Bank of Nova Scotia’s asset-management arm is facing scrutiny for being the largest foreign shareholder in a publicly traded Israeli defence contractor. 

SumOfUs, an advocacy group, has launched a petition campaign calling on Canada’s third-largest bank to divest its stake in Elbit Systems Ltd., which has been accused of manufacturing cluster munitions. 

Scotiabank’s 1832 Asset Management holds 5 per cent of Elbit, valued at about US$440 million, according to a U.S. Securities and Exchange Commission filing. “SumOfUs members want answers” about why the firm owns the shares, said Angus Wong, campaign manager at the advocacy group. Cluster munitions are controversial because, like land mines, they can kill or injure civilians during an armed conflict or long after it has ended. 

A number of firms have already put Elbit on their list of banned investments. Australia’s A$242 billion (US$157.4 billion) Future Fund and Norway’s largest pension fund have excluded it from portfolios. 

However, the Israeli company has denied producing cluster munitions. In an emailed statement, an Elbit spokesperson said all of its business activities are in compliance with the Convention on Cluster Munitions that entered into force in August 2010. 

Scotiabank backs the company’s position. “1832 Asset Management does not knowingly invest in companies that directly manufacture cluster munitions,” Scotiabank spokesperson Heather Armstrong said in an email. “Our engagement with the company confirmed that they do not, and we verified this position with a leading global investment research firm that is commonly used by asset managers around the globe.” 

NORWAY FUND

Through its subsidiary IMI Systems Ltd., Elbit produces miniature intelligent multipurpose sub-munitions. This is a “smart cluster munitions system” equipped with sensors to program and identify targets, Kiran Aziz, the head of responsible investment at Norway’s KLP, said in an emailed statement. 

IMI has previously produced another cluster munitions system -- Runway Attack Munition -- and may still do so, she said.

The fund’s belief that Elbit is involved in cluster munitions is based on information from MSCI Inc., company reports and nonprofit organizations, Aziz said. The Oslo-based pension fund, which has assets of about US$70 billion, had already excluded Elbit because it doesn’t meet KLP’s investment criteria on human rights.

Scotiabank managed $320 billion (US$237 billion) in its global wealth-management business as of the end of July, which includes mutual funds and liquid alternative funds.