1. What is the Treaty and why it is relevant to investors

After years of negotiations and rising calls for nuclear disarmament, the Treaty on the Prohibition of Nuclear Weapons (TPNW) finally entered into force on January 22, 2021. This legally binding treaty prohibits the development, testing, production, possession, use, and sale of nuclear weapons. The United States and the world’s eight other nuclear-armed countries voted against the Treaty’s adoption in 2017 and have not ratified it. Though the TPNW is not binding on those nations that refuse to ratify it, this milestone increases pressure and shifts norms.

Nuclear weapons are weapons of mass destruction, indiscriminate by nature, and are now explicitly illegal under international law. Their impacts cannot be contained within national borders and they cause massive death and destruction, large-scale displacement, and long term harm to human health, well-being, the environment, economy, and social order. Geopolitical uncertainty and erosion of several arms control treaties leaves the world at its highest ever vulnerability to a nuclear weapons catastrophe.

Diversified investors are often exposed to companies that produce, manufacture, or finance some of the most harmful weapons and technologies, while companies and their investors profit from war.

2. How your investments may be impacted by the Nuclear Weapons Ban

Now that the TPNW has entered into force, companies connected to nuclear weapons may be required to demonstrate that they are not conducting prohibited activities in jurisdictions that ratified the Treaty. A recent report identified $116 billion in current contracts between governments and the private sector to design, manufacture, and maintain nuclear weapons, incentivizing companies to lobby governments to expand nuclear stockpiles. Profitable U.S. Government contracts for manufacturing nuclear weapons have gone to large publicly-owned companies like Boeing, General Dynamics, Honeywell, Lockheed Martin, and Northrop Grumman.

Though states have the duty to protect human rights, this does not absolve companies of responsibility for the impacts of the end use of their products. The UN Guiding Principles on Business and Human Rights (UNGPs) outline the responsibilities of companies for human rights impacts they may cause, contribute, or be directly linked to. Companies that profit from and finance this industry, regardless of how small their involvement, have a responsibility to identify, prevent, mitigate, and account for the actual and potential adverse human rights impacts given the scale, scope, and irremediability of the potential harm.

3. What is the role of an investor related to the Nuclear Weapons Ban

Faith-based institutions have long called for nuclear disarmament. Religious leaders and peace activists have led protests since the 1980s and even faced infamous prison sentences for protesting at nuclear facilities. Many investors have long-instituted screens to avoid investment exposure to the industry. However, financial institutions reportedly invested $748 billion in the top nuclear weapons manufacturers between January 2017 and January 2019, so investors may inadvertently be supporting the industry’s growth. Some investors have already identified the Treaty as a reason to withdraw investments in companies linked to nuclear weapons. Nearly one hundred financial institutions have ended their relationship with the nuclear weapons industry since the UN voted to adopt the TPNW in 2017, and those in ratifying states may be required to do so.

For investors with exposure to the sector, active ownership and engagement, as well as proxy voting are strategies investors can exercise to meet their human rights responsibilities. In their engagements, faith-based institutional investors encourage examination of the human rights impacts associated with the nuclear weapons sector. They ask for disclosure on policies and practices to conduct risk assessments, how a company can meet its human rights responsibilities when making nuclear weapons, and whether there are government contracts a company simply should not pursue due to the potential for irreparable harm at massive scale from the end use of its product.

In light of these legal, financial, reputational, and human rights risks, this proxy season, faith-based investors filed shareholder proposals with Lockheed Martin and Northrop Grumman. Proposals filed with General Dynamics and Raytheon Technologies will not be on the proxy, though shareholder dialogue will continue. Noting the risks also extend to the banks that finance nuclear weapons, PNC Financial Services will face a proxy vote this spring, requesting a report on the effectiveness of its risk management systems at addressing the human rights and financial risks associated with financing the industry.

Companies continue to profit from nuclear weapons contracts, all while increasing risks to human rights and the global community. As the groundbreaking Treaty on the Prohibition of Nuclear Weapons enters into force, investors should factor the risks of nuclear weapons into investment decisions, and hold companies accountable for their human rights responsibilities through divestment or meaningful engagement and proxy voting.