Dilemmas of sustainable investment: an unexpected debate on weapons – 29.04.2022 at 13:44

Destroyed Russian tank near Mariupol in March 2022 (Ministry of Internal Affairs of Ukraine)

Destroyed Russian tank near Mariupol in March 2022 (Ministry of Internal Affairs of Ukraine)

Rachel Whittaker, Head of SI Research at Robeco


Sustainable investment has never been a static phenomenon. Over the decades, it has evolved to include a wider range of asset classes and approaches. Some beliefs clearly prefer approaches related to the concepts of environmental protection and intergenerational equality, and are consistent with the identification of key issues. The emergence of the Sustainable Development Goals (SDGs) in 2015 also helped provide sustainable investors with a common, albeit imperfect, landmark system.

Key points

  • The war in Ukraine raises the question of weapons used to guarantee peace
  • Not investing in the arms business has always been an important part of stable investment
  • Changing perceptions takes time, but challenging beliefs is necessary

Today, one of the most important principles of sustainable investment is questionable, namely the exclusion of arms manufacturers from their portfolios. Making this decision has never been a simple binary choice, as investors have always had to answer a variety of questions, such as whether to exclude all weapons or only those sold to the military. Should only manufacturers or distributors be excluded? Does sporting small arms fall into the same category as cluster munitions?

Definitions are important

Most stable investors agree with the basics, and the practice of avoiding the most controversial weapons is not limited to ethical or sustainable investment. In Switzerland, the federal law on military materials prohibits all Swiss banks from investing in equipment specifically designed for combat operations. Therefore, this does not apply to many activities, and this is the reason why the Swiss Sustainable Financing Platform does not include in its assessments of sustainably managed asset funds, which exclude only weapons covered by this law.

The war in Ukraine has sparked a debate over arms exclusion, with some investors and commentators calling for a review of the almost systematic exclusion of arms manufacturers from sustainable portfolios. The question under discussion is whether weapons are indeed an indispensable tool for maintaining peace and democracy. Can weapons contribute to the SDG 16 “Peace, Justice and Strong Institutions” or even be necessary?

European taxonomy

The debate was also revived by the February proposal for a European social taxonomy for sustainable funding, which clearly recognizes that highly controversial weapons are fundamentally contrary to social goals. This definition is as narrow as in Swiss regulations, which increases the likelihood that non-military firearms may play a role in achieving other social goals, such as the protection of human rights.

At the moment, the mood about weapons seems too strong to significantly change portfolios in the near future. Most weapons do not guarantee a safer and more peaceful society. Quite the opposite is possible, given the strong link between high rates of gun violence and weak gun control. Investors who invest in registered weapons manufacturers have no guarantee that the weapons sold are used only for “benefit” and they cannot control where they end up. Although the goals of SDG 16 may be difficult to achieve, its first goal cannot be ignored: “Significantly reduce all forms of violence and related deaths everywhere.”

New perspectives for the future

There is no doubt that the debate on weapons will return in the future, as many aspects require a balance of possible positive and negative outcomes. Such an attitude of questioning conventional views is legitimate, even if we disagree or think we disagree.

Considering different points of view makes us pay attention to changes in the world and ask ourselves whether our decisions are still valid and based on facts. We will come out either with more confidence or with a new, more relevant perspective.

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