Sustainable investors seem more comfortable with defense stocks | Wilnesh News

Russia’s ongoing war in Ukraine has led to a profound shift in mission-driven fund managers’ views on defense stocks, two European defense giants said.

Defense stocks are often excluded from investment portfolios based on environmental, social and governance (ESG) factors due to ethical concerns about their links to war.

However, in recent months, ESG fund managers appear to have become becoming more and more comfortable As the government responds to rising geopolitical risks, industrial profits have soared, defense spending has increased, and defense companies have been controlled.

Still, including defense stocks in a sustainable portfolio remains controversial.

Mikael Johnson, chief executive of Swedish defense and security company Saab, said Russia’s decision to launch a full-scale invasion of Ukraine in February 2022 brought a “dramatic” change to the ESG debate.

“I think before this tragic war, we had 45,000 to 50,000 shareholders, and now we have, like, More than 175,000 shareholders. Of course, the interest in investing in us is very different now, but there’s still some hesitation in the market,” Johnson told CNBC’s Sylvia Amaro on August 21.

Some pension funds, for example, remain reluctant to invest in defense stocks, Johnson said, adding that there was no sudden “comprehensive” approach to recognizing defense companies as sustainable businesses.

“Not everyone sees it that way. There’s more work to be done in this area, which to me is really frustrating… because if there isn’t any safety and deterrence, Then you can’t talk about ESG from other perspectives. To me, that’s the basis of sustainability,” Johnson said.

Since the outbreak of the war between Russia and Ukraine, the stock price of Saab, which produces missiles, submarines and fighter jets, has soared – rising by approximately 330% from February 20, 2022 to August 29, 2024.

“Ultimately, (these) companies cause the death of people (and) innocent victims. middle East There are currently wars taking place in Africa (such as the Democratic Republic of the Congo) and some other parts of the world. Retail investors just don’t want anything to do with these types of companies.

As a result, Johannessen said fund managers are often reluctant to include some defense stocks in their portfolios to avoid questions from clients.

Asked whether the defense company needed to do more to improve its reputation, Saab’s Johnson responded: “Maybe, I don’t know. I think if I wasn’t very committed to this company, I wouldn’t be here. 39 years with this company.

Johnson said if politicians recognized the threat environment, there must be “professional” and “serious” companies that could provide the necessary resources to the Defense Forces.

“So, we stand for something very important – I have no problem with our reputation. I don’t know about other people,” he added.

ESG investing has become Political issues have become polarized in recent years, especially in the United States

Republican lawmakers call mission-driven investing “wake up capitalism“It seeks to prioritize libertarian goals over financial returns.

Democratic lawmakers try to fight back describe According to the Democratic Oversight and Accountability Committee, the attacks on a range of ethically responsible business practices are “an attempt to create a culture war and protect corporate special interests.”

analyst expected The outcome of the US presidential election in November will determine whether the political backlash against ESG will have a deep and lasting impact.

Brad Greve, the UK’s defense finance minister, said: “Before Ukraine you couldn’t even have these conversations because although you might have done great things in eastern, southern and northern Europe, you couldn’t even talk about it it. British Aerospace SystemsSaid in an interview with CNBC on August 14.

“There’s been a real change in attitudes since the events in Ukraine. I think people are reflecting now. We see the role that defense companies play in protecting a free society is really important,” he said.

Grave noted that while fund managers have always had the right to invest as they see fit, “the benefit now from my perspective is that we can have these conversations about the positive role we play in society.”

Shares of BAE Systems, which makes nuclear-powered submarines, fighter jets and supplies munitions, rose about 130% between February 20, 2022 and August 29, 2024.

Saxo Bank’s Johannesen said that while Russia’s ongoing war with Ukraine has fueled the ESG debate, most fund managers remain “fairly cautious” about investing in the defense sector.

“Should we put (defense companies) in the same basket? The truth is, it’s a mixture. It’s really a combination of different types of companies. You have the big villains and then you have those, I would say, it’s not that It’s terrible,” Johannessen said.

“It’s hard to say, because you make weapons, you’re the villain. It’s not for me to decide, and I don’t think retail investors should make decisions for other people. They should make decisions for themselves — but they shouldn’t try to demonize everyone For example, companies that produce weapons,” she added.