Catenaa, Thursday, March 13, 2025- European asset managers are reconsidering their policies on investing in defence as pressure from clients and some politicians increase to loosen restrictions to fund the rearmament.
Under European Union rules, a number of funds badged as sustainable need to ensure their investments ‘Do No Significant Harm’.
Many have avoided the sector entirely, with even engine maker Rolls Royce and Airbus, which has a big commercial aviation division, judged off limits.
But as the EU now seeks around $870 billions of investment to bolster defence after the US President Donald Trump said Europe must take more responsibility for its own security, the sector is too important to ignore.
Britain’s largest investor Legal & General is among those planning to increase exposure to defence, saying the sector’s appeal has “risen dramatically” amid deeper geopolitical tensions, Reuters reported on Thursday.
Sources have said Reuters that some of Europe’s largest fund groups have separately begun to review their policies at board level, although the complexity and controversial nature of rewriting sustainability policies to include arms makers make the process tricky, the people said.
Switzerland’s UBS Asset Management told Reuters it was reviewing defence sector exclusions across funds while Mercer, a leading consultant to pension funds, said investors were asking asset managers to include defence in portfolios, including those with sustainability aims.
The EU’s spending boost has sent European aerospace and defence stocks including Germany’s Rheinmetall and Italy’s Leonardo to record highs along with the sector index – and left investors without exposure ruing missed opportunities.
European asset managers held 1.1% of their portfolios in aerospace and defence at the end of 2024, up from 0.7% two years earlier, Morningstar data showed.
