Hermes probes BAE and EADS on cluster bombs

UK pension clients examine reputation risks

Hermes, the £70bn (€103bn) UK fund manager, is pressing some of the world’s largest arms manufacturers to review their production of cluster bombs after pension clients voiced concerns about the reputation risk to their investments.
Colin Melvin, chief executive of Hermes Equity Ownership Services, said it was lobbying BAE Systems in the UK and EADS, the Franco-German company, to ensure neither were involved in the manufacture of types of cluster bombs that may not explode on release. It is believed to be the first time UK pension funds have followed European pension funds in assessing links with cluster bomb producers.
Speaking at a recent conference in Copenhagen, Melvin said: “We have been asked by clients about the issue of cluster bombs. We are asking these companies to look at the sorts of cluster bombs they produce and make any necessary changes to what they do. We have to remember though that the armaments trade is a legal business.”
Melvin said Hermes’ main objection was to the production of what he termed ‘unexploded’ cluster bombs that do not always detonate on release and canremain on the ground in combat zones endangering civilian lives. He said: “The new generation of cluster bombs does not do this. In this area, there is a significant cluster bomb treaty being put forward by the Norwegian government and we are talking to BAE and EADS to see if they are aware of the reputation issues.”
Hermes, one of the UK’s biggest asset managers, invests money on behalf of over 240 clients including pension funds, insurance companies, government entities and charities. Its biggest client is its owner, the £36bn BT pension scheme.

“We have to remember though that the armaments trade is a legal business.”

Dutch pension giants ABP and PGGM recently announced they would stop investing in companies making landmines after coming under fire in a Dutch current affairs programme that prompted thousands of complaints from pension scheme members. PGGM said it would also divest from cluster bomb manufacturers.
The €237bn Norwegian Government Pension Fund last
year excluded Poongsan Corporation in South Korea from its investment portfolio for producing cluster bombs.
Alexander Reinhardt, head of media relations at EADS, said: “We have never produced the kinds of cheap, controversial cluster bombs that have been referred to in the media. We have in the past produced submunitions with a self-destruct mechanism that destroys the device after 72 hours. However, we terminated this activity in 1994. All the ammunition that we produce is in line with national and international regulations such as the recent initiative by Norway to examine the production of cluster bombs. There is a fine line, of course, in weapons production, which is what we do. Should, for example, a NATO client of ours make an order for of our self destructing submunitions, then we would restart production.”
BAE Systems did not return calls for comment.Organisations including the Red Cross, the Cluster Munition Coalition and the United Nations, have
criticised cluster bomb production because of the high proportion of civilians they kill in conflict zones. However, the manufacture of cluster bombs is not illegal under international law.

“There is a fine line, of course, in weapons production.”

Separately, the UK Local Authority Pension Fund Forum (LAPFF), which represents 40 funds managing £70bn in assets, is drawing up a series of questions to put to defence companies, according to UK newspaper, The Observer. It said the questions would focus on company conduct in winning contracts, including the use of bribery.