1. Summary
USS holds investments in many of the world’s largest weapons companies, measured in terms of sales revenue – 26 of the top 100 and 8 of the top 25. The estimated value of these holdings is at least £220m. Many of these companies supply weapons to countries engaged in large-scale human rights violations, notably Saudi Arabia and Israel. Leading examples are the companies BAE Systems and Raytheon/RTX. USS argues that divesting from such companies would substantially restrict its ability to diversify its investments.
2. Which weapons companies do USS invest in?
The arms industry is vast, with a worldwide spend of over 2,200 billion US dollars, and spending in real terms has increased by nearly 20% in the past decade.[1] The Stockholm International Peace Research Institute (SIPRI) conducts independent research on global security, and reports on the top 100 companies by arms sales worldwide.[2] USS has investments in 26 of these 100 companies – these are in Raytheon Technologies, General Dynamics Corp., BAE Systems, L3Harris Technologies, Airbus, Thales, Booz Allen Hamilton, Dassault Aviation Group, Honeywell International, Rheinmetall, General Electric, Safran, Saab, Babcock International Group, Mitsubishi Heavy Industries, Textron, TransDigm Group, Parker-Hannifin Corp., Teledyne Technologies, Kawasaki Heavy Industries, Eaton, Fujitsu, Amphenol Corp., Ball Corp., Howmet Aerospace and IHI Corp.
The investments include 8 of the 25 biggest companies – Raytheon Technologies (2nd), General Dynamics Corp. (5th), BAE Systems (6th) , L3Harris Technologies (12th), Airbus (14th), Thales (17th), Booz Allen Hamilton (22nd) and Dassault Aviation Group (23rd).
USS publishes the size of their investments only for the 100 largest public investments . None of the 26 arms companies they hold appear in that list so one cannot definitively give the total value of USS’s arms investments. An estimate of the value of these holdings is that it is at least £220m [3]. 14 of these companies are American, 10 are from the EU and 2 from the UK (BAE Systems and Babcock).
Some examples of the use of the weapons that USS invests in are:
Palestine: Numerous arms companies provide weapons that are being used in Israel’s assaults on Palestine that have been described as leading to a plausible risk of genocide according to the International Court of Justice [4] . USS investments in these companies include BAE Systems, General Dynamics, General Electric, L3Harris Technologies, Rheinmetall, RTX/Raytheon and Textron. These companies provide Israel with artillery ammunition and bombs, aircraft, mobile missile launching kits, multiple weapons systems used by warplanes, tanks and warships, cluster bombs and hugely destructive “bunker busters”. More detail can be found in a separate DivestUSS Factsheet [5].
Yemen: Saudi Arabia is one of the world’s largest importers of weapons [6], with the majority coming from the United States, and the main products being aircraft, missiles and ships. The long-standing war with Yemen has killed at least 150,000 people directly, with at least a further 200,000 deaths due to hunger and disease in one of the world’s worst humanitarian crises.[7] The war led by the Saudis has relied on weapons supplied by the US, UK and EU countries. Amongst USS investments, BAE Systems and Raytheon have been integral to the Saudi assaults, for example arming a fleet of combat aircraft that has repeatedly struck civilian targets, including homes, schools, hospitals and marketplaces.[8] In addition, the United Arab Emirates plays a significant role in the war in Yemen – amongst the USS list, General Dynamics, BAE, Airbus, Honeywell and Safran export weapons to the UAE.[9]
Myanmar: the military dictatorship in Myanmar has embarked on a campaign of summary executions, massacres and other human rights atrocities in response to peaceful protests and growing anti-coup armed resistance in Myanmar. Systèmes Dassault, part of the Dassault Group that USS invests in, has designed and tested drones and rifles for Myanmar military use.[10]
More widely, 31 countries of “particular concern” regarding human rights are listed by the UK Foreign, Commonwealth and Development Office[11]. 12 of the companies that USS invests in export weapons to countries that are on that list.[12] These are Raytheon, General Dynamics, BAE Systems, L3Harris, Airbus, Honeywell, General Electric, Safran, Babcock, Textron, Teledyne and Amphenol.
3. USS Policies and Justifications
USS has excluded very few classes of investments. In 2020 they announced that they were going to divest from tobacco manufacturing, certain thermal coal mining companies and some ‘controversial’ weapons.[13] At that time, Simon Pilcher, Chief Executive of USS Investment Management, said “issues that would affect these businesses, such as shifts in political attitudes and increased regulation, had not fully been taken into account by traditional financial models used by City analysts to predict performance”.
The weapons divestments were from businesses with ties to cluster munitions, white phosphorus and landmines. In a response to possible members’ questions arising from events in the Middle East,[14] in November 2023 USS stated that “We do assess environmental, social and governance (ESG) issues across the piece. Where we consider these to be financially material factors, we will incorporate them in our investment decisions”. This implies that ESG factors are ignored in investment decisions if they are not “financially material” – presumably meaning unprofitable. On the other hand they also stated that their earlier weapons divestments were “largely because they aren’t legal in many jurisdictions”. This argument clearly has not been applied in other cases. USS’s statement on the Middle East situation in November[15] argued that divesting from companies with links to armed conflict would “substantially restrict our ability to diversify and invest.”
At a national level, in March 2022 USS announced[16] that they were selling their Russian assets, stating “We think there is a clear financial as well as a moral case for divestment with respect to our Russian holdings”. USS Head Pilcher told the BBC that “…morals drive finance. If you are a financial investor and you don’t think about the moral impacts of what you are doing, I think you are both short-sighted and, dare I say it, immoral”. He added that they had found it “extremely difficult to find buyers” for their £450m in Russian assets.[17] “Morality” is rarely mentioned by USS with regard to its investments – its isolated highlighting in this example may be best viewed as a response to political pressure.
Following the 2021 coup in Myanmar, USS sought to identify and engage with companies with a reported link to the military junta, but in the following year USS “started asking companies to withdraw entirely from Myanmar as the country spiralled into civil war”. [18] A more general statement can be found in their November 2023 notice [19] “We assess countries based on a range of indicators, such as human development, economic freedom, and corruption, as well as market and insurance-based risk metrics. The prospects of an investment being adversely affected by changes in government policy, increased regulation, or other geo-political factors (such as the introduction of sanctions) could also be relevant financial considerations. “
It is clear from the above that USS will invest in companies or countries directly involved in large-scale human rights violations if this is seen as profitable and politically acceptable. The alternative of investing in ethical but equally profitable areas is dismissed as somehow unbalancing or restricting their portfolio. USS members may wish to form a view as to whether this fits their definition of “responsible investment”.
DIvestUSS March 2024
[1] SIPRI – Trends in World Military Expenditure 2022, https://www.sipri.org/publications/2023/sipri-fact-sheets/trends-world-military-expenditure-2022
[2] SIPRI Arms Industry Database https://www.sipri.org/databases/armsindustry . The ranking is based on the arms revenue of a company, not its overall revenue. Whilst many companies focus on arms sales, such BAE Systems where this yields 97% of their total revenue, others are large conglomerates making multiple products, such as General Electric, where arms revenue is 5.8% of the total. Nevertheless, if you buy shares in a company you are buying into the extent of their arms production alongside anything else.
[3] The USS 2022/23 Annual Report states that in March 2023 total equity holdings were worth £22.1bn and the top 100 investments were worth £6.2bn. The other 1896 equity holdings were then worth £15.9bn or an average of £8.4m each. The 26 weapons-producing company holdings might then be estimated to be worth £220m in total. Note that the total value of USS’s equity holdings had dropped by about 30% between March 2022 and March 2023, so this number might be regarded as a lower bound.
[4] International Court of Justice, Application of the Convention on the Prevention and Punishment of the Crime of Genocide in the Gaza Strip, South Africa v. Israel. https://www.icj-cij.org/sites/default/files/case-related/192/192-20240126-ord-01-00-en.pdf
[5] DivestUSS March 2024, USS continues to invest in companies providing weapons to Israel and businesses supporting the illegal occupation of Palestinian Territories https://divestuss.org/uss-continues-to-invest-in-companies-providing-weapons-to-israel-and-businesses-supporting-the-illegal-occupation-of-palestinian-territories/
[6] SIPRI Arms Transfers Database https://www.sipri.org/databases/armstransfers
[7] Campaign against the arms trade, 21st Jan 2023, Eight years of war, https://caat.org.uk/publications/eight-years-of-war/
[8] Amnesty International 9th Sept 2019, Arms companies failing to address human rights risks https://www.amnesty.org/en/latest/news/2019/09/arms-companies-failing-to-address-human-rights-risks-2/
[9] Campaign against the arms trade. Resources: Arms Companies https://caat.org.uk/data/companies/
[10] Special Advisory Council for Myanmar, 16th Jan 2023, Fatal Business: Supplying the Myanmar Military’s Weapon Production https://specialadvisorycouncil.org/wp-content/uploads/2023/01/SAC-M-REPORT-Fatal-Business-ENGLISH-1.pdf
[11] Foreign, Commonwealth and Development Office, Corporate report Human rights priority countries: ministerial statement for January to June 2021. 23rd Nov. 2021
[12] Data source: Campaign against the arms trade. Resources: Arms Companies https://caat.org.uk/data/companies/
[13] Financial Times, 1st June 2020, UK university pension fund to axe controversial investments
https://www.ft.com/content/a909328b-f24f-4466-8fd9-da25a25891da
[14] USS statement 16th November 2023, Responsible investment: our approach and our legal obligations as a pension fundhttps://www.uss.co.uk/news-and-views/views-from-uss/2023/11/11162023_responsible-investment-our-approach-and-our-legal-obligations-as-a-pension-fund
[15] USS statement 16th November 2023, Responsible investment: our approach and our legal obligations as a pension fundhttps://www.uss.co.uk/news-and-views/views-from-uss/2023/11/11162023_responsible-investment-our-approach-and-our-legal-obligations-as-a-pension-fund
[16] USS statements, 3rd March 2022, Russia-related investments https://www.uss.co.uk/news-and-views/latest-news/2022/03/03032022_russia-related-investments
[17] The Guardian, 2nd March 2022, UK firms rush to dump Russian assets amid efforts to isolate Moscow
https://www.theguardian.com/business/2022/mar/01/uk-private-pension-scheme-russia-uss
[18] USS Stewardship Code Report 2023, p. 53 https://www.uss.co.uk/news-and-views/views-from-uss/2023/06/06142023_uss-publishes-stewardship-code-report-2023
[19] USS statement 16th November 2023, Responsible investment: our approach and our legal obligations as a pension fundhttps://www.uss.co.uk/news-and-views/views-from-uss/2023/11/11162023_responsible-investment-our-approach-and-our-legal-obligations-as-a-pension-fund
divestuss.org 