Proponents of the social responsibility of business and investment have seldom assessed the makers of conventional armaments such as machine guns, attack helicopters and battle tanks. Fewer still have attempted to devise and implement such programs within firms, although a growing number of civil society groups have begun to identify those entities involved – both directly and indirectly – in the development, production and investment of “controversial” weapons such as landmines and cluster bombs (IKV Pax Christi, Handicap International and Netwerk Vlaanderen, 2010). Simply put, the prevailing argument is that arms makers and their financers are not capable of being socially responsible due to three unique characteristics. First, the producers of arms are commonly viewed as agents of the state due to its importance to maintaining national sovereignty, rather than independent actors with liability to manage the harm resulting from its products. Second, there is a belief that the manufacture of arms necessitates a higher degree of opaquenessthan other industry groups due to national defence considerations. Third, the state plays a dual – and at times, conflicting – role as principal customer and regulator.
Whilst these three rocks in the road may be pushed aside, I argue that the emerging concept of corporate social irresponsibility (CSI) proves far more useful in assessing arms makers’ limits of responsibility in a different way altogether. By focusing on the negative “externalities” – that is, impact on society – we are able to examine the practice in the context of constitutive and regulatory norms (i.e. the accepted rules), as opposed to norms that are merely evaluative (i.e. moral) or practical (i.e. what’s possible). Put another way, CSI effectively confines analysis to a relatively precise set of considerations, whilst a more traditional corporate social responsibility approach (CSR) necessitates choosing from a raft of potential implementation strategies and activities. Thus CSI provides a degree of specificity not offered by the more nebulous concept of CSR, as well as one that complements rather than competes with existing CSR programs and activities (see Figure 1).
In arguing for the usefulness of CSI to institutional investors, I come to address a seemingly large paradox in the form of a small question: can arms makers be socially responsible? This chapter takes a small step toward answering that question by examining the investment policies, practices and procedures of a handful of Australian pension and sovereign wealth funds in relation to investment in the development and production of cluster munitions – a class of weapon banned under international law since August 2010. The case selection is especially significant since the international Cluster Munitions Convention is the most ambitious disarmament and humanitarian treaty of the last ten years, and the Australian investment industry – with A$1.4 trillion in assets – is the fourth largest in the world. Whilst no Australian firm is in the top 100 manufacturers of conventional weapons globally (Jackson, 2010), Australian banking and financial institutions are among the largest investors in such companies overseas. By focusing on the Australian experience, this chapter explores the “dilemma” institutional investors face when the positions of domestic governments do not explicitly prohibit direct and indirect investment as has been done in other markets such as New Zealand, United Kingdom, Germany, France, Ireland, Holland, Luxembourg, Belgium, Switzerland, Lebanon, Mexico, Norway and Rwanda.
Drawing on theoretical discussions in international relations as well as critical studies of corporate social responsibility, I find that the negative externalities inherent in armaments manufacturing demand that institutional investors view such firms through a “CSI lens”, especially when tasked with identifying and developing strategies to account for emerging social norms.
 For the purposes of this chapter, the terms “arms maker”, “producer” and “manufacturer” will be used interchangeably to refer to all firms involved in the development and production of conventional armaments, including mere component suppliers.
 For instance, E.F. Byrne (2007) challenges the Westphalian notion of state sovereignty and the importance of armaments production for national defence in order to assess arms makers against four corporate social responsibility criteria: environmental performance, social equity, profitability, and use of political power.
N.A.J. Taylor, ‘A rather delicious paradox: Corporate responsibility and the manufacture of armaments’, in Ralph Tench, William Sun and Brian Jones (eds.) Corporate Social Irresponsibility: A Challenging Concept, Emerald, U.K.: West Hampshire, November 2012, pp.43-62. [PDF]