The war on ESG: An evolving quagmire of arms investments

Posted by Anton Murray Consulting on 9 May, 2024

InvestorDaily

A recent report titled Finance for War. Finance for Peace has revealed a staggering reality: the global financial sector invested some US$1 trillion in the arms industry between 2020 and 2022. The report, commissioned by Fondazione Finanza Etica and Global Alliance for Banking on Values (GABV) and produced by Berlin-based consultancy Merian Research, reveals that financial institutions globally are utilising over US$959 billion to support arms production and trade, with a significant portion coming from the US and top European investors. The report also highlights a surge in arms manufacturers’ shares after conflicts in Ukraine (2022) and Palestine (2023), driven by record armament orders, leading to substantial increases in aerospace and defence stock indices.

The overarching theme in the research is that defence companies capitalise on armed conflicts, both through increased military spending and private investments, while portraying themselves as social impact investments and advocating for recognition as contributors to social sustainability under ESG criteria – a portrayal fund managers find easier to stomach.

Contrasting approaches

As the drumbeat for responsible investing grows louder, local fund managers showcase contrasting approaches. While VanEck’s sustainability ETFs “meticulously” screen out companies linked to controversial weaponry, including civilian firearms and conventional arms, Vanguard’s exclusionary index funds offer investors a choice to bypass certain ESG risks. Yet, the line blurs when military investments enter the equation, challenging the notion of ethical boundaries in investment portfolios.

The rest of this article can be found at investordaily.com.au.

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