Major asset managers and institutional investors are slowly lifting self-imposed bans on defence investments, increasing private capital flows into the sector
A Reuters survey in March found that out of Europe’s 10 largest asset management groups, several have begun formal reviews to loosen or remove defence exclusions. UBS AM’s review was public; Allianz Global Investors also indicated it’s reconsidering its policies (though claimed timing was coincidental). Others like Amundi and Schroders said their exclusion policies remain unchanged for now, but even they have launched or promoted defence-themed funds (Amundi’s new ETF, for instance). Notably, some managers that were earlier adopters of strict ESG stances are shifting: Mirova (Natixis’ sustainable investment arm), which traditionally shunned defence, said Europe’s security situation “compelled [it] to reconsider” its cautious stance, balancing ethical concerns with the need for robust defence. In practice, institutional portfolios are already tilting towards defence. Data shows the average weighting of European funds to aerospace & defence stocks rose to 1.1% in 2023 from 0.7% in 2021. That may sound small, but across trillions of euros, it’s a significant reallocation of capital into the sector. Some pension funds have directly announced changes: e.g., a large Dutch pension investor (PME) removed its blanket ban on defence companies in 2022, and others in Scandinavia have followed suit, at least partially. The political wind is at their backs – in the UK, lawmakers urged investors to support the domestic defence industry as patriotic duty, and France’s finance ministry has quietly encouraged banks and insurers to drop strict exclusionary policies. This gradual thaw among asset owners is pivotal because historically, even when defence stocks were cheap, many big funds simply could not buy them due to ESG mandates. Now, with mandates evolving, a wall of institutional money can enter the space. In the near term, this provides additional demand that can support share prices and lower yields on defence company bonds. Over the medium term, it means defence firms can consider larger equity or debt issuances (for expansion or M&A) without fear of lacking buyers. One remaining caveat is that “controversial weapons” (nuclear warheads, cluster munitions, etc.) remain off-limits – so companies heavily involved in those (e.g., warhead makers) might still face some investor hesitancy. But conventional defence (which is the bulk of the sector) is increasingly seen as fair game. The sentiment could be summed up by the quote from a Finnish CEO: “We’re coming to a point where ... if you rule out defence, you’re the one who has to explain”. That reversal in attitude is attracting Europe’s top money managers back into defence after a long absence, significantly boosting market liquidity and confidence in the sector’s future.
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