By Naomi Rovnick, Iain Withers and Simon Jessop
London (Reuters) – European asset managers reconcile their investment policies in defense, under pressure from customers and certain politicians to loosen the restrictions and help finance the continent’s race to rearore.
Under the rules of the European Union, a certain number of funds have been arched as a lasting need to guarantee that their investments “do no significant harm”. Many have avoided the sector entirely, even with the manufacturer of engines Rolls Royce and Airbus, which has a large division of commercial aviation, has judged limits.
But as the EU is now looking for around 800 billion euros (870 billion dollars) of investment to strengthen defense after US President Donald Trump said that Europe had to assume more responsibility for its own security, the sector is too important to ignore.
The biggest British Legal & General investor is among those who plan to increase exposure to defense, saying that the call for the sector had “increased spectacular” in the middle of deeper geopolitical tensions, Reuters reported on Thursday.
Some of the largest groups of funds in Europe have started to examine their policies separately at the level of the board of directors, said people familiar with companies in Reuters, although the controversial complexity and nature of the rewriting of sustainability policies to include armament manufacturers make the process delicate, said people.
The management of UBS assets in Switzerland told Reuters that he was examining the exclusions from the defense sector between funds while Mercer, a leading pension fund consultant, said investors asked asset managers to include defense in portfolios, including those with sustainability objectives.
The EU spending boost has sent European aerospace and defense actions, notably the Rheinmetall of Germany and Italian Leonardo to record tops with the sector index – and left investors without exposure rushing melted opportunities.
“Some (customers of asset managers) say that we actually think that it is important that … Europe can defend itself. And therefore we would really like to make investments in this sector,” said Rich Nuzum, chief world investment strategist at Mercer, who advises investors to manage $ 17.5 billion in assets.
The exclusions on investment in controversial weapons – such as cluster ammunition and biological weapons – are largely held and informed by international treaties. The EU and the United Kingdom rules do not prohibit investments in most other defense companies, but an investor focuses on the environment, social and governance (ESG) has helped dissuade major asset managers from doing so, as with tobacco.
“We come to a point where the atmosphere is that if you exclude defense, you are the one who must explain, and not the other way around,” said Carl Haglund, CEO of the Finnish Pension and Insurance Group Veritas and ex-Minister of Finland.
Reuters contacted 10 of the largest asset managers in Europe to wonder if they were examining their policies. In addition to UBS, Allianz Global Investors said he was reviewing his exclusions, but that timing was a coincidence.
The French BNP Paribas reiterated its commitment to defense.
Amundi and Schroders said their policies were unchanged, while DWS, HSBC Asset Management and Insight Investment refused to say if their exclusions were being examined.
The global official of assets listed in Mirova, a smaller director belonging to Natixis, said that the efforts of the rearmament and the growing security threats of Europe have forced the company to reconsider its “prudent touch” to the defense as it seeks to balance ethical considerations with a need for robust defense capacities.
But Herve Guez noted the complexity of supporting weapons manufacturers, highlighting problems around the risks that certain weapons find themselves in “controversial” countries.
Political pressure
Last week, British politicians urged investors to support the military sector and France launched the elimination of the borders linked to the ESG on defense loans. The head of the Central Bank of Norway said that ethical investment standards may have to change.
Customers have started asking questions about defense because companies like Rolls-Royce are “completely excluded from our investments,” said Siobhan Archer, world stewardship leader at LGT Wealth Management, which is part of the Princl Banking Banking Group in Liechtenstein. LGT is looking for “very closely” what to do, added Archer.
Some fund managers are skeptical.
Carmignac’s sustainable investment manager Lloyd McAlister said it was wrong to blame ESG funds for annoying defense investment, most traditional funds – who hold much more in assets – including his, capable of investing.
The sustainable funds, he said, were where “positive profit is much more visceral than an weapon burden was seated in a warehouse”.
Other investors capitalize on an opportunity.
Wisdomtree launched this week what he called the first European Defense Stock Exchange.
Tom Vile Jensen, Deputy Director of Body Insurance and Trade Pensions, Denmark, told Reuters that he expected that the country’s retirement and retirement groups abandon most of the remaining prohibitions on defense investment.
There are signs that the funds concerned with sustainability are brought back.
European asset managers held 1.1% of their aerospace and defense portfolios at the end of 2024, compared to 0.7% two years earlier, according to Morningstar data.
ESG Fund Holdings increased to 0.5% against 0.4% a year earlier, the data showed. Barclays analysts this week said that the ESG in Defense sub-ponderation was “clearly” “clearly” since last year.
“We will accept a more positive position (in defense), it is inevitable if you consider the geopolitical situation,” said Legal & General’s CIO, Sonja Laud.
(1 $ = 0.9228 euros)
(This story has been corrected to move quotes in paragraph 17 and to repair a typo in the name in paragraph 19)
(Additional report by Sinead Cruise and Chandini Monnappa; edition by Tommy Reggiori Wilkes and Susan Fenton)
