Italian investors grapple with ban on controversial weapons investments

Italian institutional investors, including pension funds and asset managers, have been left puzzled by a new rule prohibiting investments in companies producing anti-personnel mines and cluster munitions, for the lack of an official exclusion list to take on as a reference.

The new law entered into force in February, forcing “authorised intermediaries” to cut funding for companies in Italy and abroad that directly or through subsidiaries produce or sell anti-personnel mines, cluster munitions and submunitions, in compliance with the Ottawa and Oslo Conventions.

Around 600 companies active globally in the arms and defence industry are being scrutinised by Italian institutional investors due to fully implement the law, according to business and financial news agency Il Sole 24 Ore Radiocor.

Pension regulator COVIP, Bank of Italy, the Institute for the Supervision of Insurance (IVASS), and the Ministry of Finance published guidelines to “exercise enhanced controls” on intermediaries, including pension funds, banks, insurance companies, and asset managers that will have abide by the new rule to avoid a fine.

IVASS has already started monitoring activities, even though the supervisory authorities have not yet published an exclusion list of companies involved in anti-personnel mines and cluster munitions’ production sectors.

Salvatore Catalano, head of sales in Italy for global investment management firm VanEck, said there was “a lot of uncertainty on how to apply the [new] law”.

He said that in Italy, there is a public exclusion list on anti-personnel mines and cluster munitions but it is not official, adding that, for example, the Dutch authorities offer such an official exclusion list.

The lack of an official exclusion list gives room for interpretations, with asset managers that can opt to use different data providers for information to exclude companies, he continued.

ESG financial risks consultancy Nummus has compiled an exclusion list of 21 companies as of February.

“We have decided to structure a process to identify, monitor and update a black list [of companies], to support our clients and other financial intermediaries. We have followed instructions set by the supervisory authorities to compile the list, but there are still unclear issues,” said Gloria Menguzzo, risk manager at Nummus, during the event.

The pension fund for postal workers Fondoposte, and the pension fund for school employees, Fondo Espero, have expressed interest in using the black list drafted by Nummus.

Espero’s investment portfolio is already subject to assessment of an ethical advisor checking whether securities are held against the rule currently imposed by the new law, according to the scheme’s financial statement.

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