A leading UK university is ending its £1.2m investment in a defence company that makes components for lethal US drones because it says the business is not "socially responsible".

The University of Edinburgh has bowed to pressure from students and campaign groups and is withdrawing funding from Ultra Electronics. The company, headquartered at Greenford in Middlesex, makes navigation controls for the US fleet of Predator and Reaper unmanned aerial vehicles.

Armed with Hellfire missiles, they are sent on covert "targeted killing" missions against suspected terrorist cells in Pakistan, Yemen and Somalia. But according to the Bureau for Investigative Journalism at City University in London, more than 430 strikes since 2002 have killed at least 428 civilians, of whom 173 were children.

Human rights lawyers argue that the attacks breach international law because they take place in countries with which the US is not at war. The strikes were declared to be war crimes by the Pakistani high court in Peshawar in May, and are under investigation by the United Nations.

Edinburgh University Students Association (Eusa), the student environmental group People and Planet, and the human rights charity Reprieve launched a campaign for the university to disinvest in June. A response from the university issued under a freedom of information request had revealed an investment of £ 1,244,672 in Ultra Electronics at the end of 2012.

According to the university, the investment has been under "active management" since then and has reduced to about £400,000. "Having taken on board concerns raised by Eusa, we have taken the decision to disinvest in Ultra Electronics," a university spokeswoman told the Guardian.

"We are committed to socially responsible investment and are the first university in Europe to sign up to the UN principles of responsible investment."

Edinburgh University has an investment portfolio of about £230m, the third largest in the UK after Oxford and Cambridge. Its money is invested in more than 100 companies, including Shell, Total, Tesco and Monsanto.

The university's move has been welcomed by campaigners, who are now urging disinvestment in fossil fuel companies. "The process of cleaning up the university's investments can and must be taken further to the issue of environmental responsibility," said Undine Schmidt from People and Planet.

Catherine Gilfedder, from Reprieve, urged other institutions to follow Edinburgh's lead. "The covert US drone programme has killed hundreds of civilians and traumatised populations in Pakistan and Yemen," she said.

"In divesting from Ultra Electronics, Edinburgh University has demonstrated its disapproval of companies profiting from such killings, and the importance of socially responsible investment."

Ultra Electronics confirmed that it made parts for air navigation systems, but declined to name its customers, citing confidentiality. A company website, however, states that it has supplied technology for Predator and Reaper ground control stations.

The company was "a responsible exporter of products and technology and rigorously complies with local and international export controls and regulations," said a company spokeswoman. "Ultra Electronics is listed on the London Stock Exchange and as such people and institutions are free to deal in the company's shares as they wish."