European ESG funds invest in defense sector (2025)

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March 11, 2025

European ESG funds have boosted their investments in defense stocks, rejecting definitions that categorize the sector as incompatible with ESG.

Historically, ESG supporters have disagreed over whether defense stocks were compatible with their investment strategies. ESG investments in European defense companies rose between 2022 and 2024 during the war between Russia and Ukraine. The recent disagreement between President Donald Trump (R) and Ukrainian President Volodymyr Zelensky over American support for the Ukrainian war effort has accelerated the shift in favor of the sector.

According to The Financial Times:

“

Friday’s blistering spat in the White House produced one winner. On Monday morning, European defence stocks including Germany’s Rheinmetall, France’s Thales and BAE Systems shot through the roof. Expectations of government spending have pumped up prices. But war’s rebranding — think national security, supporting downtrodden allies and resilience — has been paying dividends for a while. Ethical investors are slowly starting to shed their squeamishness about the sector: the 1,856 European ESG funds with no exposure to the sector at end-2023 had been whittled down to 1,614 a year later. Indeed, holdings of defence stocks by environmental, social and governance-focused funds had swollen to €8bn by the last quarter of 2024, up from €2.7bn in the first quarter of 2022. That’s partly a factor of the sector’s massive outperformance. Stocks in Europe’s aerospace and defence sector have risen 2.5 times since Russia invaded Ukraine in 2022, multiples of the benchmark gains.

”

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