What price cluster bombs?

When I was growing up in Pakistan, they came begging at our door, or they would accost us at traffic lights and hover at the car window until the lights changed. They were victims of cluster bombs from the Soviet occupation of Afghanistan. Sometimes they would push their broken bodies along in a little trolley that you could hear rattling down the road. Some of them were stunningly beautiful children, but what was most striking about them was their missing limbs; a hand, a foot, a leg.

Cluster bombs have been used in Afghanistan, Iraq, Lebanon, Vietnam, Laos and many other major conflicts since WWII. They have caused incredible suffering and leave behind a deadly legacy even after the conflict is finished.

The bomb itself consists of many – often hundreds – of small explosive bomblets. They are like landmines, but worse because they have a wide area of effect. They remain live for decades after the conflict and since they are often small and brightly coloured, children mistake them for toys and pick them up. In Laos, nearly forty years after the war, American cluster bombs lie scattered across the countryside rendering much of it uninhabitable. In Lebanon, Israeli cluster bombs dropped in 2006 still claim victims today.

Australia will soon ratify the Convention on Cluster Munitions – a landmark international treaty that the use, production, stockpiling and trade of cluster bombs. The Australian government is rightly taking measures to honour this Convention with its Criminal Code Amendment (Cluster Munitions Prohibition) Billbut it has not acted to prohibit investment in companies producing cluster bombs.

Although the Bill doesn’t say so explicitly, the Attorney General’s Department has indicated that the Bill makes it illegal for a person or bank to provide financial assistance to, or invest in a company that develops or produces cluster munitions, but only where that person or bank intends to assist, encourage or induce the development or production of cluster munitions by that company. This implies that financial assistance is illegal only if it is provided for the express purpose of cluster bomb production. In other words, whilst direct financial assistance for cluster bomb production may be deemed illegal, indirect financial assistance to a company that produces cluster bombs will still be regarded as legal.

The fact is that none of the world companies that make cluster bombs source their finance directly. None of them advertise that they are raising money to produce cluster bombs. They are diversified conglomerates with interests in areas like aerospace, defence and electronics. They raise money through corporate loans, syndicated loans, bond issues and share placements, and they allocate this money to their operations as they see fit. Their financing is indirect. Unless there is a mechanism to restrict weapons producers from using such financing to produce cluster bombs, legislation is simply not effective in complying with the spirit of the Convention, which is to ban these weapons.

Interestingly, the Australian Council of Super Investors (ACSI) is the only investor group in Australia seeking to close this loophole. It is not often that one hears of investors asking a government to be regulated, but it may be necessary in this case because otherwise ethical and moral concerns can be overlooked by the industry. In a ground-breaking report produced by IKV Pax Christi (the Netherlands) and Netwerk Vlaanderen (Belgium) in April 2010, 146 financial institutions from fifteen countries around the world were identified as providing over US$43 billion worth of investments and financial services to seven producers of cluster bombs.

The fact that ACSI is concerned is not surprising. In 2007 a documentary, The Cluster Bomb Feeling, sparked debate in the Netherlands when it drew attention to the fact that many Dutch pension funds were invested in companies that produce cluster bombs. SI represents the interests of over thirty-nine not-for profit Australian super funds which together manage over A$300 billion of Australian retirement savings for two-thirds of the Australian workforce. The organisation is only too well aware of the reputational risk that this issue poses.

There are between six and a dozen publicly listed international companies producing these weapons. Without an effective legislative ban, any number of the world’s pension funds could be invested in these companies without their members knowing a thing about it. Banks, brokers and fund managers cannot afford to be complacent either. How many fund managers are lending money to these companies, trading their shares, and investing the savings of ordinary workers in order to finance what these companies do? Without effective legislative prohibitions, how many of professional investors will carry on providing finance to these companies? Of course, some enlightened boards may choose to divest, but many will do nothing, even when public opinion is against them.

The Bill is now before the Senate. Australia has the opportunity to cut off the supply of Australian capital to these companies once and for all. This is not a radical proposal. New Zealand, Ireland, Luxembourg and Belgium have all introduced legislation to ban the provision of finance towards and investment in cluster munitions producers.

Simply, the Bill should explicitly prohibit direct and indirect financing of companies involved in producing cluster munitions. Other countries intending to ratify this landmark treaty should do likewise. Australian institutions to comply with this prohibition should not be onerous, and it would be a missed opportunity if Australia ratifies the Convention but does not prohibit indirect investment in companies making cluster bombs.

Australia is one of the world’s largest pension markets. Surely it can do better than continue to have its retirement savings tainted by human suffering.