The Ethical and Financial Risks of Investing in Controversial Weapons

How controversial weapons threaten global peace and your portfolio

Many military weapons are considered controversial weapons due to the indiscriminate harm they cause to civilians, violating international humanitarian principles. Investing in controversial weapons makers doesn’t just threaten global peace – it also threatens your savings. Beyond the systemic risk to the global economy that a nuclear conflict would bring, there are regulatory, reputational, and compliance risks that could impact the future profitability of controversial weapon makers.

What makes some weapons more controversial?

Ethical and sustainable investors have adopted a range of definitions of controversial weapons, but in general, these definitions define controversial weapons as those that are banned or regulated under international agreements, due to the potential for civilian or long-lasting damage. Almost all definitions include nuclear weapons. Experts agree we are facing the highest nuclear danger since the Cold War. Any use of nuclear weapons would violate fundamental rules of international law and have catastrophic humanitarian and environmental consequences.

Other controversial weapons commonly targeted for exclusion include cluster munitions, anti-personnel landmines, incendiary weapons, and depleted uranium. What all these weapons have in common is their indiscriminate impacts, making them particularly deadly to civilians. Unexploded cluster bomblets and landmines kill and maim civilians for years after conflicts end. The use of depleted uranium ammunition is linked to increased cancer rates and birth deformities. Because of these humanitarian concerns, these weapons are banned by hundreds of countries under various treaties.

What are the financial risks of investing in controversial weapons?

To make the world a more peaceful place, countries have adopted international treaties restricting weapons production, trade, and use, and implemented stricter arms export controls.

Here’s the problem: If you are like most mutual fund investors, embedded in your portfolio are military contractors producing weapons that are banned by these international treaties. The “own the market” approach of popular index funds basically guarantees that some of your savings will flow into companies involved with nuclear and other controversial weapons.

Failing to comply with international arms control treaties not only exposes these companies to potential legal consequences but also poses serious financial stability issues stemming from reputational risk. Products that jeopardize human life and are connected to significant negative humanitarian impacts are rightfully under scrutiny by ethical investors, driving growing international pressure to align investments with ethical sustainability standards. This has led financial institutions to adopt exclusion policies for weapons makers and limit funding to companies involved with controversial weapons. For example, many global banks have policies to not offer loans to companies that make products banned by governments and international treaties, making it increasingly difficult for controversial weapons makers to secure financing.

Institutional investors (including pension funds, endowments, and sovereign wealth funds) also frequently have ethical investment guidelines and exclusion policies for controversial weapons. And it’s not only large asset owners moving away from weapons makers; more and more, individual savers and 401(k) plan participants are shifting their investments to align with their values by seeking out funds that exclude arms manufacturers.

It’s not just companies that make the actual weapons that are considered controversial. Many investors with ethical guidelines also look to exclude companies that make products that are critical to the delivery or maintenance of controversial weapons. If a company makes parts for a plane or missile that could be used to deliver nuclear weapons, it may be excluded under these guidelines. All of this puts pressure on company stocks and makes them riskier investments.

Case study: Norwegian pension fund excludes General Dynamics

The Norwegian Government Pension Fund Global (GPFG) is one of the world’s largest sovereign wealth funds, managing more than $1.6 trillion in assets. Known for its robust ethical guidelines, GPFG aims to exclude companies connected to controversial weapons production, human rights violations, and environmental harm. Just last year GPFG moved to divest its 1% holding ($739 million) in General Dynamics due to the company’s role in the production of strategic submarines used to launch nuclear ballistic missiles. This divestment decision sends a strong signal to the market about the growing financial and ethical risks of investing in controversial weapons.

What responsible investors can do

Controversial weapons represent clear ethical risks, and they’re also an increasingly risky financial bet for investors. So, how can we help build a more peaceful world by shifting our investments away from war and violence?

A great place to start is by visiting Weapon Free Funds. You can use our free online tool to check if your retirement plan or mutual funds include controversial weapons manufacturers, and to find socially responsible funds that avoid weapons makers. Our site also includes an action toolkit you can use to help shift your savings. We all have the power to prioritize peace and people over war and violence.