Controversial Weapons and International Framework

Introduction:

The beginning of modern warfare in the 20^th century witnessed the development of weapon types that have a severe, disproportionate and indiscriminate impact on civilians, even years after a conflict has ended. The general trend indicates that democratic states have the right to use armed force to safeguard their national security and secure peace. However, some weapons have the potential to cause disproportionate harm and inflict threat upon others. Over the past decades, there has been a halt and ban on the production of specific, controversial weapon types, and many countries have adopted international conventions to this effect.

There is no universally accepted definition of controversial weapons, therefore countries hold their views and broadly possess certain keywords to establish a common understanding:

• Indiscrimination: Indiscriminate nature of weapon i.e. it does not distinguish between military and civil.
• Proportionality: Excessively harmful weapons that can cause an exceptional amount of pain and suffering.
• Illegality: Prohibition in its production and use by International legal instruments.[1]

The weapons that usually make to the list of controversial weapons are those that have some kind of bans by International agreements such as cluster munitions, anti-personnel mines, and nuclear, biological, and chemical weapons. But a few get caught even though they are not banned, e.g. depleted uranium. Blinding laser weapons, incendiary weapons, and weapons possessing non-detectable fragments are also controversial due to the substantial amount of long-term injuries they cause to both military and civil people.

What are Controversial Weapons?

The Weapons that are either restricted under International conventions or became controversial subsequently because of their substantial impact on humanity are termed as Controversial. They include weapons that are capable of mass destruction such as nuclear, chemical, and biological weapons, and weapons that are designed indiscriminately causing disproportionate harm. International conventions regulate and prohibit controversial weapons. One of these conventions- “The Convention on Cluster Munitions” requires the parties to state to prohibit investment in producing such weapons.

Most countries have enacted legislation on investment in production in cluster munitions whereas others issue ministerial or interpretive statements to restrict investment in the production of cluster munitions. The national governments are at liberty to regulate investment services within their jurisdictions regarding humanitarian impacts and No principle in the international arena says otherwise. Although several international conventions do prohibit the development, production, acquisition, stockpiling, transfer and use in armed conflict of weapons and methods of warfare causing unnecessary injury or suffering.[2] However, none of them explicitly denies the states of their jurisdictions upon their territory. The types of prohibited investments differ from one country to another and some have extra-territorial applications too. New Zealand illustrates a good example.

Policy Approaches to Controversial Weapons

All across the globe, the legal environment and geographical preferences vary. Some prefer to have a more extensive approach whereas others don’t apply any restrictions. Policy practices differ significantly as they are primarily driven by applicable national regulatory frameworks and depend on the maturity of individual responsible investment markets. This way, the financing of companies that manufacture controversial weapons face reputational and compliance challenges. The issues most commonly associated with controversial weapons are:

• Ambiguity amongst the definition for association with controversial weapons. Hence, the difficulty for financial institutions to abide by the letter and spirit of the legislation. The gaps between the International conventions and the expectations of civil society lead to such kind of ambiguity.[3]
• Passive investments and subsequent risk exposure for investors are hidden under the table.[4]

Decisions about how to approach controversial weapons typically center on finding the right balance between avoiding ties to weapons producers and maintaining as large an eligible financing and investment universe as possible.[5]

Depending on the legal environment, financial institutions choose to apply different approaches.

• Financing activities: Active equity investments and extension of the policy to any external or third-party asset managers is a fruitful step.
• Ownership: Exclusions can be extended to include subsidiaries and even parents of involved companies, with or without ownership thresholds.[6]
• Geography Concerns: The policy needs to be the strongest law of the jurisdictions in which it operates and also extra-territorially.
• Development of the Policy: A clear, unambiguous position on controversial weapons helps financial institutions mitigate reputational as well as potential legal risks.
• Implementation of the policy: Disconnecting business relations with producers of certain controversial weapons and managing them effectively.
• Monitoring legal and regulatory developments: Flexible laws and regular monitoring are necessary.[7]

International Conventions

The controversial subject matter related to weapons is regulated through International treaties such as the Convention on Cluster Munitions and the Anti-Personnel Mine Ban Convention. These conventions generally prohibit the development, production, and use of weapons in a conflict. The majority of countries globally have signed and ratified these international treaties. However, these conventions do not address the issue of investment in controversial weapons, including the financing, manufacture, and sale. The majority of countries have very limited legal framework regarding investment in companies involved in controversial weapons. Few conventions that regulate these market are:

• The Convention on Cluster Munitions, 2008 prohibits the production, stockpiling, transfer, and use of cluster munitions.
• The Anti-Personnel Landmines Treaty, 1997 (Ottawa treaty) prohibits the production, stockpiling, transfer and use of anti-personnel landmines.
• The Biological Weapons Convention, 1975 prohibits the production, stockpiling, transfer, and use of biological weapons.
• The Chemical Weapons Convention, 1977 prohibits the production, stockpiling, transfer, and use of chemical weapons.[8]

Investment Issues and its Mitigation

The lack of internationally accepted law for controversial weapons leads to a disrupted understanding for Investors. At times, the investors are responsible for the exclusion of companies involved in controversial weapons of the mainstream financial industry.  The general exclusion by companies happen due to the following reasons:

• Compliance with International and National legislation.
• As a response from civil society and the media.
• Client demands.
• Ethical convictions.[9]

Furthermore, they face tracking errors and other costs due to a lack of available data. In addition to the obvious risks involved with exposure to this industry, there are also financial risks on the plate. Also, passive investment unknowingly contributes to the financing of companies involved in controversial weapons. More effort is needed to fully bring controversial weapons exclusion into the mainstream. Investors can mitigate these risks by developing a clear and comprehensive weapons exclusion policy, be actively engaged with companies involved in controversial weapons and participate in sector initiatives to influence standard practice in the investment industry. However, these solutions are not exclusive in nature. They are just suggestions in theory.

Conclusion

Although engagement with companies is not usually undertaken in sectors involved in controversial activities, the pressure on investors can lead to defense companies ceasing their involvement with certain weapon types[10]. Investors can raise awareness about the impact of controversial weapons and take initiatives with the help of social organizations. Different states have different approaches and they have their drawbacks on hand as well. Switzerland and Liechtenstein prohibit investment in nuclear, biological, or chemical weapons, anti-personnel missiles, and cluster munitions while Ireland and Spain prohibit just cluster munitions, explosive bomblets, and anti-personnel mines. Belgium covers munitions containing uranium too. Luxembourg and Italy prohibit investment in cluster munitions only.

While most countries prohibit both public and private investment in prohibited weapons, Ireland covers investment by public entities only[11]. In Switzerland, the investments by Swiss financial institutions in nuclear-weapon-producing companies have not declined since the amendment entered into force, but have increased.[12] Therefore, the aforementioned data indicate that there needs to be a turn of tables to regulate the investments to keep the investors at ease. The ambiguity of the laws leads the investors at a disadvantageous position. The countries need to find a prospective law that could mitigate the dilemmas of the investors or better, agree on an internationally accepted law so that there is a clear and precise understanding and finances into the deterrent weapons.

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References:

[1] “Focus: Controversial Weapons Exclusions” by ECOFACT, Swiss sustainable finance (November 2017)                 

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Schoemaker, Anne; Cristian, Dora, “Controversial Weapons: Regulatory Landscape and Best Practices”(June 5, 2019), Sustainalytics

[7] Id at 1

[8] LGIM(H) Controversial Weapons Policy (January 2018)

[9] Id. At 6

[10] Id.

[11] “Laws Prohibiting Investments in Controversial Weapons” (November, 2016), The Law Library of Congress, Global Legal Research Center.

[12] Id.