European asset managers are facing pressure to reconsider their policies on investing in the defense sector as the continent ramps up its efforts to bolster its military capabilities. Under European Union rules, funds labeled as sustainable must ensure that their investments “Do No Significant Harm.” This has led many asset managers to steer clear of the defense sector altogether, with companies like Rolls Royce and Airbus being deemed off-limits.
However, with the EU seeking significant investment to enhance defense capabilities following calls from U.S. President Donald Trump for Europe to take more responsibility for its security, the defense sector has become too important to ignore. This has prompted major investors like Legal & General to announce plans to increase their exposure to defense, citing heightened geopolitical tensions as a driving factor.
Several European fund groups have begun reviewing their policies at the board level, considering the complexity and controversy surrounding the inclusion of arms manufacturers in their portfolios. UBS Asset Management and Mercer have indicated that they are reassessing their defense sector exclusions, reflecting a shifting attitude towards investing in the industry.
The EU’s increased spending on defense has resulted in soaring stock prices for aerospace and defense companies, with investors recognizing missed opportunities for growth in this sector. Some clients are advocating for investments in defense, citing the importance of Europe’s ability to defend itself in the face of escalating security threats.
While exclusions on investing in controversial weapons remain common, the focus on environmental, social, and governance (ESG) factors has dissuaded many asset managers from including defense companies in their portfolios. However, the tide seems to be turning, with some industry experts suggesting that excluding defense companies may no longer be the norm.
Political pressure is also mounting, with British and French politicians urging investors to support the military sector, and Norway’s central bank chief suggesting that ethical investing standards may need to evolve. Some clients are expressing interest in defense investments, prompting wealth management firms like LGT to reconsider their stance on the sector.
Despite some skepticism from fund managers, there is a growing recognition of the opportunities presented by the defense sector. WisdomTree recently launched the first European defense exchange-traded fund, signaling a shift in investor sentiment towards defense investments. European asset managers are increasingly allocating a larger portion of their portfolios to aerospace and defense, reflecting a more positive stance on the industry.
In conclusion, the landscape of defense investments in Europe is evolving, with asset managers reassessing their policies in response to changing geopolitical dynamics and client demands. The defense sector is gaining traction as a viable investment opportunity, prompting a shift in attitudes towards including arms manufacturers in sustainable portfolios.
