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Is investing in defence companies really ethical?

03/06/2024

On Tuesday, April 23rd, the Treasury and the Investment Association claimed in a joint statement that “investing in good, high-quality, well-run defence companies is compatible with ESG considerations”. The statement follows Rishi Sunak’s announcement that a further £10bn would be spent on UK defence, claiming that “there is nothing more ethical than defending our way of life from those who threaten it”. 

But is this really true, or do these statements simply undo all the hard work that has been done to define ESG investing and prevent greenwashing?

 

Are historical ESG definitions changing?

Previously, an ESG investment would never have included companies that manufacture weapons. This position is still held by many fund managers – including the Church of England’s pension board. They say, “Companies involved in the retail/production of indiscriminate weapons (i.e. nuclear weapons, landmines and cluster munitions) are not considered suitable for investment regardless of the size of revenues”.

 

Not just weapons

Of course, defence investing need not always include weapon manufacturers – there are many other elements to the defence sector. Investors in this sector may also invest in equipment manufacture, in communications, in training services. 

Choosing to avoid the entire sector could well be considered an ethical decision, but not necessarily an ESG one. These ethical grounds may include religious reasons, controversy over certain weapons (like nuclear armaments), and the simple fact that defence weapons can also be used for attack. 

The government’s recent statements, though, suggest that investment in defence companies can be both ethical and ESG-friendly. Is this truly the case, or is it simply an attempt by the government to increase investment in this area?

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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