Weapons Investments: A Misalignment between Super Funds and their Members’ Values?

Social media feeds have been flooded with the devastating impacts of wars recently. But many conscious consumers may not know that their superannuation is invested in weapons companies.

Peace and human rights are at crossroads once again across the globe. In the Middle East, the death toll in Gaza has passed 30,000 within months. In Europe, the Russia-Ukraine war has entered its third year and the threat of nuclear warfare is being weighed up. And tensions remain high across much of the world, including countries neighbouring Australia in the South China Sea.

Everyday Australians may be indirectly fueling these conflicts through their superannuation balances without even knowing it.

The Only Winners in Every War

Wars are expensive as much as they are destructive. These expenses are carried by tax-payers and contribute towards the profits of global weapon companies. And this is whilst the majority of Australians struggle to make ends meet during a historical cost-of-living and housing crisis.

The 2023-24 Federal Budget allocated nearly $43 billion (or 6.3%) to Defence, and it is forecasted to reach almost $50 billion by the 2025-26 Budget. To date, the Ministry of Defence has expanded its support of Ukraine to $910 million of which over 80% is military support. And just last week, a $917 million army contract was awarded to Elbit Systems, a controversial weapons company.

War is great (financially) for defence companies and their investors, including funds that invest in them. These billions of dollars funnel into companies which focus on missiles, bombers, tanks, nuclear efforts and much more.

This is why the announcement of wars triggers major increases in defence stock prices.

Within just 10 days of Russia’s invasion of Ukraine, whilst most stocks weighed heavily due to the uncertainty, the price of most defence stocks went up by at least 10%. Northrop Grumman (NYSE:NOC) went up by nearly 22%, and Lockheeed Martin (NYSE:LMT), the largest defence company in the world, went up by nearly 19%. Since the invasion of Ukraine, the stock price of Thales (EPA: HO), a French defence company, has nearly doubled.

The conflict in the Middle East has also sent defence stock prices even higher. Last month, British arms manufacturer, BAE Systems, announced it is on track to beat its 2023 sales and profit records due to the ongoing conflicts in Ukraine and the Middle East. Its share price has jumped 28% since October 2023, and more than doubled since the invasion of Ukraine in February 2022.

Superannuation Invest Heavily into Weapons

Given the resilience and growth weapon companies during times of global conflict, they are an alluring investment opportunity for superannuation funds in a competitive and regulated market.

The strong performance of weapon companies invite investments from super funds. Research by Australia Institute and Quit Nukes found most Australian super funds are still investing in nuclear weapon companies, despite the UN Treaty on the Prohibition of Nuclear Weapons coming into force in January 2021.

According to the Financial Standard, at least three major superannuation funds defended their decision to continue investing in weapons in light of the current Middle East conflict. Moreover, Market Forces named and shamed five major Australian superannuation funds for their investments in Russia. These funds invested into Russian oil and gas companies, such as Gazprom which is half state-owned. Such investments contribute to irreversible climate change and the profits channel into fueling the prolonged conflict.

Not investing in weapon companies can impact superannuation funds’ performance. In a market where performance is the main differentiating factor, super funds have neutralised the advantage of investing in weapon companies by making it the norm..

Despite clear preferences from Australian consumers, many major superannuation funds continue to invest in global weapon companies.

Australian Consumers Oppose War

Unlike the superannuation funds that they may invest in, consumers are increasingly conscious of the impact of their investment decisions.

Over 80% of Australians expect their superannuation to be invested ethically and responsibly. Responsible Investment Association Australasia also found:

• The majority of Australians opposed investments in weapons and firearms in 2020.
• Concern for social issues has increased to 74%, which reflects a 10% increase from 2020.
• 79% of consumers demand greater transparency around superannuation funds communicating their impact.
• Despite two-thirds of Australians wanting to avoid investments that violate human rights, only 39% of investment providers provide such products.
• Most importantly, 74% of Australians would contemplate moving their superannuation to a different provider should they discover that their current fund was investing activities not consistent with their values.

Unfortunately, many super members remain unaware and this may be halting the move to more ethical options. The Australia Institute and Quit Nukes suggest that many prominent Australian superannuation funds invest funds in nuclear weapons companies without disclosing these investments to existing or prospective members. Information regarding these holdings is typically only accessible through shareholder proxy-voting records, which are often challenging to locate.

Everyday Australians are against wars. Many Australians opposed the invasions of Iraq and Afghanistan. And record protests were held across capital cities calling for peace in Palestine, and some even protested at the shipping ports where weapons were allegedly being exported from Australia. Yet many remain unaware that their super is invested into companies that fuel the violence.

Take a Stand by Making a Move

Consumers may not be able to stop wars, but their investment decisions can make a difference. Superannuation funds are aware of the ethical concerns members hold over their investments in weapons, but many will continue their investments to prioritise performance over the values of members.

Not all superannuation funds are the same. Crescent Wealth has never, and will never invest in weapons.

In 2013, Crescent Wealth Super became the first Shariah-compliant super-fund. We recognise that there is more to a superannuation investment than just maximising returns – especially if it comes at the expense of your beliefs. Our commitment to Islam means we abide by our commitment to Islamic principles that encourage peace amongst humankind and prosperity built on ethical principles of investment and wealth creation.

If you are interested in switching to a super fund that displays your Islamic values of ethical and responsible investment, call us on 1300 926 626 or click the button below.