Baillie Gifford under fire over killer drones

Baillie Gifford under fire over killer drones

Baillie Gifford under fire over killer drones 4

The controversial Edinburgh investment firm, Baillie Gifford, has asked Scottish council pension funds whether they have “concerns” about investing in killer drones.

A confidential report leaked to The Ferret reveals that Baillie Gifford (BG) has taken the unusual step of canvassing local authority pension funds it helps manage about a £17m holding in AeroVironment, a US company that makes drones loaded with explosives to destroy ground targets.

In the report BG accepted that the impact of war was “devastating”, but argued that governments needed to protect their people. Investing in AeroEnviroment would provide a good financial return because “the floodgates in demand” for its drones could open, it said.

But campaigners accused BG and pension funds of profiting from wars that were killing thousands of civilians. The assumption that the drones would only be used for defence was “childishly naïve”, they said.

The Ferret reported in 2023 that BG had billions of pounds invested in fossil fuels. This prompted the climate campaigner, Greta Thunberg, to pull out of an event organised by the Edinburgh International Book Festival, which was sponsored by BG.

In May 2024 the Edinburgh book festival announced the end of its 20-year sponsorship by BG. This was followed by book festivals in Wigtown, Melrose, Hay-on-Wye, Cheltenham, Cambridge, Henley, Stratford and Wimbledon all ending their BG sponsorship deals.

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According to the leaked local authority report, in the last few months BG has approached council pension funds to “flag” a new purchase of defence stock by BG’s “global alpha” portfolio. As a fund manager, it was considering investing pension funds in the portfolio.

BG acts as a fund manager for all of Scotland’s 11 local government pension schemes covering 32 local authorities and other public bodies such as the Scottish Environment Protection Agency. It also manages the Scottish Parliamentary Pension Scheme.

The report didn’t name the defence company involved, but did mention that it made switchblade drones. Known as “loitering munitions” – or sometimes “kamikaze drones” – they are produced by AeroVironment, an arms manufacturer in Arlington, Virginia, and have warheads designed to crash into targets “with precision lethal effects”.

Switchblade drones have been used since 2011 by US armed forces in Afghanistan and Iraq, and sold to Ukraine and used against Russian targets since 2022. The US news website, DefenseScoop, reported in 2023 that Israel had bid for 200 of the latest design, though it is not known whether the bid has been successful.

In June 2024 BG anticipated “significant sales growth” in AeroVironment’s loitering munitions, from £413m in 2023 to potentially £1.3bn by 2028. This was driven by US and international demand “with negotiations underway in over 20 countries”, it said.

According to BG’s latest quarterly reports, one of its global alpha funds held about £13.6m of AeroVironment stock, and another held about £3.9m, making £17.5m to which council pension funds could contribute. BG’s latest filings to the US Securities and Exchange Commission in June 2024 put the total holdings from all BG funds in AeroVironment at £210m.

Firm discussed ethics of drones ‘at length’

The leaked report reveals that investing in killer drones had passed BG’s own governance and ethics tests. “We have discussed the ethics of loitering munitions at length internally,” BG was quoted as saying.

“Whilst we absolutely recognise that the impact of war and conflict on a human level is devastating, we also feel that it is also important to recognise the moral responsibility incumbent upon governments to invest sufficiently in defence to protect their own people.”

BG continued: “Our decision to invest is on this basis (defence) and is neither predicting, nor reliant on, war, or further escalation of existing conflicts. It is built on our view that defence budgets are structurally increasing and that there is a technological upgrade cycle at play as governments look to upgrade their military inventories.”

BG pointed out that AeroVironment’s drones were used by more than 50 “US-allied and friendly militaries”. It also argued that they minimised “collateral damage” and reduced civilian casualties with “improved precision and targeting”, including the ability to abort attacks at the last minute.

Investing in AeroVironment promised good financial growth, BG told local authority pension funds. “The majority of sales will likely be to the US and NATO allies. NATO spending is growing at record rates (around 11 per cent in 2023) whilst US defence spending is growing steadily,” it said.

Switchblade drones were “at the front of the queue” and their performance had been “proven” in Ukraine, BG argued. There was the prospect of a contract for an “indefinite” number which “could open the floodgates in demand for the product”.

According to the leaked local authority report, it was not “normal practice” for a fund manager such as BG to approach clients about investment in a specific company. But BG thought it was “appropriate” to flag the purchase of AeroVironment stock to give council pension funds “the opportunity to raise any additional concerns”.

The report suggested, however, that no Scottish local authority pension scheme had blocked BG’s investment, in line with legal advice and the duty of pension funds to maximise financial returns. Council pension funds could not exclude specific investments based on “personal, ethical or moral judgements”, the report said.

drones
Launch of the Switchblade 600. Image: AeroVironment

Drones leading us to a ‘frightening future’

A group campaigning against military drones, Drone Wars UK, argued that AeroVironment were part of the drift towards “killer robots” which were “leading us towards a frightening future where machines will be able to take a human life without any human control or oversight.”

“Baillie Gifford is apparently keen to invest and profit from the development of such weapons,” said the group’s Peter Burt.

“Baillie Gifford’s justification for funding AeroVironment is based around the childishly naïve assumptions that their weapons will only be used for defensive purposes by the US armed forces and their allies, and that these weapons are precision weapons,” he added.

“As the civilian death toll from Israel’s invasion of Gaza shows, artificial intelligence-driven target identification systems are anything but precise and they have led to large numbers of unnecessary civilian deaths. Local authority pension fund trustees should not be fooled by this propaganda.”

The Green MSP, Ariane Burgess, called on local authorities to reject BG’s investments in AeroVironment. “Claims that funding killer drones will be good for civilians and the environment are transparently absurd”, she said.

“For far too long we’ve seen local authority pension funds investing in arms dealers. We know the public doesn’t support it – and with the ongoing genocide in Gaza it has never been more important to ensure we’re not acting as its financiers.”

The Highland Palestine campaign group attacked Scottish local authority pension funds as “particularly craven” for failing to express any opinions. “Do local authorities really want to be seen to be profiting from wars in which tens of thousands of children are being killed and severely maimed?” said the group’s Derek Newton.

The potential for growth highlighted by BG could only come from the widening conflicts we are witnessing, he argued. “BG’s ethical position might be summed up as ‘the end of the world is nigh, how can we make money out of it?’”

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Baillie Gifford declined to expand on its comments in the leaked report. “We’ve nothing further to add to the comments you already possess,” a spokesperson told The Ferret. AeroEnvironment did not respond to requests to comment.

The government’s Scottish Public Pensions Agency and the Convention of Scottish Local Authorities (Cosla) pointed out that investment decisions were taken by the 11 council pension schemes. “We know that administering authorities and pension funds take their responsibilities seriously and must operate within both their legal and fiduciary duties,” said a Cosla spokesperson.

“Investment decisions are a matter for the pension funds in line with their duties and this includes taking proportionate and considered action on investment decisions as appropriate.”

The Ferret usually makes the documents on which its stories are based available to readers to aid their understanding. In this case, however, we have agreed not to share the leaked report in order to protect our sources.

Cover image thanks to U.S. Marine Corps/Cpl. Jennessa Davey

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