Is defence defensible in ESG investing?

Caught between the threat of Russian expansionism in the East and a possible withdrawal of the American security umbrella by Donald Trump across the Atlantic, Europe has launched an €800 billion finance plan to rearm the continent¹. Yet this military emancipation cannot be achieved without recourse to private investment, particularly considering the context of strained public accounts across many European countries.

For a long time, sustainable finance has been impervious to defence investments for ethical or legal reasons. But is it now time to consider whether environmental, social and governance (ESG) criteria should be relaxed to enable financing of the defence effort? Should it change its ways out of a sense of pragmatism, or should it reject the notion so that it may guard against any potential misuse?

Whether defence is an appropriate sector for ESG investors depends on individual values, investment strategies, and definitions of ESG criteria. However, whether to leave this problem up to clients, or not, is a choice that continues to divide asset management firms.

As the sustainable investing landscape continues to evolve, discussions around the role of the defence sector are likely to remain dynamic and nuanced.