Published: 17/02/2026
For decades, responsible investors have excluded armaments and weapons on ethical grounds. Today, however, the war in Ukraine, persistent instability across the Middle East, and rising geopolitical tensions are prompting many ESG focused and defence averse investors to revisit these long-held exclusions.
According to the Institute for Economics & Peace’s 2024 Global Peace Index, there are now 56 active conflicts worldwide—the highest number recorded since the end of World War II1. Conflicts are also becoming more internationalised, with 92 countries now engaged in a conflict beyond their borders, driven by increased great power competition and geopolitical fragmentation. In addition to this, the uncertainty over the United States’ long-term commitment to NATO and its European allies, has driven many nations to strengthen their defence posture and increase military spending.
Against this backdrop, the European Commission launched the “ReArm Europe / Readiness 2030” initiative, aiming to mobilise up to €800billion to enhance Europe’s defence capabilities by 2030. To unlock greater capital flows into the sector, the Commission reclassified defence investments as eligible under Environmental, Social and Governance (ESG) criteria and highlighted the industry’s critical role in national resilience and security. This shift is further anchored in UN Sustainable Development Goal 16 (Peace, Justice and Strong Institutions) and the Universal Declaration of Human Rights2. More than 100 UK Labour MPs have similarly urged financial institutions to revisit ESG frameworks that label defence related investments as “unethical”3.
Large investment managers, including Allianz Global Investors and UBS Asset Management, have already revised their policies to permit investments in certain categories of weapons. However, not all asset owners accept this reframing. The managing director of Triodos Investment Management, a leading ethical and sustainable bank in Europe, has argued that the fundamental purpose of weapons remains incompatible with sustainable or ESG objectives.
Morningstar data shows that around 43% of ESG-labelled European equity funds now hold aerospace and defence companies, narrowing the gap with non-ESG funds, where the figure stands at 56%. Its index of European aerospace and defence companies has also surged 175% since the beginning of 2022. This momentum is expected to remain supported with European defence spending projected to grow by 6.8% annually through 2035—far outpacing expected increases in the United States (1.7%), Russia (3.2%), and China (3.1%).
At Ethical Investment Services, we recognise that defence investments can play a role in supporting societal security. However, weapons and armaments have no neutral impact—they are designed to inflict harm, whether in defence or attack. The ethical risk is further heightened by significant human‑rights concerns, including the potential for misuse, diversion to unintended actors, and the export of weapons to oppressive regimes, all of which are exacerbated by limited transparency and disclosure. For these reasons, we maintain our longstanding exclusion of companies involved in the manufacture of armaments, weapons, and components specifically designed for such systems. For non‑critical components, we assess both the intended use and the degree to which a company’s earnings depend on military contracts. We will continue to monitor global developments, evolving ESG frameworks, and refine our approach as needed. At the core of our investment philosophy is the responsibility to ensure that the capital we allocate supports human wellbeing and environmental resilience.
1. https://www.economicsandpeace.org/wp-content/uploads/2024/06/GPI-2024-web.pdf
3.https://www.ft.com/content/f0bddcc0-2a99-4153-8510-613efc243d9d?utm_source=chatgpt.com.
4. https://global.morningstar.com/en-eu/sustainable-investing/how-esg-funds-learned-love-weapons