*

Filings show several European firms cut back Israel links

*

UniCredit not financing arms exports to Israel - source

*

Storebrand ( SREDF ) and AXA have sold shares of some Israeli firms

By Stefania Spezzati

LONDON, Nov 5 (Reuters) - Several of Europe's biggest

financial firms have cut back their links to Israeli companies

or those with ties to the country, a Reuters analysis of filings

shows, as pressure mounts from activists and governments to end

the war in Gaza.

While banks and insurers are often vocal about their

environmental and governance aims, they are less forthcoming

about disclosing their potential exposure to war.

UniCredit put Israel on a "forbidden" list as the conflict

escalated in October last year, said a source familiar with the

matter, confirming a study by Dutch NGO PAX.

While in line with the Italian bank's defence-sector policy

of not directly financing arms exports to any country involved

in conflict, it goes beyond Italy's guidelines on arms exports

to Israel.

UniCredit declined to comment on its move and the

Israeli finance ministry also declined to comment.

Meanwhile, Norwegian asset manager Storebrand ( SREDF ) and French

insurer AXA have sold shares of some Israeli firms,

including banks.

Although corporate filings offer only a glimpse into such

exposures, they show companies have been readjusting.

"We don't know whether this represents the beginning of a

shift in the industry, one that recognises the power banks have

in choosing where to allocate capital, and where not," said

Martin Rohner, executive director at the Global Alliance for

Banking on Values, which focuses on sustainable financing.

"Investing in the production and trade of weapons is

fundamentally opposed to the principles of sustainable

development," Rohner added.

Israeli Finance Minister Bezalel Smotrich told a press

briefing last week that although there are challenges to

Israel's economy, firms are still raising money. "I sit with

foreign investors and they believe in our economy," he said.

Reuters has reported that Israel's investor base has

narrowed since it entered Gaza last year in response to attacks

by Hamas, and it is feeling the effects of rising borrowing

costs.

The potential wider effects can be seen in the approach

taken by Storebrand ( SREDF ), which a filing showed divested a holding

worth about $24 million in Palantir ( PLTR ), citing the risk of

violations of international humanitarian law and human rights.

U.S. group Palantir ( PLTR ), which provides technology to Israel's

military, did not respond to a request for comment.

Storebrand's ( SREDF ) annual investment review said that, as of the

end of 2023, it had excluded 24 firms, including Israeli

companies, across its portfolios in relation to the occupation

of Palestinian territories.

The International Court of Justice, the United Nations'

highest court, ruled in January of plausible risk of irreparable

harm to Palestinian rights to be protected from genocide.

The same court said in July that Israel's occupation of

Palestinian territories including the settlements is illegal.

Israel has rejected the rulings, which combined with growing

pressure from activists and governments, are nevertheless having

an impact on investment decisions.

AXA, one of Europe's largest insurers, British bank Barclays ( JJCTF )

and German insurer Allianz have increasingly

been targeted by campaigners.

"Increasing demand for greater transparency and scrutiny can

only mean that financial institutions will intensify and broaden

their self-assessment of their commercial associations with

arms-related businesses or states," said David Kinley, professor

and chair of human rights law at the Sydney law school.

The Ireland Strategic Investment Fund (ISIF) has exited six

Israeli companies, selling holdings which amounted to about 3

million euros ($3.26 million), including some of Israel's

largest banks, a spokesperson told Reuters.

Earlier this year, the 15-billion-euro Irish fund said that

the risk profile of such investments were no longer within its

investment parameters.

And Norway's $1.8 trillion wealth fund, the world's biggest,

may divest shares of companies that aid Israel's operations in

the occupied Palestinian territories which violate its ethics

standards for businesses.

WAR EXPOSURE

Investments in Israeli banks are also under scrutiny.

The U.N. included them in 2020 in a list of companies with

ties to settlements in the occupied Palestinian territories as

part of its mission to review the implications on Palestinian

rights.

A study by research firm Profundo, commissioned by corporate

watchdog Ekō, shows that AXA sold almost all of its holdings in

Israeli banks stocks earlier this year, retaining only a

marginal stake in Bank Leumi.

Reuters verified the data with LSEG. A representative for

Bank Leumi did not respond to a request for comment.

A spokesperson for AXA declined to comment on whether AXA

had cut its holdings, adding that it is not invested in the

banks targeted by activists. The U.N. list is among the criteria

AXA takes into account for investment decisions, they added.

'A CLEAR LINE'

Foreign direct investment into Israel fell by 29% in 2023 to

its lowest since 2016, UN Trade and Development data shows.

While UNCTAD 2024 figures are not available, credit ratings

agencies have flagged the war's unpredictable impact on

investment in Israel as a concern.

Although the U.S. remains Israel's biggest military and

financial backer, Spain, Ireland and Norway have recognised a

Palestinian state, French President Emmanuel Macron has called

for an arms export halt and Britain has suspended some licences.

When it comes to international politics, "it should be down

to the governments to take a clear line," said Richard Portes,

professor of economics at London Business School, adding: "To

put the burden on the private firms, where does this end?"

In an example of how activists are targeting companies

directly, Barclays ( JJCTF ) came under pressure from a campaign in

Britain, prompting it to withdraw sponsorship from summer music

festivals, while the Financial Times reported in August that it

considered pulling out of an Israeli government bond sale.

Barclays ( JJCTF ) said in a statement that it remained "fully

committed" to its role as a primary dealer and that such

activities fluctuated each quarter. The bank fell out of the top

five dealers of Israeli bonds in the second and third quarters,

after ranking third in 2023.

($1 = 0.9211 euros)