Sunday, March 1, 2015

Cluster munitions ban aims to spark human rights discussions in Canada’s investment community

Originally published on RIA Canada website

Critics might say it’s nothing more than a symbolic gesture. But it could have wide-ranging implications for Canada’s investment industry.

Last week, two of Canada’s investment firms announced they were banning companies involved in cluster munitions. The companies involved, NEI Investment and Desjardins, have SRI fund families, which already exclude cluster munitions. But this move goes a step further, banning cluster munitions manufacturers in all of their investment products.

The companies decided to publicize the move, after studying the Canadian government’s Cluster Munitions Act, which contains a provision banning the “aiding and abetting” of the manufacturer of cluster munitions, says Michelle de Cordova, Director of Corporate Engagement & Public Policy at NEI Investments.

“We read this and thought, wow, that’s pretty unusual, it’s not every day that the government appears to be attempting to forbid everybody from investing in something,” she says.

As well, there has been little discussion of the clause in the Canadian investment industry, de Cordova adds. “How many people even know that that this is the will of the Parliament?”

 “We hadn’t seen any discussions, we hadn’t been involved in any discussions on this topic, that’s the point we decided we needed to go live on this and tell as many people as possible that this provision is in the act and that Parliament also thinks it means investment,” she adds.

In addition to drawing attention to the issue, NEI’s cluster munitions policy could be a blueprint for other companies interested in making a similar move, she adds.

The next step for NEI is writing to all cluster munitions manufacturers around the world, explaining to them that they have been excluded from Northwest funds, NEI’s mainstream fund family, and explaining why, at the same time encouraging them to get out of that area of manufacturing.

De Cordova admits banning cluster munitions in investments might be a challenge for some Canadian financial firms, particularly those who do not have an in-house ESG team, or any type of RI policy. But the ban could at least get a discussion started, de Cordova hopes.

 “What do you do if you are running index funds, does this apply in that situation? It’s trying to get some clarity on what a Canada-wide prohibition on cluster munitions would actually look like.”
Advisor support
Carol Smith, an advisor with Desjardins Financial Security Investments in Mississauga, Ont., says she strongly supports the cluster munitions ban.

“When I saw commercials with kids with their limbs blown off, I was horrified,” Smith says. “So when I saw that Desjardins and NEI Investments have decided to ban these from their entire investment lineup, I thought that was very admirable.”

 “It’s encouraging that they have taken this stand. I tip my hat to them; I think it is great.”

Human rights agenda

NEI’s de Cordova says the Canadian government’s move to make cluster munitions illegal raises questions about other human rights-related issues.

She points to the United Nations Guiding Principles for Business and Human Rights, which state that there is an absolute duty on all companies to respect human rights, including a due diligence process: 

”Making sure that you are not implicated in human rights abuses, or if someone in your supply chain is implicated, that you should take steps and use the leverage you have to try and address that issue.”

Since the UN’s convention also applies to the investment community, NEI has raised the issue with the United Nations Principles for Responsible Investment.

“If there is an absolute duty on companies to respect human rights, the implication there is that there might be some issues where on the ESG side, where an investor has to take action on the issue,” she says. “Maybe it’s not exclusion, maybe it’s engagement, but some type of action. We haven’t really had a satisfactory answer to that question.”

Still, opening a dialogue on cluster munitions is a good start, de Cordova says, particularly for those investment companies who have yet to even consider whether they are onside with Canadian law.

“I think we might find new issues emerging, we are right at the beginning of this discussion.”

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