Weapons manufacturing is not sustainable. No excuses.

With the advent of ESG investment, investors have been excluding the defence sector from their strategies for many years now. The war in Ukraine has reignited the debate about sustainability and investments in the defence sector. Do we need to challenge the practice of exclusion? Here is the frank and very clear opinion of our partner, Candriam.

“Without a strong defence sector, what other means do we have of maintaining peace, protecting territorial integrity, and orchestrating military resistance in Europe/Ukraine in the event of a conflict? Some investors might be tempted to respond that the private financing of the defence sector has an important role to play. Others might fear the loss of trade opportunities since certain European countries have opted to support the export of arms to Ukraine or even increase their military capacity (such as Germany, for example).”


A long-established sustainable conviction

“Candriam believes that investors, especially sustainable investors, cannot be responsible for reinforcing the military infrastructure of a country or a supranational entity, or reacting to a military threat. While we are deeply concerned about the war, it would be incredibly difficult to justify investing responsibly in the defence sector. At Candriam, this is a position we have held with strong conviction since we started on our sustainable investment journey in 1996. The current conflict has in no way undermined our conviction. We do not feel that it should lead us to paddle back on our exclusion policy.”


A complex sector

“For an investor who believes strongly in sustainable development, supporting companies that manufacture or are involved in the supply of weapons, even with a view to protecting populations exposed to enemy fire, is not an easy decision. The defence sector is extremely complex. There are many considerations to take into account. How can investors be sure that the very companies or equipment that help to protect vulnerable nations today won’t fall into the hands of the enemy tomorrow? For reasons of national security, investors can sometimes find it hard to obtain detailed information from arms manufacturers, particularly comprehensive lists of end-clients, making it difficult to ensure that their investments are not supporting repressive and authoritarian regimes that inflict harm on their own citizens.”

“To make things even more complicated, when looking at arms manufacturers with a view to investing in them, it is necessary to distinguish between conventional weapons and controversial weapons. The latter are banned by several international treaties because of their indiscriminate and very harmful effects on civilian populations. While this may seem obvious, responsible investors and specialist data providers find it difficult to determine the level of actual involvement vs. ‘highly likely’ involvement. All of these factors result in very high risks that we believe are unacceptable in ESG funds.” 


European taxonomy

“Sustainable investment is a cornerstone of the founding principles of the European Union’s Sustainable Finance Action Plan. Shortly after the publication of the EU’s green taxonomy, Europe set out the major principles for a social taxonomy. This should establish a common framework for the assessment of economic activities that are socially beneficial in terms of decent working conditions, adequate living standards and an inclusive society, while at the same time not unreasonably jeopardising other sustainable development goals. In proposals submitted during 2021, the defence industry was ranked in the same category as tobacco and gambling companies. It was suggested that these sectors be classified as ‘harmful’ and not sustainable. Who would have imagined that, a few months later, some would argue that the defence sector is aligned with the objectives of the EU taxonomy, i.e. that it would have an ESG approach or would not cause harm? In our view, technology is not neutral in this regard. The requirements of ‘do no significant harm’ and minimum safeguards alone are difficult for defence and especially arms companies to meet, given the indiscriminate impact and undue harm caused.”


The role of sustainable investors

“A world without war is unrealistic and utopian wishful thinking. Defence is a means for governments to maintain peace and preserve territorial stability and integrity. However, Candriam believes that this is beyond the responsibility of SRI and is a debate that democratically elected governments must have within and between themselves. Investors cannot decide on issues of arms and defence. Private sector capital cannot decide on behalf of nations. From our perspective, we have a fiduciary responsibility to invest in the most sustainable way possible on behalf of our clients, without deviating from the principles of sustainability at the whim of global politics.

Above all, let us not allow our role as sustainable investors to become confused with questions of national boundaries and politics.


Author: Wim Van Hyfte, Global Head of ESG Investments and Research, Candriam

This article was written and published by our partner, Candriam.


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