European Funds Ramp Up Investment in Defense Stocks

According to the Financial Times, European and UK-based ESG (Environmental, Social, and Governance) funds have ramped up their investments in defense companies, with allocations climbing from €3.2 billion in the first quarter of 2022 to €7.7 billion. This boost comes in response to rising stock prices of defense firms following Russia’s invasion of Ukraine.

Investors are increasingly persuaded by government arguments that supporting defense manufacturers can yield positive social outcomes. Despite ongoing debates about whether defense companies align with ESG criteria, many funds have shifted their stance. Notably, the number of European ESG funds investing over 5% in defense stocks has jumped from 22 to 66 over the past two years.

While defense investments still make up less than 1% of total assets, the sector’s appeal is growing. The MSCI Europe Defense Index has surged 1.8 times since early 2022, and investments in defense funds have increased from $5.8 billion to $17.6 billion as of July 2024.

In the United States, ESG funds have also increased their investment in defense, reaching €1.2 billion in the second quarter of 2024. Additionally, the UK government is considering new legislation to regulate ESG assessments of companies, potentially reshaping future investment strategies.