Objective
For Daikin to exit from its business supplying white phosphorus containing weapons
Background
We sold our position in Daikin in the Resource Efficiency theme in Q4 2023. Daikin is a leading provider of high-quality, energy-efficient heating, ventilation and air conditioning (HVAC) solutions for the residential, commercial, and industrial sectors. The company has a long track record of profitable growth and developing innovative new products. Our investment thesis has been that it its energy-efficient HVAC solutions, would drive market share gains over time.
However, prior to divestment, we learned that the company is involved in the production of white phosphorus weapons. Weapons containing white phosphorus are widely considered to be controversial because of their incendiary characteristics. Having consulted with WHEB’s independent Investment Advisory Committee, we decoded to include white phosphorus in our definition of banned and controversial weapons where we apply a 0% revenue threshold1.
Actions
As mentioned, WHEB engaged Daikin on this matter with the aim of having the company exit the business supplying white phosphorus containing weapons. In our communication, we outlined both WHEB’s own concerns, as well as those of our investors. We also explained that any company with any activity involving armaments and white phosphorus is a prohibited investment and that we would ultimately sell our position in Daikin if it remained committed to this activity.
Unfortunately, we were unable to get any reassurance that the company was thinking about exiting the business, and we sold our shares in Daikin in Q4 2023 and disqualified it from our investment universe.
Progress/Outcomes
M4 – It was recently announced that Daikin has decided to exit the production and sale of artillery shells containing white phosphorus that it supplies to Japan’s Ministry of Defence. While fulfilling existing orders through to the end of 2025, Daikin has stopped accepting new orders as of this year.
Although Daikin still faces several challenges, including an inventory surplus, rising global competition, and recent management disruption, this move signals a commitment to ESG priorities and addresses ESG concerns raised by WHEB and other stakeholders.
1 https://www.whebgroup.com/assets/files/uploads/20240110-ethical-outcomes-final.pdf