

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.