US arms of Dutch fund managers could be caught by cluster bombs ban

Government says bill could cover grey area of ‘indirect’ investments.

The Dutch government is seeking to broaden a proposed ban on the financing of companies that produce cluster munitions in a move that researchers say could impact investors in funds and the overseas operations of Dutch asset managers. Earlier this month, Jan Kees de Jager, the Dutch Minister of Finance, told the Dutch Parliament that it aimed to present a plan for the prohibition of investment in cluster munitions “for all financial institutions” by the end of the year to meet its commitment to the 2010 Convention on Cluster Munitions (CCM). He indicated that this could include a ban on indirect fund investments such as passive funds, as well as direct holdings that had been expected to be covered. De Jager said: “The government shares the opinion of the Senate that cluster munitions causes unacceptable humanitarian harm.” Many Dutch pension funds and domestic asset managers have already divested from companies with links to cluster munitions producers in anticipation of the ruling. However, researchers say Dutch fund management operations overseas that still have cluster munitions holdings, notably in the US, could be affected by the legislation, even though many are run as legally separate subsidiaries. They say there is also a grey area as to how far indirect fund investment could impact investments with third party asset managers. The Dutch government recently held a consultation with asset managers on the issue, although the findings have not been made public. Large Dutch asset managers including ING and Aegon have significant presence overseas, particularly in the US, which is not a signatory to the CCM and where instiutional investors have largely maintained their allocations to cluster munitions producers. Jan Willem van Gelder, Director at Profundo, a Dutch economic research firm that has done significant work on cluster munitions said Dutch managers had raised the issue of their US operations with the government regarding how broadly the definition of“indirect” investments could be interpreted and whether it would affect them. Research by IKV Pax Christi, a Dutch church-based NGO and Netwerk Vlaanderen, the Belgium ethical finance NGO, carried out by Profundo, has identified four US fund managers, State Street, Capital Group, BlackRock and MFS Investment Management, as being among the top five investors in or providers of asset management services to companies manufacturing cluster munitions. It lists these companies as: Alliant Techsystems (US), Hanwha (South Korea), Lockheed Martin (US), Norinco (China), Poongsan (South Korea), Singapore Technologies Engineering (Singapore), Splav (Russia) and Textron (US).
Link to research
The Convention on Cluster Munitions (CCM) came into force on 1 August 2010. As of April 2011, 108 countries had signed the Convention of which 57 had ratified. The Convention bans the use, production, stockpiling and transfer of cluster munitions. Although the Convention on Cluster Munitions does not explicitly prohibit investments in cluster munitions, the prohibition on assistance that is included in article 1(1)c of the Convention could be interpreted by states to include investments in cluster munition producers. Governments that signed the CCM have been grappling with this legal interpretation. In June this year, the Swiss Parliament agreed a ban on both direct and indirect funding of cluster munitions. The country’s two biggest banks, UBS and Credit Suisse, have said they are in the process of withdrawing from related investments. According a to research briefing note by MSCI, Belgium, Ireland and New Zealand have also enacted legislation banning direct and indirect investments in cluster munitions. Several other countries have introduced ministerial statements, parliamentary initiatives, or draft legislation to ban investments, including the U.K., France, Germany, Italy, and Norway.