Topic

Despite the rejection of the initiative, individual Swiss politicians and civil society will likely continue to put financial institutions’ activities under close scrutiny.

December 10, 2020

Switzerland Votes Against Federal Popular Initiative to Prohibit the Financing of Weapons Producers

On November 29 the Swiss electorate rejected the federal popular initiative “For a ban on financing war material manufacturers.” The initiative intended to prohibit the direct and indirect financing of weapons producers by Swiss public financial institutions. According to the Swiss Federal Chancellery, 42.55% of popular votes were in favour, whereas 57.45% voted against the proposed constitutional amendment, which was pursued by the Initiative Against War Trade (Bündnis für ein Verbot von Kriegsgeschäften), a coalition of Swiss political parties and civil society organizations.

The initiative aimed at prohibiting the direct and indirect financing of companies that generate more than 5% of their annual revenue from the production of war materials. According to the Swiss Federal Act on War Material (Kriegsmaterialgesetz), “war material” is defined under the Ordinance on War Material (Verordnung über das Kriegsmaterial), which contains a detailed List of War Material (Liste des Kriegsmaterials). The prohibition would have applied to the Swiss National Bank (SNB), foundations, the State Old Age and Invalidity pension schemes as well as other occupational pension funds. Financing activities prohibited under the rejected initiative would have included the provision of credit to arms producers, the purchase of bonds and shares in these companies and the participation in funds and other financial structures that include these instruments. The prohibition would have required the Swiss government to nationally and internationally push for these rules to be applied to commercial banks and insurance companies as well.

November’s polling also put to vote a second initiative that sought to obligate Swiss companies to both examine and be liable for compliance with human rights and environmental standards, including all activities carried out by their subsidiaries, suppliers and business partners abroad. While this initiative gained a majority of popular votes, it did not reach the majority of state votes, which would have also been necessary for the initiative to pass.

Background

Through popular initiatives, Swiss law grants its electorate the right to request amendments to the Federal Constitution. The way for the November vote was cleared in June 2018 when the Initiative Against War Trade surpassed the 100,000 signatures required to bring a popular initiative before the people in a national referendum. According to its mission statement, “The Initiative Against War Trade wants no Swiss money to flow into the financing of war material producers.” The group further states that “As a rich country and one of the largest financial centers in the world, Switzerland has a responsibility.”

Those in favour of the initiative argued that the proposed measures are justified to reduce the flow of capital that fuels global armed conflict, and which is also a cause of millions of refugees fleeing war zones. Proponents of the initiative also made the case that Switzerland as a neutral country should not profit from armed conflict. According to the co-president of Young Green Switzerland, Julia Küng: “A ban on financing war material producers means that global manufacturers have less money to produce products that kill, oppress or force people to flee.”

In contrast, the Swiss Banking Association, representatives of the insurance sector and manufacturing industry as well as the Swiss Parliament and Federal Council all opposed the initiative. In arguments put forward by the Parliament and Federal Council, the expectations of the initiative were described as being “not realistic.” Opponents of the proposal argued that “the initiative would have no effect on the global supply of war material, as there is no international will to implement a ban in the spirit of the initiative,” adding that “On the other hand, the foreign investments made by the pension funds and the SNB in war material producers are too small to have any effect.” Other arguments made against the initiative cited the negative impact on Swiss financial institutions as well as Swiss jobs in small and medium enterprises involved in producing components for the armaments industry.

The initiative also sought to close a loophole in Article 8 of the Federal Act on War Material, which prohibits the direct financing of the development, manufacture, or acquisition of prohibited war material, i.e., nuclear, biological, and chemical weapons, as well as anti-personnel mines and cluster munitions. Under this legislation indirect financing is currently only prohibited “if it is intended to circumvent the ban on direct financing.” However, critics point out that this regulation is quasi unenforceable as it is almost impossible to prove such intentionality and the loophole is being exploited by certain Swiss financial institutions, which continue to invest in producers of nuclear weapons. The initiative thus sought to address this loophole by prohibiting both direct and indirect financing of any weapons producers.

Implications for Investors

While national restrictions on the financing of controversial weapons, such as anti-personnel mines and cluster munitions, are quite common in many countries, this is not usually the case for military equipment in general as proposed by the Swiss initiative. However, while not necessarily nationally mandated, many investors across the globe, including numerous pension funds, have implemented their own policies regarding the exclusion of companies involved in military equipment.

Despite the rejection of the initiative, individual Swiss politicians and civil society will likely continue to put financial institutions’ activities under close scrutiny. Swiss investors considering to introduce – in addition to measures aimed at avoiding exposure to companies involved in controversial weapons – measures with regards to weapons manufacturers will benefit from using a clearly defined set of military equipment. One example for this is the Swiss List of War Material, which defines equipment that is considered “war material” in detail and covers not only weapon systems like tanks and rocket launchers, but also non-lethal equipment like tear gas, as well as a broad range of components for “war material.” The Swiss List of War Material list is based on the Wassenaar Arrangement’s Munitions List, an internationally agreed-upon definition of military equipment.

ISS ESG’s definitions of military equipment are closely aligned with the Wassenaar List and our related research product, Sector-Based Screening for Military equipment and Services, covers the production, distribution, as well as the provision of services for such military equipment. Moreover, this research product also specifies a company’s annual revenue share derived from involvement in said equipment and activities. The provided data thus enables investors to tailor analysis results according to their specific policies.


By:

Verena Simmel, Senior Associate, Research, ISS ESG

Henning Weber, Vice President, Research, ISS ESG

Aaron Whelan, Analyst, Research, ISS ESG

Share this
Share on twitter
Share on linkedin
Share on email
Get WEEKLY email ALERTS ON THE LATEST ISS INSIGHTS.