Australia’s Future Fund bans investment in Israeli defence contractor over cluster munitions allegations

Norway’s largest pension fund KLP also excludes Israeli defence contractor, Elbit, from its portfolio
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The Israeli defence contractor Elbit Systems has denied producing cluster munitions after two big investment funds banned investment in the company, saying it was involved with the weapons.

Cluster munitions are outlawed under Australian law and an international treaty because of their devastating effect on civilians.

Both Australia’s sovereign wealth fund, the $200bn Future Fund, and Norway’s largest pension fund, the $136bn KLP, have banned investment in Elbit over its alleged association with certain weapons.

Cluster munitions, which were allegedly used by Russian forces during the invasion of Ukraine, are bombs that contain smaller bomblets that scatter as they drop from the air.

Under an international convention they are banned by 110 states, including Australia, because they kill and maim civilians and because, like landminesthey can remain a deadly hazard years after a conflict is over. Israel is not a signatory.

Government tender data shows that Elbit, which employs the former minister for defence Christopher Pyne as a lobbyist, is a major supplier to the Australian defence force, winning more than $1.8bn of work since 2007. This includes a controversial battle management system, designed to keep commanders in touch with troops in the field. The army last year ordered troops to stop using the system amid reports of security fears among soldiers. Elbit has consistently denied there are any security issues with its system.

“The June 2021 Senate Estimates, Foreign Affairs, Defence and Trade Legislation Committee heard from the Department of Defence and Australian Signals Directorate there have been no security issues with our software,” a spokesperson said.

Elbit has also repeatedly denied making cluster munitions since 2018, when it took over IMI Systems, formerly known as Israeli Military Industries, which previously produced the weapons.

In its public declaration of excluded companies, the Future Fund lists Elbit Systems as one of eight firms barred from investment because of “exclusions related to military weapons-related Conventions or Treaties ratified by Australia”.

The Future Fund declined to explain in detail why it last year excluded Elbit from investment, with a spokesperson saying the decision was based on data that could not be passed on to Guardian Australia because it was the intellectual property of a third-party information provider company.

But in a report released in November, KLP said it was excluding Elbit Systems from its investments because “it is clear that the company produces cluster munitions”.

In its report, KLP provided details, including model numbers of the cluster munitions it claims Elbit produces through IMI Systems. These include “miniature intelligent multipurpose submunitions”, which are “a smart cluster munitions system equipped with sensors to program and identify targets”, as well as conventional munitions that each contain dozens of bomblets, KLP said.

KLP’s head of responsible investments, Kiran Aziz, told Guardian Australia the fund got much of its information about Elbit from MSCI, an American financial information provider. “In addition, we use publicly available information from NGOs and what a company reports,” she said.

Asked why KLP did not believe Elbit’s denials of involvement in cluster munitions, she said: “We relied on information we have from MSCI as our data provider which is quite updated.”

However, she said KLP did not claim that Elbit produced the bomblet that sits inside the cluster munitions systems it allegedly produces.

“Elbit was already excluded due to a violation of our criterion of human rights violations for their involvement in the occupied Palestinian territory,” she said.

“They have now also been excluded under our criterion of involvement in controversial weapons. The reason why we exclude companies with reference to several criteria when they have already been excluded, is that all the reasons are important to state, and that we do not want to risk the companies being included in the portfolio again if the first exclusion basis ceases.”

In a 15 February letter, provided by Elbit to Guardian Australia, the company’s chief legal officer and executive vice president, Jonathan Ariel, said Elbit “has never been engaged in the production or sale of cluster munitions”.

“Following the acquisition of IMI Systems Ltd in 2018, Elbit Systems discontinued all activities of IMI relating to IMI’s legacy cluster munitions,” he said.

He said the company, including IMI, complied with the international convention banning cluster munitions.

Rawan Arraf, executive director of Australian Centre for International Justice, said the Future Fund was right to be concerned about Elbit’s alleged association with cluster munitions but that it should also be concerned about its supply of the surveillance systems and other products and services used by Israeli authorities, which she says amounts to aiding and abetting serious human rights abuses against the Palestinian people.

“There is a major incongruity when an Australian public agency rightly excludes Elbit Systems, yet Australian state and federal governments happily enter into lucrative contractual agreements with it.”

The defence department did not respond to detailed questions about its dealings with Elbit.

Pyne and his lobbying company, Pyne & Partners, declined to comment.

Australia’s Future Fund bans investment in Israeli defence contractor over cluster munitions allegations

Norway’s largest pension fund KLP also excludes Israeli defence contractor, Elbit, from its portfolio
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