Since Russia’s attack on Ukraine, many people have viewed the defense industry differently. But does this make investing in tank builders ethical or even sustainable? Experts are skeptical.
The pacifist and journalist Carl von Ossietzky stated a good 100 years ago: “War is a better deal than peace.” This has also been evident for some time at least in the stock market prices of important German defense companies.
The value of Rheinmetall’s shares has almost tripled since Russia’s attack on Ukraine in February last year, from around 90 euros to around 270 euros. The company was therefore promoted to the DAX. The shares of the Bavarian radar manufacturer Hensoldt are also worth about twice as much as they were before the Ukraine war.
“Armament is increasingly seen as something positive”
For a long time, investors had previously only touched defense stocks with careful fingers – or had completely ignored them. Lobby organizations are campaigning for arms companies to be completely paid off from funds.
With Russia’s attack on Ukraine, the perception of the defense industry has changed, according to the Austrian financial ethicist Klaus Gabriel: “Armaments are increasingly seen as something positive simply because it has been recognized that the defense of a territory is necessary or even that “Deterrence against possible aggression is necessary.”
For example, providers of sustainable funds that he advises on their portfolios are thinking about expanding their mix of defense stocks, says Gabriel.
Critics are rethinking their stance
A survey by the comparison portal Verivox from last year also points in this direction. According to the representative survey, before the start of the war, a majority of Germans (53 percent) found it morally reprehensible for private investors to invest in defense companies. After Russia’s attack, almost two thirds (60 percent) of previously convinced arms opponents said that they had changed their opinion, that they now found arms investments OK or that they were questioning their position on them.
But: Even if many people want to show their solidarity with Ukraine and suddenly have more understanding about armaments – can investments in tank manufacturers, for example, also be ethical or even sustainable?
EU does not want to put armaments on the negative list
At least the European Union is now saying indirectly: yes. She explains that tank builders and the like can also meet the sustainability criteria. The industry does not appear explicitly in the new sustainability taxonomy. The responsible EU Commissioner, Mairead McGuiness, made it clear in September: Sustainable financing initiatives must be in line with the EU’s efforts to “make it easier for the European defense industry to access financing and investments.”
Restrictions affect controversial weapons that are banned by international conventions – for example cluster munitions, biological weapons or poison gas.
With its so-called “taxonomy”, the EU wants to create criteria that provide information about how sustainable companies are, both in ecological and social terms. These ESG standards are becoming an increasingly important criterion for many investors. The defense industry has lobbied strongly against an exception for it – without a positive label, it is feared that the industry would be less able to get money from banks.
Union Investment does not believe Panzerbauer is sustainable
However: The ESG criteria are only guidelines. Banks can go beyond this with their investment products. This is what the fund company Union Investment does, for example. If you buy one of the provider’s sustainable funds from your bank, you won’t find any tank or rifle builders in it, says Henrik Pontzen, head of ESG at Union-Investment: “We exclude them because it is our belief that only what can be called sustainable can be called sustainable does not have significant negative side effects.”
Armament did not meet this criterion for Union Investment. Because even if defense is necessary, weapons always bring death and suffering. The fund provider wants to give investors a choice. Its conventional funds also include defense companies.
But red lines have been drawn here too, says Pontzen: “We categorically exclude manufacturers of biological, chemical weapons or cluster bombs.” A few years ago, Union Investment had already cleared its portfolio of such companies.
Profit drives demand
Gabriel, who for years was a board member of Cric eV, an association that promotes ethics and sustainability in investing, sees the current boom in demand for defense securities as being driven less by ethics and morals than by another interest: profit.
For many years, sustainable investments have brought in better profits than armaments. Things have changed since the start of the Ukraine war. “And that of course also makes it interesting for investors.”
But in his opinion, investing in such products is out of the question for ethical investors – even if the prices are good. “I know about the need for a state to defend itself,” says Gabriel. “But as an investor, I don’t have to profit financially from the suffering that war and the use of weapons inevitably cause.” As a sustainable investor, you sometimes have to ignore such an investment.