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Europe’s ethical defence dilemma
14 March, 2025
Should weapons manufacturers be treated as ‘ethical’ investments? An increasingly important question as governments boost defence spending and seek ways to support it. The answer is far from clear cut.
The UK National Wealth Fund (NWF), originally aimed at helping reach net zero, is widening its mandate to include defence. France is considering easing restrictions on banks and over 100 Labour MPs urged financial institutions to stop viewing all defence investments as unethical.
Even before the recent political shifts, many ESG funds adjusted their stance following Russia’s invasion of Ukraine. Over 240 ESG funds removed their defence bans since 2022, contributing to defence stock holdings by ESG funds rising to €8bn in Q4 2024, from €2.7bn in Q1 2022.
However, many funds remain firmly anti-defence. Nest and People’s Pension, with £83 billion in combined assets, are not considering adding arms companies to their pension offer, stating members should retain exclusion rights. Others fear incorporating defence into the NWF will divert funding from clean energy, crucial to energy independence and ultimately national security and resilience.
We need greater nuance, information and choice in the world of ESG investment. The FCA has clarified its rules and sustainability labels do not prohibit defence investments but highlighted the importance of investor choice. Greater specificity and transparency is needed, rather than rather than blanket bans. This allows for a more nuanced approach – such as that taken by Norway’s Government Pension Fund which excludes nuclear weapons while permitting other defence areas.
The better the information, the more likely investors are to find a fund aligned with their values. That’s not to say it’s easy to make decisions about how to weigh up competing important priorities or determine exactly where the moral lines lie in an industry as complex as defence. But with the right information and options, at least we can try.
By Nia Vines