Booster joins the global call against controversial weapons
There is approximately $73 trillion invested in stock markets worldwide. If you believe that money equals power, $73 trillion represents a lot of power.
Ok, that might be an overly simplistic way of looking at it, but the reality is companies need money to grow. And they care a lot about share prices - companies need to maintain a healthy share price to keep shareholders happy.
Generally, a controversial weapon is identified as a weapon that has been subject to widespread bans or restrictions by international agreements – i.e. cluster munitions, anti-personnel mines, biological and chemical weapons, nuclear weapons.
This means investors can hold companies accountable for their behaviour. When investors pull their money out of a company’s shares or choose not to invest at all in that company, this sends a powerful message to the company.
This is the principle at play with a current global investor initiative, calling on index funds to stop investing in controversial weapons. Despite the manufacture of controversial weapons (such as chemical, biological or nuclear) already being banned by international conventions, there are still companies out there manufacturing these weapons. And major index funds continue to invest in them.
Typically, investors choose to invest in a company based on its financial performance. However, investors are becoming increasingly aware that they can also use their investment dollars to influence the behaviours of companies. Because of this power of influence, many savvy investors are now actively choosing to avoid companies that operate in industries that don’t align with their personal values.
Of course, the catch is that most of us don’t have enough money to invest that would make a significant difference to a sway a major corporation’s behaviour or actions. However, when investors band their collective dollars (power) together, that becomes much more meaningful.
What is the initiative?
The initiative calls for global indices to exclude companies involved in the manufacture of cluster munitions, anti-personnel mines and chemical, biological and nuclear weapons from the major index funds such as S&P Global, MSCI and FTSE Russell.
New Zealand has existing legislation in place that prohibits investment in cluster munition production. Many countries have banned the development, production, acquisition and stockpiling of such weapons, but few have legislation in place to address the investment or funding of companies that manufacture controversial weapons.
By removing companies that still manufacture controversial weapons from index providers, it makes it harder for companies to access funding to continue the manufacturing of these weapons. It also makes it much easier for investors to actively avoid investing in these companies.
Earlier this year, Booster joined ranks with a large number of international fund managers, signing the open letter calling for action on continued investment in controversial weapons. With support from over 140 investment managers globally, collectively managing more than USD $6.7 trillion in funds, the initiative is sending a stark message to index providers that there is a global appetite for change.
Why is this initiative important?
Controversial weapons have horrific, and long-lasting impact. They are often used to inflict widespread damage on innocent civilians, as a way for a side to ‘win’ a war. We’ve all seen the news reports of the damage controversial weapons have caused in conflicts like Iraq, Afghanistan or Syria.
Even if it’s not happening here in New Zealand, we think most Kiwis would like to do their bit to see these types of weapons eradicated.
David Beattie, Booster Principal, said, “Kiwi investors are increasingly wanting to know that their investments are not supporting harmful or controversial activities. Becoming a co-signatory to this global initiative is further confirmation of our commitment to responsible investing.”
“This initiative is a way for the global investment community to use its collective voice and persuade the major index providers to change their approach to one that better reflects the beliefs of everyday investors - as well as international conventions.”
What can you do?
Booster has always believed in doing more with the power of investing. Many New Zealanders are KiwiSaver members. That gives us, as a nation, an opportunity to put our collective might behind the cause. To do that, your KiwiSaver provider needs to join the initiative.
Check here to see if your provider is a signatory. If they’re not, it might pay to ask them why.
What are index funds?
Index funds are an efficient and cost-effective way for investors to invest in a diverse range of stocks. Most investment managers use index funds to some extent. The continued inclusion of manufacturers of controversial weapons in the index funds makes it difficult to avoid them completely, particularly for everyday investors.
By calling for index providers to remove these types of companies from the major index funds, it gives certainty to investors that they are not passively investing in the manufacture of controversial weapons.