Weapons investing is ‘ethical’, says Sunak. Is he right?

Prime Minister Rishi Sunak has defended the private sector investing in the weapons industry as “ethical”, as an argument rages over whether sustainable investing can align with the global war industry.

In a joint statement with the Investment Association, the Treasury yesterday argued that investments with an environmental, social and governance (ESG) mandate can invest in the defence sector.

“Investing in defence companies contributes to our national security, defends the civil liberties we all enjoy, while delivering long-term returns for pensions funds and retail investors,” the statement said.

“Investing in good, high-quality, well-run defence companies is compatible with ESG considerations as long-term sustainable investment is about helping all sectors and all companies in the economy succeed.”

This came after Sunak pledged an additional £10bn for defence spending, lifting it to 2.5 per cent of GDP by 2030.

“To encourage private sector investment into defence production, I can also announce today that we’re going to put beyond doubt that defence investment does count towards ESG assessments,” he said.

“There is nothing more ethical than defending our way of life from those who threaten it,” he added.

However, sustainable investment funds have traditionally avoided investing in weapons since the time of the Vietnam War in the 1960s and 1970s, after widespread opposition to the conflict led many to boycott investment in companies deemed to be responsible.

While this has been occasionally challenged since then, it was not until the Russian invasion of Ukraine that this debate properly ignited.

Ukraine’s invasion was the first major conflict for the West to emerge since the popularity of ESG investing exploded over the last decade, meaning that the industry was suddenly stuck between a rock and a hard place.

While many rallied behind defence companies to fight for national security, others described the shift as ‘warwashing’, claiming that it is impossible to follow the sustainable investment criterion of ‘do no significant harm’ while investing in weapons.

Those defending weapons investing have said that it is essential to support NATO and its allies through funding these firms, but since companies will generally sell anywhere governments allow them to, it can be hard to make sure that’s always where those weapons end up.

The environmental impact of war is another factor that ESG investors have frequently pointed to, with damaging pollutants and chemical weapons potentially disrupting ecosystems.

The CO2 emissions from the largest militaries are greater than many of the world’s countries combined, with estimates putting the share of global greenhouse gas emissions from militaries at six per cent.

Last month, a report from the Global Alliance for Banking on Values revealed that Barclays and Legal & General were among the top 10 European investors in arms companies between 2020 and 2022, contributing $6bn and $5bn respectively.