As war rages in Ukraine and the Middle East, weapons manufacturers are watching their profits and share prices soar.

Australia’s big institutions, including universities and local governments, are under pressure to dump their investments in these companies and ignore the attractive returns on offer.

Superannuation funds have long been ahead of the pack, offering members “ethical” or “socially aware” branded investment options that promise to shun the weapons industry.

But an ABC investigation has discovered some of these funds — including one run by Australia’s biggest fund — have invested millions of dollars of their customers’ retirement savings into companies that make some of the most controversial and devastating weapons of war.

This is the PGU-14/B.

It’s a 30mm round made by the US arms manufacturing giant, General Dynamics, designed to rip through tanks and armoured personnel carriers.

The PGU-14/B is most commonly fired from the GAU-8, a high-powered Gatling gun mounted to fighter jets and warships. 

These guns can fire more than 4,000 rounds per minute.

But the PGU-14/B’s danger lingers long after the initial impact.

Inside the casing is what’s known as a penetrator, made from a radioactive material called depleted uranium — a byproduct of nuclear enrichment that is almost twice as dense as lead.

It’s ideal for puncturing armour, but it has also been linked to an increased risk of cancer — particularly among people who inhale the dust it generates on impact.

“It’s toxic. You have to prevent it from getting it into your body, into your immune system, into your blood,” said Manfred Mohr, a Berlin-based humanitarian law professor who co-chairs the International Coalition to Ban Uranium Weapons.

General Dynamics will not say exactly what is inside the PGU-14/B , but US military documents confirm that the penetrator is made from depleted uranium.

Because of its involvement in this type of weapon, General Dynamics has joined a list of companies that are avoided by investment funds looking to cut out unethical businesses from their portfolios.

But an ABC investigation has discovered Australian Retirement Trust (ART), the fund with the second largest number of members in the country, has held a small number of General Dynamics shares in its “socially conscious” investment option.

That is despite ART explicitly promising members in policy documents that it will not invest in shares of companies that make depleted uranium weapons.

ART’s policy also promises not to invest in companies involved in nuclear weapons. General Dynamics has designed and installed guidance systems for the US nuclear missile program for more than 65 years.

ART told the ABC it did not hold the General Dynamics shares directly, but as collateral for a cash deposit with a financial institution — effectively as security for a loan — under an arrangement that lasted for less than a month. It says it has not breached its policies, or promises to members, because the depleted uranium exclusion only applies to shares it holds directly.

“General Dynamics … was held as collateral in the cash asset class of the Socially Conscious Balanced option for less than thirty days as part of a bundle of company shares put up as security for a lending transaction undertaken by an external manager,” it said in a statement.

“As these equities are held as collateral only, no economic benefit is derived from holding them.”

But ART said when it discovered the General Dynamics holdings it immediately notified the regulator, the Australian Securities and Investments Commission, which is currently leading a crackdown on super funds making misleading claims about their ethical-investment credentials.

In March, ART updated its policies to extend the depleted uranium exclusion to all types of investments. That means the General Dynamics holdings would not be permitted under its updated policy.

“While this brief collateral holding complied with our negative screening process at the time, we enhanced our approach within the Socially Conscious Balanced option to better meet the expectations of our members,” it said.

Combing the data for weapons companies

The holdings were discovered in an ABC analysis of the weapons and military industry investments of socially aware, ethical or sustainable branded options offered by Australian super funds.

Almost all Australia’s major superannuation funds offer their customers an ethical or sustainable branded investment option that promises not to invest their retirement savings industries such as fossil fuels, tobacco, gambling and weapons.

Since 2022, all Australian super funds have been required to publish half-yearly disclosures that tell members how they invest their retirement savings.

These are spreadsheets published on the funds’ websites that list their investments, including shares, cash deposits, bonds and property.

The ABC compiled the most recent disclosures, which show the funds’ holdings at the end of December last year, into a single data set.

We then compared these disclosures to a list of companies involved in “controversial weapons” provided by financial analysis firm Morningstar.

While there is no agreed industry definition of “controversial weapon”, Morningstar’s classification captures companies that make money from nuclear weapons, anti-personnel mines, cluster bombs, chemical and biological weapons, depleted uranium weapons and white phosphorus bombs.

The investigation found ethical, socially aware and sustainable branded options held more than $27 million worth of shares in companies classified as being involved in controversial weapons at December 31.

They held a further $34 million in shares of companies more broadly involved in firearms manufacturing and weapons contracting to the military.

When the net is cast even wider to include companies involved in weapons-related products or services for militaries, the ABC found a further $1.1 billion in investments. This figure includes investments in companies like Microsoft, Samsung and semiconductor manufacturer AMD.

The bulk of the investments in controversial weapons were found in the “socially aware” branded option of the country’s biggest super fund, Australian Super.

Its disclosures show holdings of more than $26 million in shares in companies involved in nuclear weapons including BAE Systems, Textron, Northrop Grumman and Raytheon Technologies.

These companies are all involved in developing, maintaining or supplying components for nuclear weapons. Northrop Grumman, for example, in 2020 signed a $US13 billion contract to develop the United States’ new intercontinental ballistic missile system.

Australian Super has one of the least restrictive controversial weapons exclusion policies among the socially aware branded options analysed by the ABC. It only prohibits investments in companies that make landmines and cluster bombs.

Unlike most other funds, it has no restrictions — known as “screens” — on companies involved in nuclear weapons.

In a statement, Australian Super said the policy was “informed by surveys conducted with members to identify the issues of most concern to them”.

“In selecting the screens, the fund balances members’ desires to avoid certain categories of investments against their investment return risk tolerances,” it said.

“As part of regular internal fund processes, the Socially Aware option is currently being reviewed.”

In a later statement, it said it was making changes to its screen following the internal review.

“New screens are expected to be introduced to the option and will be communicated to members in the coming weeks,” it said.

Spirit Super’s sustainable option also has holdings in companies involved in nuclear weapons, including Leonardo and Thales.

Spirit Super did not respond directly to questions about why its “controversial weapons” exclusion policy does not cover nuclear weapons.

“There is not a universally agreed definition for what is considered ‘controversial weapons’ for the purpose of guiding trustee superannuation investment,” it said in a statement.

“Some funds include nuclear weapons in their exclusions and some funds do not.

“Spirit Super abides by regulatory obligations to invest in the best financial interest of members.”

In most cases, these types of assets appear to have made their way into the funds’ holdings because of wording of their “controversial weapons” exclusion policies.

While some ethically branded super options exclude nuclear weapons and depleted uranium munitions manufacturers from their portfolios, others do not.

The superannuation industry is now facing calls to develop a consistent definition of “controversial weapons” to ensure members are fully informed about where their retirement savings are invested.

“It’s a dog’s breakfast and I wish there was a global definition of controversial weapons,” said Margaret Beavis from the Medical Association for the Prevention of War, which has been meeting with super funds to convince them to divest from the nuclear weapons industry.

“Nuclear weapons should be in the controversial weapons definition, and it’s really not acceptable for funds to continue to pretend that some of these weapons are OK,” she said.

“These weapons are totally immoral.”

An incendiary debate

The ABC’s analysis also found instances of ethical and socially aware branded super options holding shares in companies involved in making white phosphorus bombs.

This type of weapon highlights a grey area in the way super funds define controversial weapons.

According to the World Health Organization, the white phosphorus from these bombs ignites instantly when it contacts oxygen, causing deep and severe burns that can even penetrate bone.

“It can be lethal if it’s not all removed [from a person’s body] at the time of an attack. It can smoulder on a human body and it’s notorious for reigniting when exposed to oxygen, so if a bandage is removed it can reignite,” said Bonnie Docherty, a weapons and humanitarian law expert at Harvard Law School and Human Rights Watch.

“It also causes respiratory damage and can poison organs, but it’s also important to note it causes lifelong suffering. Those who survive can experience psychological suffering, both from the trauma of the attack and the trauma of the treatment after the attack.”

Amnesty International has called on Israel to be investigated for war crimes for allegedly using white phosphorus bombs against civilians in southern Lebanon in October last year, shortly after the start of the most recent Gaza conflict.

Israel denied it had used the weapon unlawfully.

In 2005, the US military admitted to using white phosphorus bombs as an incendiary weapon against insurgents in the Iraqi city of Fallujah.

White phosphorus bombs are only classified as an “incendiary weapon” and illegal under international law when used against people.

They can be used legally as a smoke screen in the battlefield.

This means some super funds are able to invest in companies that make white phosphorus bombs without breaching their own exclusions on incendiary weapons.

For example, Spirit Super’s sustainable option has held shares in British weapons manufacturer BAE Systems, which supplies white phosphorus mortars to the UK Ministry of Defence.

Spirit Super’s responsible investment policy makes clear that it excludes investments in “any company which has any ties to … incendiary weapons.”

In January, BAE told shareholders at an investor briefing that the mortars were for “obscuration only” and it was looking to end the supply by the end of 2024.

Spirit Super declined to respond to questions about its investment in BAE Systems, but says it complies with all its regulatory obligations.

Some humanitarian law experts argue that investment funds should consider white phosphorus bombs as incendiary weapons, regardless of claims from their manufacturers about how they are deployed in conflicts.

“Some financial institutions haven’t done their homework correctly and have an incomplete definition of what they consider a controversial weapon,” said weapons expert Frank Slijper from the Dutch group PAX, which has investigated financial institutions’ investments in weapons.

“For some of them white phosphorus and incendiary weapons may still be a bit of a grey area. There’s clearly a long way to go because a big part of the financial sector is still not excluding these companies.”

He said pressure from financial institutions like super funds had helped convince weapons companies to stop making landmines and cluster bombs, and the same was possible in the case of white phosphorus munitions.

Checking the claims of Australian super giants

The ABC’s investigation also analysed controversial weapons exclusions that some funds apply to their entire portfolio, including options that are not specifically branded as socially conscious, ethical or sustainable.

We examined the controversial weapons exclusion policies of the top 10 super funds by number of members.

The analysis found more examples of super funds with exclusions on incendiary weapons investing in companies involved in making white phosphorus bombs.

The hospitality industry super fund Hostplus holds shares in two companies involved in white phosphorus weapons manufacturing. The fund has an exclusion on incendiary weapons across its entire $111 billion portfolio.

It holds shares in Daikin, the Japanese air conditioner manufacturer that also has a division that makes weapons, including white phosphorus bombs.

Records from a Japanese government procurement website show Daikin has supplied millions of dollars worth of white phosphorus bombs to the Japanese military over the past eight years.

There is no mention of the weapon on Daikin’s English-language website, but the company confirmed that it makes white phosphorus bombs in response to questions from the ABC.

“The smoke bombs manufactured by Daikin are used at the Self-Defense Forces’ training grounds under the strict control of the Ministry of Defense and the Self-Defense Forces. They are not used in locations where they may affect civilians,” Daikin said in a statement.

After being contacted by the ABC, Daikin said it had decided to stop making this type of weapon in the future.

“We have decided to cease supplying white phosphorus products in the future and have informed the Ministry of Defense of this intention. They approved it,” Daikin’s statement said.

The company declined to say when it made the decision to stop making the weapons, but said it was before the ABC asked about the program.

It did not say why it stopped making white phosphorus bombs.

Hostplus also invests in ICL Group, an Israeli chemicals company that has a contract to supply white phosphorus to the US Army for weapons manufacturing until the end of next year.

When contacted by the ABC, ICL Group initially denied any involvement in supplying white phosphorus to weapons manufacturers.

When provided with details of the contract, ICL Group confirmed the arrangement but said it had stopped supplying white phosphorus to the US Army before the 2025 end date.

“We ceased supply last year, and the US Army was notified,” it said in a statement. It has not said exactly when last year it stopped the supply.

Hostplus did not directly respond to questions about whether the holdings in Daikin and ICL Group amounted to breaches of its exclusion on incendiary weapons.

“Hostplus’ controversial weapons policy is developed in accordance with the international treaties and conventions which govern their use,” it said.

“Our portfolio holdings are consistent with this policy and are routinely reviewed to ensure this remains so.”

Construction industry fund, Cbus, also holds shares in ICL Group. Cbus promises to exclude investments in companies involved in white phosphorus “where involvement relates to core weapons components” across its entire $91 billion portfolio.

Cbus said the investment did not amount to a breach of its responsible investment policy because ICL does not manufacture the core components of white phosphorus bombs.

“Cbus will continue to invest in line with its responsible investment policy and monitor its exposures,” it said.

The ABC analysis also found retail industry fund Rest has held shares in a company involved in depleted uranium, despite promising to exclude investments in this type of weapon across its entire portfolio.

Rest has held shares in weapons manufacturer L3Harris — the parent company Aerojet Ordnance Tennessee, which has a contract to supply depleted uranium penetrators to the US Army.

In response to questions about whether the holdings were a breach of its exclusion policy on depleted uranium, Rest said it had sold its shares in L3Harris.

Rest said it identified the shares in its portfolio earlier this year after receiving information from an external research firm about L3Harris’s involvement in depleted uranium munitions.

“Rest instructed its external investment managers to exit all holdings in the company on 24 March 2024 and this was completed by 29 March,” it said.

‘Either you cut them out or you don’t’

While some funds apply blanket bans on shares in weapons companies, others apply what’s known as a “materiality threshold” to their investments in the sector.

This means they only exclude investments in companies that earn a certain percentage of their revenue from weapons.

For example, health industry fund HESTA applies a materiality threshold to companies involved in nuclear weapons.

In 2021, it announced it would not invest in companies that make more than 5 per cent of their revenue from nuclear weapons.

This means that a number of companies involved in the nuclear weapons industry, including Thales, BAE Systems and Northrop Grumman, remain in HESTA’s portfolio because their revenue from the sector is below 5 per cent of their total turnover.

In a statement, HESTA said the holdings were “relatively small”, only making up about 0.4 per cent of the total fund.

“These companies currently do not meet our exclusion criteria, which is based on company-level revenue and activity data,” it said.

“However, this may change depending on ongoing company reporting and research by specialist third-party data providers, and HESTA updates its exclusion list on a quarterly basis. We appreciate there’s a wide range of views among our more than 1 million members.”

Margaret Beavis from Medical Association for the Prevention of War described the revenue thresholds as “like trying to walk both sides of the street”.

She believes this type of exclusion policy is ineffective because there are very few companies that make more than 5 per cent of their revenue from nuclear weapons.

“Either you cut them out or you don’t,” she said.

HESTA’s 5 per cent revenue threshold means it only excludes investments in four publicly listed companies involved in nuclear weapons: Lockheed Martin, Huntington Ingalls, China Aerospace Science and Technology Corporation and Dassault Aviation.

Regulator plans more action against funds

The ABC’s investigation comes as the Australian Securities and Investments Commission leads a crackdown on superannuation and investment funds greenwashing or making other misleading claims to customers about the ethical and sustainability credentials of their products.

In the past year it has won legal action against Vanguard and Active Super. Each fund was found to have invested in companies they promised to avoid.

ASIC has also settled a similar case with Mercer.