NETHERLANDS - All financial institutions in the Netherlands - including pension funds - will be prohibited from investing in cluster-munition manufacturers, the Dutch Cabinet has announced.

In a letter to parliament, finance minister Jan Kees de Jager said all direct investments in the manufacture, sale or distribution of cluster munitions would be banned from 1 January 2013.

The minister said the ban would be limited to new investments and covered by the Financial Supervision Act (Wft), overseen by the Financial Markets Authority (AFM).

With the adoption of a legal ban, the Dutch cabinet follows the resolution tabled by senator Cathrijn Haubrich-Gooskens of labour party PvdA, and which the Senate adopted last year.

The Netherlands ratified the Dublin Convention on Cluster Munitions (CCM) back in 2008, but the finance minister said that, since then, there had been questions about whether a legal ban had been part of his country's commitment to the treaty.

According to Diederik Timmer, director at ESG specialist Sustainalytics Netherlands, the imposition of a legal ban serves as an emphatic directive for institutional investors.

Timmer claimed, however, that a large number of Dutch pension funds had invested in cluster munitions passively, as it was "almost impossible" to bar these investments from index funds.

"Only [the larger] pension funds have an active policy against these weapons and sufficient clout to implement it through mandates, or an adjusted index," he said.

Timmer said recent investor action against cluster munitions had already led to a significant decrease in the number of listed manufacturers worldwide.

He added: "The effect in the US and Russia, which haven't signed the CCM, has been that they are now focusing on the development of more effective weapons that cause less collateral damage, even though they are still in breach of the convention."