(Bloomberg) -- Hundreds of ESG funds run by some of the world’s biggest money managers have a combined $13.4 billion stake in companies that supply weapons and technology to the Myanmar military, according to a report.

The funds, which say they take into account environmental, social and governance risks, have investments across 33 companies that the United Nations and two advocacy groups say provided weapons, communications and technologies to the military, according to a statement released Wednesday by Inclusive Development International and ALTSEAN-Burma.

The report comes as investors, particularly in the ESG universe, face new questions about how they should approach armed conflicts. Roughly 14% of sustainable funds globally held Russian assets before the war began, an allocation that now looks questionable on principle and in practice.

At the same time, some analysts and investors are making a new case for the defense industry and military technologies on moral or political grounds, as a measure of support for companies that supply the Ukrainian army. 

David Pred, executive director of Inclusive Development International, said there’s no place for arms manufacturers in ESG funds, “full stop.” 

“And certainly not companies that supply regimes that are using those weapons on innocent civilians and for non-defensive purposes,” he said. “For us, it is about the human impact of the company and its product, there’s just no reasonable argument for arms makers to be in these funds.”

Myanmar has been under military rule for a little more than a year, after armed forces ousted the democratically elected government. The European Union and the U.S. have imposed sanctions on Myanmar military leaders and state-owned companies, and corporations, including TotalEnergies SE and Chevron Corp., have said they will pull out of the nation to protest government violence against civilians.

“That dozens of companies with ties to Myanmar’s genocidal regime are included in ESG portfolios shows just how large the gulf is between ‘responsible-investment’ marketing claims and reality,” Pred said.

Inclusive Development, based in Asheville, North Carolina, found 344 funds -- those that track indexes and those where managers pick stocks -- that owned corporations that had links with the military as of November, according to the Burma Campaign U.K., Justice for Myanmar and the UN. 

One of the companies is India’s Bharat Electronics Ltd., Inclusive Development said. Bharat was cited by Justice for Myanmar for exporting a remote-controlled weapon station to Myanmar last July. 

Two of State Street’s ESG funds -- Emerging Asia ESG Screened Equity Fund and Global Emerging Markets ESG Screened Index Equity Fund -- owned shares in Bharat, Inclusive Development said. So did one of BlackRock’s ESG exchange-traded funds, the iShares MSCI EM IMI ESG Screened UCITS ETF.  

Bharat declined to comment before it reviewed Inclusive Development’s report. A spokeswoman at State Street didn’t respond to emails seeking comment. Ed Sweeney, a spokesman for BlackRock, declined to comment and referred questions to MSCI Inc., which compiled the indexes that the funds are based on. 

Melanie Blanco, a spokeswoman for MSCI, said the MSCI EM IMI ESG Screened Index doesn’t apply “ESG ratings exclusions” but instead “ESG controversy exclusions” that are designed to provide “timely and consistent assessments of ESG controversies involving publicly traded companies and fixed-income issuers.”

Those exclusions screen for specific projects and companies that have business ties or contracts with military forces to provide military equipment, she added. 

“We have found no evidence that Bharat Electronics is involved in the above projects flagged for alleged human rights abuses,” Blanco said. “In regards to provision of military equipment, the company’s coastal surveillance system, while sold to the navy, is designed for coastal security and not for offensive combat-related operations.”

Further, “we have found no evidence that Bharat Electronics is directly involved or associated with controversial weapons, which we define as land mines, cluster munitions, depleted uranium, and biological and chemical weapons,” she said.

Major General Zaw Min Tun, the lead spokesman for Myanmar’s State Administration Council and deputy minister of information, said the military doesn’t usually comment on individual companies. The relationship with India “has been strong since the period of intensifying internal conflicts” between 1948 to 1962, he said. “We have strong relations with some Indian companies when it comes to economic activities and technology cooperation.”

Another ESG-labeled fund, Invesco Ltd.’s S&P International Developed ESG Tilt Index Fund, was among the pools that invested in Israel’s Elbit Systems, according to Inclusive Development’s analysis. The defense company had sold drone parts to Myanmar’s military, according to Justice for Myanmar. 

A spokesperson for Elbit said the company hadn’t had any contracts with the Myanmar military, or any contractor working for the military, since 2016. Jeaneen Terrio, a spokeswoman for Invesco, declined to comment, citing company policy of not discussing individual holdings in passive funds. Josh Goldstein, a spokesman for S&P Global, didn’t return messages or phone calls seeking comment. 

Software firm Cloudflare Inc., which provides services for the military-controlled Ministry of Home Affairs and national police force, is also held by ESG funds, according to the report. Four of State Street’s ESG funds own the stock.

Claudia Traverso, an outside spokeswoman for Cloudflare, didn’t return emails and telephone calls seeking comment.  

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