Half of investors could boost defence holdings following Ukraine invasion, RI survey suggests

Have the outbreak of war, promises of increased government spending on defence, and calls for support from the private sector shifted attitudes to the sector? We asked investors for their views.

Pledges by policymakers to ramp up spending on defence following the invasion of Ukraine have raised the prospect of rich rewards from a sector that had fallen out of favour with investors in an era of sustainability.

Alongside that, there have been suggestions – in some cases from the industry itself – that defence stocks could be reclassified as ESG-compliant and included in the EU’s social taxonomy in order to boost investment in the sector.

How are investors responding to this shift? A survey by Responsible Investor suggests that, while most are not planning to change their policy on defence, a significant proportion are open to increasing their exposure to the sector.

We asked investors about their current policy on defence, whether they planned to change it, if they had defence holdings, and if they planned to increase them.

Reflecting the industry’s problematic status, only four out of 39 respondents have no exclusion policy in place on defence. Even fewer, however, refuse to engage with the sector. Just three investors said they never invest in defence. The remainder have partial exclusion policies, usually relating to controversial weapons.

Most are unlikely to change their policies in immediate future. Twenty-five investors said they had no plans to do so, including all of those with either a full exclusion policy or with none.

Of those with partial exclusion policies, however, three admitted to plans to change their policy on defence, one said they “were following the debate” and would continuously review their policies, and nine did not answer the question.

SEB Investment Management has already gone public on the issue. The Swedish asset manager announced last month that it would enable six of its funds to investment in the defence industry. “It is [our] view that investments in the defence industry are of key importance to uphold and defend democracy, freedom, stability and human rights,” a spokesperson told RI at the time.

Perhaps surprisingly, some investors may be moving in the opposite direction. One Scandinavian investor – which already excludes companies related to controversial weapons, those associated with conventional arms trade in breach of sanctions, to regions in conflict, or where there is great risk of harming civilians and breaking humanitarian law and/or human rights – could tighten its policy on defence.

A spokesperson told RI: “We are revisiting to explore if we need to strengthen screening. Our members are for the most part anti-war and anti-weapons.”

When it comes to existing holdings, only six respondents confirmed that they had no exposure to the defence sector – including four with partial exclusion policies and one with no exclusion policy.

Even here, the picture was not entirely clear. One investor said they have “no direct” defence holdings, while another reported that their only holdings are “via conglomerates, eg General Electric”. A US investor said they “do have investments in some companies with direct or indirect defence or weapons-related contracts”.

Asked about the possibility of increasing investment to the sector, nearly half of the respondents – 19 – either declined to comment, failed to answer the question, or left the door open to expanding their holdings.

One investor told RI: “In our view, expansion of investment exposure to any sector or company is dependent on several financial parameters and our set of RI criteria, including our materiality framework, and is dependent on the investment objective and strategy of our products. This is therefore not possible to answer with a simple yes or no.”

Another replied more bluntly: “This is an investment related decision; where we see financial reasons for doing so, and where mandates allow.”

We want to hear from you. Has the war in Ukraine or the promise of increased spending on defence changed your view on the sector? Has it changed your view of the industry’s ESG credentials? To tell us your thoughts, which can remain anonymous, please email edit@responsible-investor.com