Scotia Global Asset Management (through 1832 Asset Management) (Scotia GAM) reports holding 2,231,000 common shares of Elbit Systems Ltd., representing 5% of Elbit’s outstanding shares, with a value of approximately US$465 million, making it the largest foreign shareholder in Elbit. Scotia GAM has owned shares in Elbit since 2013.
Elbit develops and supplies airborne, land, and naval systems for defense and homeland security. Bloomberg News reported in October 2022 that Norwegian pension fund KLP believes Elbit produces “smart cluster munitions systems”, a position documented in a November 2021 report based on information from MSCI Inc., company reports, and NGOs.
HSBC divested its Elbit holdings in 2018 after Elbit acquired IMI Systems, a company with a history of producing cluster bombs. Elbit denied producing cluster munitions and in 2019 stated that IMI would not be continuing its prior activities related to cluster munitions. The proposal proponent understands that MSCI’s profile on Elbit included a cautionary mark regarding cluster munitions, and that this mark was purportedly only removed in April 2022. Scotia GAM held over 1,000,000 Elbit shares by the end of 2018, and this holding has since more than doubled.
Elbit has faced additional controversy. The New York Times reported in 2021 that Myanmar’s military junta used military-grade surveillance drones made by Elbit, and Norges Bank Investment Management excluded Elbit from its investment portfolio due to human rights concerns.
Scotia GAM, which represents 17% of Scotiabank’s total earnings, says it uses its access to management to engage and influence issuers, and that it prefers to “support behavioural improvement, rather than exclude entire sectors.”
Neither Scotiabank nor Scotia GAM discloses any formal policy related to controversial weapons such as cluster munitions, including a policy which would guide Scotia’s due diligence on businesses in this sector. Scotiabank’s position stands in contrast to its peers.
RBC Global Asset Management adopted a policy to exclude investments in companies associated with controversial weapons. RBC disclosed in 2016 that it has a policy prohibiting direct financing for cluster munitions.
BMO Global Asset Management adopted a Global Exclusion Policy on Cluster Munitions and Anti-personnel Mines. BMO restricts lending to companies involved in the sale of certain weapons, with high-risk matters escalated to BMO’s Reputation Risk Management Committee.
HSBC’s Defence Equipment Sector Policy prohibits the provision of financial services to manufacturers or vendors of anti-personnel mines or cluster bombs. HSBC Global Asset Management has adopted a policy that excludes investments in companies involved with banned weapons.