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Yes, impact investments can reduce the threat of nuclear weapons



Unimaginable catastrophes can and do happen if we don’t work to prevent them. Climate change, COVID-19 and, most recently, the accidental detonation of ammonium nitrate that leveled Beirut’s port area, are all evidence of that. They are also evidence of the fact that government alone cannot be counted on to have the competence, political will or resources in order to protect society from these tragedies. 

This month marks the 75th anniversary of atomic bombs being dropped on Hiroshima and Nagasaki. And most experts in the nuclear field believe it is incredible luck that, despite multiple close calls with regards to nuclear conflict, that there has never been another belligerent detonation. 

While the chance of nuclear conflict remains low over the very short-term, the odds are uncomfortably high over the intermediate to longer term. And that means we must make prevention a priority today. Because even a single detonation could cause incredible suffering, both in terms of the immediate physical effects from the detonation and the additional human suffering that would result from the knock-on effects to capital markets and the real economy. 

A nuclear detonation could threaten progress not only on the UN Sustainable Development Goals for which it is arguably most implicit – SDG No. 16: Peace, Justice and Strong Institutions, for example – but for all 17 SDGs; tackling climate change, cleaning up pollution, eradicating poverty all could fall to the backburner if and when a nuclear detonation stifles society’s economic ability or political appetite to tackle them. A big enough nuclear exchange could itself even cause climate change via a nuclear autumn or nuclear winter. 

Investors, along with the broader financial and business communities and all corners of civil society, need to step up their involvement in prevention efforts… before this 75-year streak of luck runs out. As such, I recently launched The Cross Capital Initiative, with my inaugural report “Preventing Nuclear Catastrophe.  The report calls on sustainable investors to lead this charge. Because these areas are so underexplored, I believe that impact investors that are early can also do well while doing good.

Shareholder engagement

For sustainable investors focused on larger, particularly publicly-traded companies, there is often no attention paid to the issues of nuclear weapons or potential nuclear conflict. And when attention is paid, it is usually limited to the decision whether to divest or not from the manufacturers of nuclear weapons. 

I believe that the analysis has to be more thorough. It needs to be expanded to other industries that also touch upon the nuclear weapons supply chain or could otherwise cause state parties to enter into nuclear conflict, whether by intention or by blunder. This includes everything from financial services companies to industrial companies to social media companies. 

The analysis also needs to be more nuanced, allowing investors to judge companies across a range of environmental, social and governance, or ESG, screens – not just in a binary way as to whether they are involved in the manufacture of nukes. Like many investors I would look to engagement, not just divestment, to change company behavior. Changes that investors could encourage among companies include everything from: 

  • Better counter-proliferation financing measures from banks; to
  • Better export controls from industrial companies with regards to technologies, products and commodities that could be used in manufacturing a nuclear weapon; to
  • Stepped up efforts by social media companies to combat disinformation and hacking. (More than one nuclear professional has breathed a sigh of relief that the account of Trump, who is known to both govern and threaten on Twitter, wasn’t taken over in the recent Twitter hack).

In addition to stepped up engagement of larger companies, impact can be achieved in other ways. One way would be to encourage certain companies to issue so-called Transition Bonds, which “dirty” companies use to raise money and earmark the proceeds towards cleaning up their business. Potential issuers could, for instance, include miners or nuclear weapons manufacturers that need to clean up the pollution that may have been caused by their past activities. 

Private markets

Impact investors into small, private projects and startups need to expand the scope of their investments to those that might contribute to a reduction in the risks of nuclear weapons and nuclear conflict. Virtually all impact investors ignore nuclear weapons. There are a few reasons for this, including that it would be tough to quantify impact from such investments. But a system of quantifiable measurements could be developed over time. Meaningful qualitative assessments of impact are achievable, even in the short-run.

The major reason for the lack of activity, however, is because most projects geared towards reducing the risks of nuclear conflict have been non-profit initiatives; these include efforts focused on such things as research and convening parties together for discussion. Devising for-profit projects aimed at reducing the risks of nuclear weapons and nuclear conflict is clearly no easy task. 

However, for-profit, or at least revenue-generating, projects can be devised if:

  • Impact investors and social entrepreneurs, with the help of nuclear professionals, get educated on all the paths to nuclear conflict and what solutions could help reduce such risks;
  • Some creative thinking is invoked, including targeting “dual-use” technologies and other products that have some unrelated commercial application in addition to addressing traditional nuclear-related problem sets such as verification of compliance with nuclear treaties and monitoring illicit proliferation activities.
  • Philanthropic providers of concessionary capital finance projects to a stage that catalyzes more market-based impact capital to enter.

Examples of potential “dual-use” technologies include:

  • Blockchain (distributed ledger technology): The Stimson Center, for one, is exploring the use of blockchain to detect diversion, unauthorized access, loss or theft of certain materials and technology that could be used in the manufacture of nuclear weapons. Could that or some other blockchain model being used for nuclear safeguards also end up having commercial application in settling stock trades or in civilian supply chain logistics?
  • Big data/data scraping: There are countless commercial applications of big data/data scraping. Could such technology also be used to scrape belligerent terms across certain media outlets in order to help predict if and when one of the nuclear powers might step over the nuclear threshold and detonate a device?

Artificial intelligence, cybersecurity, and physical detection and screening technologies are just a few of the other many potential examples of “dual-use” technologies. In some cases, those projects with a technology bent should be able to attract traditional venture capitalists and angel investors in addition to impact investors. 

Nuclear weapons and nuclear conflict are also not a focus of most impact funds focused on media and entertainment projects, but it should be. Not only because the threats of nukes are fertile ground for storytelling but also because these are some of the easier nuclear projects to devise around a for-profit business model. For instance, the 1983 film “The Day After” deeply affected Reagan, became part of the global conversation, and reportedly even facilitated progress on arms control between Reagan and Gorbachev.  

The range of potential projects also increases greatly if impact investors focus on the root causes of nuclear conflict – including the contentious relations among certain nuclear nations (e.g. the U.S. versus China and Russia, India versus Pakistan and China, etc.). Projects focused on improving relations between such nations, even if they are not on the surface related to nuclear issues, can have profound effects on the risks of nuclear conflict. Beyond media and entertainment projects – movies, concerts, recorded music and video games – this could include everything from camps for teenagers from both sides of a conflict (e.g. Seeds of Peace) to business collaborations among adversarial nations. 

Policy matters

ImpactAlpha recently argued that impact investors sometimes have to get involved in policy in order to support their impact. My sense is that the vast majority of nuclear professionals believe that the risks of nuclear conflict would be lower if Trump were not in the White House. There are just so many reasons why.

Independent of whether he is president or not, though, I believe that the investment community and broader financial and business communities should use their resources to help pass proposed legislation that would alter the U.S. President’s ability to launch a first-use nuclear strike without Congressional approval. A first-use nuclear strike is one that is not preceded by any sort of verifiable nuclear attack against the U.S. 

Another priority should be extension of the New Start Treaty with Russia set to expire in early 2021; this treaty limits the two countries’ arsenals and contributes to transparency. 

I home in on no first-use without Congressional approval and extending the New Start Treaty not only because I think they would be two very important and timely actions. It’s also because I think there would be wide support for them among the investment community, American Voters, and American allies in addition to support from the non-proliferation community. 

Some folks will argue that these are political matters and that such matters should be left up to voters in terms of whom they put into office. The investment community and broader financial and business communities, however, lobby regularly on a range of issues that benefit their enterprises individually or collectively, and by extension their shareholders. If enterprises can lobby on issues in their shareholders’ interests, sometimes hurting society in the process, I believe they should also be able to lobby for policies that benefit all their stakeholders (including shareholders) and broader society. Reducing nuclear weapons risks to the global economy and capital markets clearly qualifies in this regard. And this is particularly the case when there is data regarding bipartisan voter support on the issue.


David Epstein, CFA, is the founder of The Cross Capital Initiative

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