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Responsible Investing

exclusion of controversial weapons from mainstream indices

Controversial weapons: a call to index providers

February 2019

Laurent Ramsey, Managing Partner and CEO

We are calling on index providers to exclude controversial weapons from mainstream indices.

As asset managers, we allocate capital to finance the real economy. We have a duty to distribute that capital responsibly, and with the needs of future generations in mind.

Not investing in companies which have any involvement in the production of controversial weapons is a key part of that. This is why we have joined forces with other asset owners and asset managers to jointly call upon index providers to exclude the companies involved from their mainstream indices. The initiative, which we have led together with Swiss Sustainable Finance, has gained over 140 signatories – together representing USD6.9 trillion of assets. The ball is now in the index providers’ court.

Investment in companies linked to controversial weapons – such as cluster munitions, antipersonnel mines, as well as chemical, biological and nuclear weapons – is already against many national and international regulations and conventions. These include the Treaty on the Non-Proliferation of Nuclear Weapons and the Convention on Cluster Munitions.

However, mainstream indices continue to include them. For active investors, implementing the exclusions means subjecting portfolios to extra tracking error against standard benchmarks and additional costs. For passive investors, meanwhile, there is often no choice as the vast majority of the strategies replicate traditional, exclusion-free indices.

Today, investors tracking mainstream benchmarks are all inadvertently contributing to the financing of companies involved in the manufacture of controversial weapons.

That needs to change. In line with international conventions, investor practices and public opinion, funding for controversial weapons manufacturers should be less easily available and the default position should be to exclude them from active and passive investments.

At Pictet Asset Management, we firmly believe that the investment community can become a key force for positive change, driving progress in corporate governance and sustainable business practices, as well as funding new technologies that protect the environment. This initiative is an opportunity to make a real difference.